Batch Auctions

On the TX Swap, orders are also placed off-chain and collected to be settled in batches. TX Swap replaces a central operator with an open competition among solvers for order matching. Solvers refer to anyone who submits an order settlement solution for a batch. Once a batch is closed for orders, solvers can compete to provide optimized solutions for matching the orders in that closed batch.

But why use batch auctions as a price-finding mechanism for a decentralized exchange (DEX)? There are two main reasons behind the development of batch auctions in the TX Swap protocol:

1. Establishing a consistent price for token pairs in the same block: In Ethereum's DeFi space, even though transactions are executed atomically within the same block, trading the same tokens on the same block does not guarantee the same price due to the design of Automated Market Makers (AMMs). AMMs process transactions sequentially to determine token ratios in the pool and execute trades accordingly. The ordering of transactions becomes crucial, leading to the rise of Miner Extractable Value (MEV) where miners can choose the order of trades, favoring some over others. Batch auctions in TX Swap allow trades within a batch to have the same uniform clearing price, eliminating the need for miners to reorder trades. Traders can obtain the same price for the same token pairs in the exact same block.

2. Solving liquidity fragmentation: Liquidity fragmentation is a challenge in DeFi that requires users to constantly check various pools for the best prices. Batch auctions in TX Swap address this issue by offering traders the opportunity to participate in the Coincidence of needs to share liquidity among their orders. If there is still insufficient liquidity, excess trades can be paired with on-chain liquidity to obtain the best price. Batch auctions and needs in TX Swap create a barter economy where users can trade directly with each other or access specialized markets for peer-to-peer transactions.

One advantage of batch auctions is the ability to combine off-chain interactions with on-chain interactions within the same transaction, providing a seamless trading experience.

The number of batches executed in the TX Swap protocol depends on the trading frequency chosen by users. Orders with shorter expiry dates will result in more batch auctions to settle the orders, while longer expiry dates can reduce the number of batch auctions as the orders can be settled over a longer period.

In conclusion, batch auctions in the TX Swap protocol offer consistent pricing for token pairs in the same block and address liquidity fragmentation through Txs This mechanism combines off-chain and on-chain interactions to enhance the trading experience for users.