Volume AMA: Paloma TWAP Bots & More
Background
VolumeFi team members Vera Behr @v_behr, Head of Product, and Zhibai Zhang @FieldTheory, DeFi Strategist, host this week’s AMA episode. They talk more about Paloma bots with a special focus on TWAP bots. They also discuss the significance of the partnership with CoinGecko enabling Paloma users to access API services including new token listing endpoints.
Vera also reports on the initial success of the recent launch, the hottest Paloma bots ranked, transaction volumes, and the ever-growing number of bot users.
Definitions
AMA – Ask Me Anything
Private key - a cryptographic key that is used with an asymmetric (public key) cryptographic algorithm. Used to compute a digital signature that may be verified using the corresponding public key, it is uniquely associated with the owner and is not made public.
Sell-off - refers to downward pressure on the price of a security, accompanied by increasing trading volume and falling prices.
Sideways market – when asset prices fluctuate within a tight range for an extended time without trending one way or the other.
De-pegging - refers to the phenomenon of a stablecoin deviating from its intended peg. This can occur when market forces or factors lead to fluctuations in coin price causing it to temporarily lose its exact pegged value.
TWAP - stands for time-weighted average price, a pricing algorithm used to calculate the average price of an asset over a set period.
DCA - or dollar-cost averaging, means making smaller, equal investments on an ongoing basis, instead of making large or irregular crypto buys.
DEXs - short for decentralized exchange is a peer-to-peer marketplace where users can trade cryptocurrencies in a non-custodial manner without the need for an intermediary to facilitate the transfer and custody of funds.
CoinGecko - a cryptocurrency ranking website that provides a 360-degree overview of the standing of digital currencies
AMMs – short for automated market makers are a type of decentralized exchange (DEX) that use algorithmic “money robots” to make it easy for individual traders to buy and sell crypto assets. Instead of trading directly with other people as with a traditional order book, users trade directly through the AMM.
Curve – or Curve Finance, is a decentralized liquidity pool for stablecoin trading. Instead of an order book, it uses an AMM (automated market maker) model to match liquidity. As a decentralized and permissionless protocol, anyone can provide liquidity to one or more of the liquidity pools. The constant product formula of the AMM ensures maximum efficiency while incurring a minimum of slippage for traders.
Uniswap V2 - implements a new functionality that enables highly decentralized and manipulation-resistant on-chain price feeds.
PancakeSwap - a decentralized exchange that allows you to trade tokens while also offering opportunities to profit from liquidity pools and staking. It runs on Binance Smart Chain (BSC) instead of Ethereum.
CoinGecko - a cryptocurrency ranking website that provides a 360-degree overview of the standing of digital currencies.
dApps – short for decentralized applications, are digital applications or programs that run on a decentralized network, rather than a single computer or server. They are built on blockchain technology and use cryptocurrency as a means of exchange.
Intro
Vera welcomes all listeners to Volume’s Twitter spaces. She gives an overview of Volume:
“Volume is a private key security management company and we provide blockchain services for managing private keys, private key execution, and decentralized private key signing. Our goal is to find out how we can get the most out of your private key across multiple public blockchains.”
What is Paloma Bot?
Paloma bot is the primary application on the Paloma chain and also one of the main products of Volume Finance. FieldTheory shares how Paloma bots help crypto traders:
“There are challenges and problems in trading fast-moving crypto tokens, especially when there are certain strategies or signals that can only be captured by automation or some very fast turning around software. Paloma bot is an end-to-end automation service.”
He adds that many users will enjoy the products, benefitting day traders who trade crypto tokens in the short term. Paloma bots are built to help liquidity providers and loan owners protect their positions from risks of liquidation and de-pegging.
FieldTheory notes that in recent weeks, the crypto market experienced a major sell-off, while there was some surge on the upside. In the current sideways market, traders tend to go for short-term actions and Paloma bots can be used to capture these signals.
TWAP Bots
Vera asks FieldTheory what Paloma bots can offer to traders, especially in a sideways market. FieldTheory starts with the TWAP bot which is particularly useful for large orders. He discusses why it is wiser to break down large orders into smaller pieces.
“If you have a large order, you want to buy a certain stock or in our case, a crypto token. If you dump, and put your money into either a decentralized market or a centralized market, if you run the transaction all at once, most likely you'll have a not-so-good execution price because your action itself drives the price up as you buy it. Therefore you're buying the token at an inflated value, which is bad for you.”
