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Liquidity Aggregation: Advanced Route Building

December 26, 2023

The Kinetex team has been placing utmost importance on the convenience and accessibility of its solutions. In the first mode of the Kinetex dApp, Liquidity Aggregation, the team achieved that by implementing the Kinetex Advanced Router and enhanced route building, among other things. Those features enabled Kinetex to streamline users' swapping experience considerably, helping them trade crypto assets in the most advantageous way possible.

Present Challenges & Kinetex Solution

The cryptocurrency market is brimming with hundreds of exchanges, each offering different trading pairs, commissions, and unique features. As a result, traders must navigate through them while exchanging their crypto assets, looking for better rates and lower fees. The process becomes even more complicated when dealing with lesser-known assets and complex swaps that involve multiple steps. The overabundance of choices introduces a level of complexity that requires a lot of expertise, patience, and knowledge, which many users may not have. 

Moreover, liquidity proves to be another major concern when analyzing platforms and choosing those that are the most suitable for a specific trade. Opting for an exchange with inadequate liquidity by mistake can result in challenges when entering or exiting positions, especially for larger trades. This factor can notably impact trading performance, leaving a negative impression of the DeFi industry and its solutions.

The third problem while building routes is that user interface and experience vary widely among platforms and apps. Getting confident while using one or another interface takes time and may become an insurmountable obstacle for some. 

Thus, building optimal swap routes for trading crypto assets is a multifaceted challenge. Each decision carries significant implications, from evaluating platform diversity asset-wise to considering differences in security and UI. As the cryptocurrency industry continues to evolve, addressing these issues requires a combination of informed decision-making, technological innovations, and a commitment to user trust and satisfaction. 

Kinetex found a way to make a giant leap forward through careful consideration and an adaptive approach to meeting the demands of crypto users and the constantly changing crypto landscape. By aggregating hundreds of liquidity sources in one place and building algorithms that can analyze fees, rates, and times required to build routes automatically, Kinetex is able to ensure that swapping assets is easy and profitable for Kinetex users. 

Route Building

Let's look at route building from a technical side. This procedure is implemented by three components of the Kinetex internal infrastructure: Quote Fetcher, Route Finder, and Calldata Builder.

Users wishing to swap assets create requests and send them through the API Gateway to access internal search and routing services. The Quote Fetcher service is launched first, with the main task of collecting data necessary for further analysis and route building, including rates, liquidity volume, and other parameters. 

The collected quotes and related information are sent to the Route Finder service, which thoroughly analyzes all possible routes. This service then determines the most efficient way to swap any supported token between chains, building the most optimal path based on several factors, including profitability, speed, and security.

Once the route has been constructed, the Calldata Builder assists in creating a required data package for the transaction. This package is essentially a data structure that stores a range of structures, including SwapStep. Once generated, the user signs the data package following the EIP-712 standard to enable on-chain route verification.

Maximizing Profits

Kinetex's quote engine works in layers, with each integrated DEX or bridge having its own. After each layer returns the best possible option, Kinetex compiles a list of routes with different combinations of quotes for users to choose from based on their priorities and objectives. 

To ensure the most advantageous rates, Kinetex also uses existing aggregation solutions, including well-known and reliable DEX aggregators that optimize routes and distribute liquidity among different DEXes if needed. 

In addition, Kinetex offers users an option of swapping assets in a neighboring network that offers lower slippages and then returning to the original network to maximize profits. It is possible thanks to a thorough analysis of liquidity volumes in all supported networks.

Lastly, the advanced algorithms used by Kinetex consider the limitations of bridges regarding the assets they support and automatically determine which intermediate tokens should be used for maximum capital efficiency.

Advanced Routing

Another crucial feature that compliments Kinetex's route building is the Kinetex Advanced Router. With the crypto industry's growth, the number of networks and tokens increases exponentially, opening new opportunities for users while also presenting new challenges for DeFi projects that try to unite existing chains in a more cohesive ecosystem and provide a better user experience. 

For instance, complex swap routes, including many liquidity sources, require calling each of the route's smart contracts separately. It makes achieving the atomicity of the whole operation impossible, causes additional gas costs, and requires confirmation of several transactions from users.

To overcome this issue, the team has designed the Kinetex Advanced Router as a smart contract that combines multiple swap points within the same network. As a result, Kinetex can ensure that the entire operation is atomic from start to finish within that network, eliminating the need to call each smart contract individually and reducing associated gas costs.

The Router can automatically link the liquidity of various sources, such as cross-chain bridges, DEXes, protocols, and professional market makers, resulting in the best possible deals. Additionally, the Kinetex Advanced Router can simultaneously distribute the order's amount among multiple liquidity sources, increasing the depth of available liquidity and diminishing price impact.

Final Thoughts

The Kinetex team has been concentrating on the convenience and accessibility of their solutions from the beginning of the project, and the first solution, Liquidity Aggregation, is no exception. By introducing the Kinetex Advanced Router and enhanced route-building feature, Kinetex made sure that users could trade their assets cross-chain without wasting much time deciding on the best route. 

The team continues prioritizing user experience and security in the next generation of Kinetex, Flash Trade. This mode will simplify the swapping process even more, turning trading crypto into a truly effortless experience. 

Kinetex Network: Website | Kinetex dApp