Intent-Based Trading: The Future of Derivatives Trading at DeFi

Decentralized finance (DeFi) continues to evolve rapidly, and one of the most promising innovations is intent-based trading. This approach is a methodology in which users' intentions to execute a trade are recorded on the blockchain, allowing these transactions to be automated and executed when certain predefined conditions are met. Unlike traditional trading methods, which rely on intermediaries to facilitate transactions, this approach uses smart contracts to execute trades directly and securely.

Batch auctions in CoW Protocol

What is Intent-Based Trading?

Intent-Based Trading is a method where trades are initiated according to the intentions expressed by the users(intents). In this system, people indicate what they want to trade, and the system finds counterparties who agree. This is mainly used in derivatives trading, where transactions are not carried out in a traditional market, but directly between the parties involved.

Instead of using centralized exchanges, trading is done on decentralized markets, using blockchain technology. This means that transactions are direct and secure, with no need for intermediaries to verify or authorize trades.

In addition, an automated system is used to request price quotations, ensuring that liquidity is always available and prices are displayed in a transparent manner. This system also includes mechanisms to verify the solvency of participants and resolve disputes if necessary, all to maintain confidence in the system.

After a transaction is completed, additional checks are carried out to ensure that all parties meet their financial commitments. This approach reduces the risk that non-compliance by one party will adversely affect the others, as each agreement remains independent.

Benefits of Intent-Based Trading

Discover how intent-based trading improves efficiency, transparency and reduces costs in derivatives trading.

Capital Efficiency

Thejust-in-timeliquidity model of intent-based trading allows market makers to provide quotes without the need to pre-commit capital, resulting in much more efficient capital utilization. This approach allows deep, concentrated liquidity to be provided without the need to maintain large pools of idle capital.

2. Improved Efficiency

By eliminating the need for intermediaries, intent-based trading significantly reduces the time and costs associated with transactions. Trades are automatically executed when set conditions are met, allowing for greater speed and lower latency in trading.

Transparency and Security

Every transaction intent and execution is recorded on the blockchain, providing full transparency and an immutable record of all transactions. This not only increases user confidence, but also reduces the risk of manipulation and fraud.

4. Failure Risk Reduction

The use of smart contracts eliminates the risk of human error and reduces the possibility of technical failures. Transactions are executed automatically and accurately according to predefined conditions, ensuring that all parties involved fulfill their commitments.

5. Cost Reduction

Thanks to capital efficiency and the elimination of intermediaries, transactions on intent-based trading systems have significantly lower costs compared to other DeFi platforms and centralized exchanges (CEX).

Symmio

Derivatives Trading Applications

Intent-based trading has enormous potential in derivatives trading, a market that has traditionally been complex and dominated by large financial institutions. Some of the key applications include:

Futures and Options

Smart contracts can automate the execution of futures and options contracts, ensuring that specific conditions set by traders are met. This eliminates the need for a third party to verify and execute transactions.

2. Risk Management and Order Execution

The intent-based trading architecture allows for efficient risk management and optimized order execution. Market makers can hedge their exposures through multiple sources, including other DEX, CEX, and OTC markets.

Swaps

In the case of swaps, intent-based trading can automate the exchange of cash flows between the parties, ensuring that both receive the agreed payments without delay or counterparty risk.

4. CFDs (Contracts for Difference)

The use of smart contracts to manage CFDs allows traders to benefit from the efficiency and transparency of intent-based trading, ensuring that settlements are made in an accurate and timely manner.

Coincidence of intentions in CoW Protocol

Examples of Platforms with Intent-Based Trading Implementations

Below, we explore two leading platforms that are implementing intent-based trading to revolutionize derivatives trading at DeFi.

1. CoW Swap

CoW Swap is a pioneer in the field of intent-based trading. It uses a unique approach where solvers (market makers) find the best quotes for users' trading intentions.

What is CoW Swap?

CoW Swap (Coincidence of Wants) is a decentralized trading platform that allows users to express trading intentions (intents) instead of placing direct orders on the blockchain. Users sign a message specifying the assets and amounts they wish to trade. These intents are managed by "solvers", who search for the best execution route for the transactions.

How CoW Swap Works

1. Trade Intentions: Users sign a message with the details of their trade intention.
2. Solvers: Professional third parties scan the liquidity available on and off the chain to find the best quotes.
3. Coincidence of Wants (CoW): Direct P2P matching allows users to exchange directly without the need for intermediaries.
4. Protection against MEV: Solvers assume the risks of MEV, protecting users from exploit bots.

2. UniswapX

UniswapX is an extension of the Uniswap platform that introduces a new intent-based trading mechanism to improve efficiency and flexibility in digital asset trading. It emerged as a response to the need to optimize transactions in a rapidly evolving DeFi environment.

