Volume AMA: Paloma TWAP Bots Reaching New Heights
Background
Taariq Lewis @LewisTaariq, CEO of VolumeFi (volume.finance) hosts this week’s AMA episode joined by DeFi Strategist Zhibai Zhang @FieldTheory. They talk about the success of Paloma’s TWAP bot, ranked number one this week as transactions climbed to over USD 8M. FieldTheory reports on the performance of Paloma bots in terms of transaction volume and the number of bots deployed in trading.
They also discuss the Paloma protocol supported by the validator community, the security model, Pigeon feed, and the importance of validator happiness. Technical upgrades are on top of Volume’s agenda with deployments now open on Base, and soon, to Arbitrum, Optimism, and Gravity Bridge.
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.
Validator - or Pigeon in Paloma-speak, a participant on a Proof-of-Stake (PoS) blockchain whose job is to validate transactions on the network for rewards. They are responsible for network security, transaction validation, and consensus building.
Fork - means copying the code and modifying it to create a new software or product. They are widely used In open-source projects where anyone can contribute.
Open-source - refers to any program whose source code is made available for use or modification as users or other developers see fit. Open source software is developed as a public, open collaboration and made freely available to the public.
TWAP - stands for time-weighted average price, a pricing algorithm used to calculate the average price of an asset over a set period.
Smart contracts - programs stored on a blockchain that run when predetermined conditions are met. They are used to automate the execution of an agreement so that all participants can be immediately certain of the outcome, without any intermediary's involvement or time loss.
DCA - Dollar-cost averaging (DCA) means making smaller, equal investments on an ongoing basis, instead of making large or irregular crypto buys.
Gas - the fee required to successfully conduct a transaction or execute a contract on the Ethereum blockchain platform.
Curve – or Curve Finance, is a decentralized liquidity pool for stablecoin trading. It uses an AMM (automated market maker) model to match liquidity ensuring maximum efficiency while incurring a minimum of slippage for traders.
Grains - also called Pigeon feed, is Paloma’s (unlisted) token.
MEV - or Maximal Extractable Value refers to the potential profit that miners can extract from the reordering or manipulation of transactions within a block before it is added to the blockchain.
Slippage - describes the difference between the expected price of an asset and its actual execution price. Though small differences in pricing can frequently occur while investing in cryptocurrencies, they can also have significant impacts if not appropriately monitored.
Sandwich attack - involves strategically placing two opposing transactions around a target trade within a short timeframe, allowing malicious actors to exploit price slippage to their advantage.
BloXroute - enables cryptocurrencies and blockchain systems to scale to thousands of on-chain transactions per second, providing scalability by utilizing a global high-performance Blockchain Distribution Network (BDN).
Gravity Bridge - a trustless, neutral bridge between the Ethereum and Cosmos ecosystems built by the Althea team. Built using the Cosmos SDK, it uses the validator set to sign transactions instead of a multi-sig or permissioned set of actors.
Arbitrum - a Layer 2 scaling solution for the Ethereum blockchain that powers fast smart contract transactions while reducing transaction costs.
Base - an Ethereum Layer 2 chain that offers a safe, low-cost, developer-friendly way to build on-chain.
Optimism - an extension to Ethereum that enables users and developers to benefit from the latter's strong security guarantees while being cheaper and faster.
Intro
Taariq welcomes everyone to Volume’s weekly update. He extends a special thanks to the validator community and all the users of Paloma.
The host shares a reminder of what Volume is all about:
”Volume is about private key security and private key management. Our focus is how to get more out of your private keys across multiple chains. We believe in a multichain world. We are in a multi-chain world where chains can launch and get users in a short period of time. You want to get your keys over there, and you want to be able to interact with all those applications. “
Volume’s goal is to give extent control in a decentralized manner. Users can get more control over their private keys across more chains by sharing responsibility across networks and other people incentivized to do so. He adds:
“Our goal in Volume is to continue to write software, ship it to the Paloma network, and of course bring the dApps that are valuable about this software to life so other people can see what we're doing.”
Paloma is open-source and Taariq welcomes everyone to build bots off the chain.
