Simple Summary
The Shipyard Software team is building Tanker, a Dynamic Limit Order Protocol that plugs into the 1inch Limit Order protocol. We are 1) proposing the integration of Tanker into the 1inch front-end and 2) requesting a grant to help fund Tanker’s development.
Abstract
Tanker is designed to be an extension for the 1inch Limit Order protocol, with whale traders as its target users. The Tanker Dynamic Limit Order Protocol (DLOP) will benefit the 1inch platform by improving execution for 1inch traders and making the platform more useful and attractive for whales.
Motivation
The Problem: Currently, whales looking to swap $50k-$500k in mid-tier tokens on 1inch face prohibitively high slippage costs. For example, a whale trying to swap 1M MANA to ~$350k USDC would experience a whopping ~13% slippage (at the time of writing).
The only way for whales to avoid this high slippage is to break the order into chunks and sell them over time at varying prices. However, this (a) is a pain to manage and (b) creates redundant gas costs.
The Solution: Tanker solves this problem by automating the process for 1inch users, both saving them time and avoiding high slippage costs. For example, the whale looking to sell 1M MANA could create a DLOP order that would break the order up for them and sell it over a chosen timeframe (at the Chainlink oracle price) to other 1inch users looking to fill smaller orders. This essentially creates a maker-taker scenario where the whale trader becomes the maker and the takers are the thousands of already existing 1inch orders. Another key component of Tanker is that it provides MEV protection for large trades of valuable but thinly-traded assets. MEV skimming is very common on such trades now. Tanker is a MEV-robust mechanism.
Specification
Go To Market
Takers are regular 1inch traders, so they may not even know they are using Tanker (there will be no disruption to their trading). It will just be another liquidity source for them.
Whales (the makers) are difficult to acquire, but they already use 1inch today. Thus, we propose integrating Tanker into the 1inch front-end. This benefits 1inch by improving execution for 1inch traders and making the 1inch platform more useful for whales.
Tanker could also be a good test case for a 1inch “extensions marketplace” (like the Chrome Web Store) where 1inch users can access specialized, complex trading instruments from third-party developers who agree to a revenue share.
Example of What Integrating Tanker Might Look Like:
Revenue Model
Unlike a typical maker-taker scenario, whales are not making the market to seek yield, but rather to liquidate their positions. Because of this, the makers (whales) don’t demand fees and instead, the protocol can collect the fees.
**Revenue Share **
1inch and AdmiralDAO (the DAO that governs Shipyard Software products) can split protocol revenues 50-50.
ASK
We propose that 1inch integrates Tanker, once development is complete, and provides the Shipyard team with a grant of $198k to cover the development costs for Tanker.
_Cost Breakdown: _
6 months of dev work: $150k
$4k/month in server and DevOps maintenance costs for the first year: $48k
Once Tanker has been integrated into 1inch, revenue from Tanker will be split 50-50 between 1inch and AdmiralDAO.
Rationale
1inch and its users stand to benefit from the integration of Tanker, as it provides a solution for whales who face high slippage and creates an additional liquidity source for regular 1inch traders, improving trade execution. Importantly, Tanker also provides MEV protection for large trades of valuable but thinly-traded assets.
Shipyard Software is a team of seasoned DEX/DeFi tool builders. Clipper DEX, built by Shipyard, is integrated with the 1inch Network, and last year was involved in swaps that sent $646k in value to the 1inch DAO.
Considerations
The current 1inch Limit Order protocol enables static limit orders. Static limit orders require some form of external storage in order to automatically adjust the order to the continuously updating Chainlink oracle price and set a size limit on how much of the order can be liquidated each time the oracle updates. In other words, the 1inch limit order protocol is an amazing platform, which Tanker builds upon for this specific use case.
1inch Fusion creates a Dutch auction for optimal one-time execution of trades. Executing a position large enough to materially move the market is inherently best done over time rather than in a one-time transaction. Essentially, Fusion and Tanker play very different roles. Tanker is designed for minimal price impact over long windows (days) for mid-grade assets, whereas Fusion trades complete in ten minutes.