3. 1inch Fusion 2.0

1inch is a DEX (decentralized exchanges) aggregator that seeks to offer users the best exchange rates by aggregating liquidity from multiple DEXs. The platform uses an advanced algorithm to split and optimize trades across different liquidity sources, ensuring the most competitive rates and minimizing slippage. 1inch also offers other products, such as a wallet and liquidity protocol, that facilitate the trading experience in the DeFi ecosystem.

Fusion 2.0 introduces significant improvements in swap efficiency, eliminating gas fees and providing access to deep liquidity and MEV (maximum extractable value) protection. Users declare their trading intentions and resolvers (market makers) compete to offer the best quotes in real time. The new version improves order execution, reduces transaction costs by 10%-35% and adjusts price curves according to market conditions for faster and more accurate execution.

4. IntentX

IntentX is another pioneer in the use of intent-based trading. It uses an innovative architecture that allows users to express their trading intentions and receive customized quotes instantly. Market makers, known as "solvers" on IntentX, provide these quotes without the need to pre-commit capital, resulting in greater efficiency and lower risk.

5. SYMMIO

SYMMIO is a platform that acts as a strategic and infrastructural partner for IntentX. It facilitates trade settlement and trade agreements between traders and solvers. SYMMIO ensures that transactions are permissionless, trustless, and non-custodial, combining the best features of centralized and decentralized exchanges to offer a superior trading experience.

Relationship between IntentX and SYMMIO

IntentX and SYMMIO work together to deliver an advanced trading experience in the DeFi ecosystem. While IntentX focuses on the execution of intent-based trades, SYMMIO provides the necessary infrastructure to ensure that these transactions are settled securely and efficiently. This collaboration allows users to benefit from deep liquidity and full transparency, without the drawbacks of traditional trading systems.

IntentX trading architecture

Differences between traditional trading and Intent-Based Trading

To make it easier for you to understand concepts as new as this one, we have made a summary of the most notable differences between traditional CEX/DEX trading and Intent-Based Trading.

1. Market Structure

• CEX (Centralized Exchanges):
  • They use order books where traders place buy and sell orders that must match to execute a trade.
  • Order books require constant updating and order matching, which can be time consuming and costly.
• DEX (Decentralized Exchanges):
  • They use AMMs (Automated Market Makers) where prices are determined by algorithms based on supply and demand in liquidity pools.
  • They do not require order matching, but may face problems of slippage and capital efficiency.
• Intent-Based Trading:
  • Traders express their trading intentions and receive real-time quotes from market makers (solvers).
  • Transactions are executed automatically when predefined conditions are met, without the need for manual matching or AMM algorithms.

2. Capital Efficiency

• CEX:
  • Market makers must commit capital in advance to maintain liquidity in the order books.
  • It can lead to lower capital efficiency and the need to maintain large idle capital reserves.
• DEX:
  • Liquidity providers must provide capital to liquidity pools.
  • There may be risks of impermanent loss and slippage.
• Intent-Based Trading:
  • Solvers do not need to commit capital in advance. They only provide the necessary liquidity when one of their quotes is selected.
  • This allows for a much more efficient use of capital.

Transparency and Security

• CEX:
  • Transparency may be limited as transactions are recorded in centralized databases.
  • Increased risk of manipulation and hacks due to the centralized nature.
• DEX:
  • High transparency as transactions are recorded on the blockchain.
  • They may face security issues related to poorly designed smart contracts.
• Intent-Based Trading :
  • High transparency as all intentions and transactions are recorded on the blockchain.
  • Increased security thanks to the permissionless and trustless nature of transactions, combining the best features of CEX and DEX.

4. Transaction Costs

• CEX:
  • They may have high transaction fees due to the operational and maintenance costs of the centralized infrastructure.
• DEX:
  • Generally cheaper than CEX, but gas costs can be high during periods of network congestion.
• Intent-Based Trading:
  • Significantly lower transaction costs due to capital efficiency and elimination of intermediaries.
  • Real-time quotations optimize transactions, reducing overall costs.

Summary

These differences demonstrate how intent-based trading offers significant advantages in terms of efficiency, transparency, security and cost over traditional trading in CEX and DEX.

Conclusion

Intent-based trading represents a significant advancement in derivatives trading within the DeFi ecosystem. By automating and securing direct transactions between users, this approach not only improves efficiency and transparency, but also reduces the risks associated with traditional trading. Platforms such as CoW Swap, IntentX and SYMMIO are leading the way in this innovation, offering solutions that combine the best features of centralized and decentralized exchanges.