DFlow on Mainnet: The Open and Fair PFOF Standard
Enabling a new class of DFlow-powered applications
Today, we are excited to introduce the DFlow standard for open, provably-fair, and decentralized payment-for-order-flow (PFOF). In contrast to the closed systems of traditional markets, retail traders in open financial systems like blockchain-based markets are first-class citizens.
Open and fair PFOF brings significant improvements that are essential for well-functioning digital markets. Firstly, retail traders receive the best prices in addition to price and size improvements on their orders. Secondly, sources of retail order flow, such as wallets and Web3 swapping apps, can monetize their order flow without sacrificing execution quality or UX for their users. Finally, all of this is provable: execution quality, price, and size improvements are measurable and verifiable by anyone.
Today, with the launch of the DFlow protocol, we’re bringing this model to crypto for the first time.
Let’s recap some problems retail traders face in DeFi today.
Swapping tokens using today’s most popular swapping tools comes with hidden costs.
Extremely High Swapping Fees
Retail traders pay enormous fees typically ranging from 20 to 85 basis points. Though these costs are often hidden from users through clever UX and marketing, the end-user always ends up paying them.
In DFlow-powered apps, users pay zero basis points to swap.
MEV and Front-running
Retail traders are susceptible to MEV attacks and front-running. Being unfamiliar with these risks can be detrimental and lead to a low-quality swapping experience.
The DFlow protocol is carefully designed to secure retail traders against the negative externalities of MEV and makes it impossible for predatory actors to front-run their trades. With DFlow, these risks are problems of the past.
Poor Price Execution
Retail traders often experience slippage and subpar price execution, which are effectively hidden costs that add up over time.
With DFlow, all swaps regardless of size are executed at the best possible prices, often with price improvement.
The DFlow Model
In the DFlow model, retail volume is encrypted and sent on-chain to best-execution, professional market makers. Market makers pay for the exclusive right to fulfill retail orders and are programmatically required to fill at the best available prices.
Order Flow Contracts
The order flow contract is a DeFi primitive native to the DFlow ecosystem that represents a batch of future order flow of a specific grade. The market maker who purchases the contract is granted immediate delivery of the underlying orders.
Batch Auction of Encrypted Orders
Market makers compete for the right to fill future order flow in parallel, sequential auctions held on-chain by DFlow. The right to fill order flow is granted to the owner of an order flow contract. Contracts of different grades are auctioned simultaneously while a contract of a specific grade is sold repeatedly over time. In this process, market makers price order flow based on contract specifications (e.g. token pairs, notional sizes of orders), and the best-executing market maker purchases the contract at an auction-discovered price.
Verifiable Best Execution
DFlow is designed to programmatically require market makers to fill orders within a governable threshold of the best price, as determined by a decentralized price oracle. This price oracle, named the decentralized NBBO, is an analogue to the NBBO (National Best Bid and Offer) in US traditional equities.
DFlow in Action: Tsunami Exchange
With the launch of DFlow, we are thrilled to announce Tsunami, the first DFlow-powered DeFi app. Tsunami is a decentralized exchange that puts retail traders first and makes all the benefits DFlow has to offer a reality – retail traders swap for free and receive guaranteed best execution and real cost savings through price and size improvements.
Join Us Today
Tsunami is currently available by invitation only. We invite the public to join the waitlist to gain early access at tsunami.so!