He cites an example where a user is looking to trade 5000 USDC for Eth:
“It is better to spend the 5,000 USDC on Eth using a TWAP order. How it works is basically to break it into, let's say, five different smaller orders. Each order is 1000 USDC and you buy it in five-minute intervals. So you buy the first 1000, you use the first 1000 USDC and then swap for ETH and then wait for five minutes for the second order, and then the third, and so forth. But you see the problem is kind of labor intensive.”
FieldTheory states that those who want to use the Paloma TWAP bot can go to the website, palomabot.AI, where users can connect their wallets and indicate their preferred pre-defined parameters. All transactions go through the smart contract and the Paloma bot will take it from there. The whole process is fully automated and the private keys are secured by validators. Vera adds that users can keep track of their funds in real time using Telegram alerts whenever a trade is made.
TWAP bots are also enabled to do dollar-cost averaging or DCA usually used for longer-term investments. Users can change the schedule when they want to do the trade. They can simply change the interval on the TWAP bot's pre-defined parameter or scheduler to the desired time interval.
FieldTheory talks about Paloma bots’ internal mechanism.
“The Paloma bot is built on top of DEXs. We're not building AMMs by ourselves and we don't really rely on people adding liquidity because Paloma bots are built on the existing largest AMM that has plenty of liquidity and the best execution price one can have.”
Paloma bots are predominantly deployed on Curve pools that include the TWAP bot, among others. Plans to expand to Uniswap V2 Ethereum and PancakeSwap to Binance Smart Chain (BSC) will allow users to trade tokens in those DEXs.
Certain tokens only exist on Ethereum and some in BSC. He adds that once Paloma bots are deployed on those chains or DEXs, users can use TWAP and Momentum bots in those specific DEXs.
CoinGecko Partnership
Paloma has teamed up with CoinGecko which is one of the largest crypto data providers. This significant collaboration allows Paloma to use their API services including their new listing endpoints. New token listings are constantly detected and monitored which are converted into API endpoints. Paloma’s GeckoBot New Tokens provide a dashboard for the newly listed tokens that users can discover. FieldTheory shares the benefits of this important collaboration:
“Users can have a very visual way to identify these new tokens and they can try to analyze which one might be hot and can really catch momentum. If they want to buy one of these tokens, our frontend has a start bot button and users can then buy as many tokens as they want and set up profit-taking and stop-loss limits through Paloma bots.”
Paloma Bot Post-Launch Status
Vera reports that the TWAP bot deployed on Curve is, by far, the most popular bot with over 3 million USD in transaction volume. This translates to 3 million worth of tokens purchased using the TWAP bot. The Momentum bot deployed on Uniswap and PancakeSwap V2 comes in second with more than 7000 USD worth of tokens traded. The third most popular is the Limit Order bot deployed on Curve with over 3000 USD in transactions.
A total of 109 bots were created by users as of date. Vera clarifies that multiple trades ensue depending on the type of bot that was used. All in all, the success of the launch of bots is a great validation for the Paloma team and bolsters their commitment to double down on the work ahead.
This initial success translates to increased revenue from collected fees and it means that validators can be reimbursed for gas fees across all target chains. Having revenue-generating multiple DAPs built on top of the Paloma chain is important to us, she acknowledges. Over 5000 USD in revenue has been generated for gas reimbursement fees which go directly to the validators. This ensures that the Paloma network is sustainable and will only continue to grow.
Closing
FieldTheory and Vera acknowledge the crucial role of the community of validators in securing the network and relaying messages. They extend a big thanks to all validators for the amazing success of the Paloma bot launch in the first week alone. Plans are underway to create more bots which means increased revenue and more fees to collect for validators. Vera emphasizes that as Paloma launches more bots onto the chain it increases validator happiness and also the value of the entire network.
Stay tuned for the next AMA!
To find out more about Volume, check out Volume Finance (https://volume.finance/), join the Discord (https://discord.com/invite/Ebh6YjMShu), and follow us on Twitter (@Volumefi). Check out Paloma Chain on palomachain.com (https://www.palomachain.com/), follow them on Twitter (@palomachain), and join the flock on Discord (https://discord.com/invite/tNqkNHvVNc). Coo!
