Leading up to the much-awaited launch of Flash Trade, it is an ideal time to talk about the first solution that started Kinetex's journey — Liquidity Aggregation. It was created by the team to help overcome challenges often met in the DeFi space, particularly when swapping assets cross-chain.
The struggle with liquidity is one of the most significant challenges faced by the DeFi space. The decentralized nature of DeFi platforms and the project's aspiration toward decomposability means that liquidity is often spread across multiple pools, which cannot be accessed simultaneously. Consequently, it is often challenging to find enough liquidity, sometimes even for not-so-large transactions. Users have to navigate through multiple projects on different networks, select the necessary DEXes and bridges for swaps, analyze liquidity and rates independently, and manually complete all the exchange steps while figuring out unfamiliar interfaces. The whole process can be too time-consuming and complicated for an ordinary user.
Another issue is that each pool has different prices. Combined with high volatility of prices and possible price slippages, especially when users make high-volume trades, it may lead to significant losses during multi-part swaps. Similarly, bridges often do not support an adequate variety of networks and may also have limited liquidity. This is especially true for newer DeFi protocols that have yet to attract enough liquidity to their platforms. All these factors contribute to the lack of a universal and user-friendly solution for cross-chain asset swaps in the DeFi space.
Lack of liquidity can lead to a range of issues, including high transaction costs, long wait times, unfavorable exchange rates, and increased price slippage. These issues can make it challenging for traders to execute profitable trades or discourage users from participating in the DeFi market altogether.
Kinetex resolves many of these concerns by providing a place where users can find liquidity in an easy and quick fashion. Adding a simplified and user-friendly interface allows Kinetex to ensure the accessibility of this swap solution, which can be used even by users with close to no experience. This way, Kinetex helps to gradually change DeFi into a space that caters to users from different backgrounds and different levels of experience with crypto.
Kinetex has introduced two unique features to make crypto transactions simpler and hassle-free for users. Both are made possible by the Kinetex relay nodes. They estimate gas costs and execute user transactions automatically, including assisting with gas payments. As a result, users do not need to store multiple native coins for gas fees or stay online throughout the execution of transactions. With these features, Kinetex makes crypto transactions easy and painless for users.
The next distinctive characteristic of Kinetex is its approach to ensuring adequate liquidity. The Kinetex team chose to work towards creating "infinite liquidity", which means providing sufficient liquidity for the non-stop trading of all supported assets. It became possible by aggregating hundreds of liquidity sources, including bridges, DEX aggregators, and protocols, instead of trying to create new liquidity in-house. Such a vast ecosystem of sources enables Kinetex to find liquidity and build advantageous swap routes 24/7.
Another distinction is that, being a meta multi-chain aggregator, Kinetex does not have to create new wrapped tokens, thus contributing to increasing liquidity issues across the industry. The process of wrapping tokens is often quite dangerous since hackers like to attack bridges storing liquidity. Moreover, wrapping causes two more problems, apart from security, fragmented liquidity and frozen liquidity. The former means one asset gets wrapped on multiple other networks, thus essentially dividing liquidity by the number of chains with wrapped tokens. The latter refers to liquidity that gets stuck into a bridge's smart contract and cannot be used until unwrapping. By avoiding that, Kinetex plays a part in creating a healthier liquidity environment.
Lastly, Kinetex provides users with built-in algorithms that automatically search and examine all liquidity sources to build the most optimal routes for users cost- and time-wise. As a result, Kinetex helps to swap thousands of crypto assets efficiently and profitably without the need to find and compare different platforms manually. Furthermore, Kinetex algorithms can also divide swaps, if needed, and use liquidity from different DEXes or other protocols to maximize user profits.
Acting as a meta cross-chain aggregator, Kinetex solves these problems by combining over 400 sources of liquidity across all supported networks. Such sources include but are not limited to around 80 DEXes (aggregated independently or through DEX aggregators), more than 20 cross-chain bridges, limit order protocols, and market makers' liquidity.
Combining all the liquidity sources mentioned above, Kinetex creates a vast ecosystem of liquidity sources, enabling users to find many swap options in a single place. All these sources will maintain sufficient levels of liquidity continuously, helping Kinetex to build the most profitable routes for users 24/7.
The Kinetex team is continuously striving to incorporate additional liquidity sources per the community's requirements and demands.
The team is thrilled to share more details about the Liquidity Aggregation mode in the upcoming weeks. Stay tuned!