“They can fork it, copy it, and actually build further. So everything we're doing is open source. We want the chain to be valuable so that people want grains and they want to use the chain more than anything else.”
TWAP Bots
Out of the multiple Paloma bots launched, the most popular bot by far is the TWAP bot. FieldTheory reports that TWAP bots rank number one in volume transactions consistently growing in popularity and usage. He shares an overview of TWAP:
“TWAP stands for time-weighted average price. A TWAP bot helps users to trade so that the execution price stays very close to the theoretical time-weighted average price. It is very common, even in traditional finance, to break this one big chunk of trade into multiple smaller trades. The TWAP bot does that for users in crypto in a decentralized fashion.”
He cites an example:
“Let's say you have some token you are swapping into another token. If you were to do it all at once, you go to Uniswap or any decentralized exchanges, you just do one transaction, very likely you will have a not-so-great price because there's slippage, low liquidity, etc.”
FieldTheory explains how bots work. Users can go to the website, palomabot.ai. The tokens a user wants to trade go into Paloma smart contracts where the bots program a series of events evenly timed using pre-defined parameters designated by the user. He also highlights that TWAP bots can be used for DCA or dollar-cost averaging transactions. TWAP is used more for short-term trades while DCA is for the more passive longer-term investment type of trades.
FieldTheory emphasizes the benefits of using TWAP bots:
“TWAP bots aim to help users get a better execution price. Instead of trading once, you have to trade multiple times across a timeframe. The bots are fully automated and very easy to use. You don't have to look at your monitors, you don't have to look at your screen all the time, the bots will do it for you.”
Transactions using Paloma bots are secured by the validator set. Funds are stored in the smart contracts which are secured by validators.
He reminds everyone that transactions come with gas fees, and chains like Ethereum could entail a higher gas cost. Users should be mindful of how much they have to spend on gas fees.
How do TWAP bots work on Paloma?
FieldTheory briefly explains how TWAP bots work. Paloma is an application chain and does not host the actual liquidity. He cites an example where a user is looking to swap USDC for Eth using the Curve TWAP bot:
“The first TWAP bot we have launched is the Curve TWAP bot which is deployed specifically for Curve pools. If you want to swap USDC into Eth in one of the Curve pools, you can use our bot. The Pigeons execute cross-chain transactions starting at the Paloma site. Execution is sent via messages across to Ethereum and the transaction is finalized on Ethereum. That is how the cross-chain aspect comes into play.”
PalomaBot Performance Metrics
A total of 226 bots have been deployed cross-chain, with 25 users since inception, reports FieldTheory.
From the nine bots launched, volume transactions peaked close to USD 8.2 million on the Curve TWAP bot alone, followed by the Momentum bot at USD 7,400, and the Curve Limit Order bot with more than USD 3200 in transactions.
On usage, 38 Curve TWAP bots were deployed 38 times, the Momentum bot 30 times and the Curve Limit Order bot 26 times. The GeckoBot New Tokens is another great bot for people to discover new tokens. FieldTheory adds that a lot of these new tokens have smaller caps and show great short-term momentum.
He highlights the performance of the Curve TWAP bot:
“Once again, really the highlight this week is the strong volume on Curve TWAP bot with more than USD 8 million in transactions. We are fully humbled about the number and we definitely would like to see more growth in the TWAP bot and all our other bots.”
Taariq chimes in on the performance of Paloma bots and the valuable contributions of the community of validators:
“First of all, these are amazing numbers. I just want to stress these are not possible unless the validators execute the trades. So if we didn't have validators, none of this would be possible. They are all executed by the validators of the Paloma network.”
The validators of Paloma network route messages to execute the trades. Taariq clarifies that validators do not determine pricing or placement. He extends special thanks to all the Paloma validators who remained loyal and stayed with the network for the past year.
“There was no special airdrop. There has been no listing of the grain token and not a lot of hype building around what we're doing because we're just trying to keep our heads down and make something work and it's been the values. So we thank you.”
A New Space of Cross-Chain
The TWAP bots work because Pigeons execute cross-chain transactions. Pigeons receive the messages and send them. Taariq states:
“This is the only decentralized TWAP order executed cross-chain. This is a new space of cross-chain. You think that cross-chain is mainly about bridges. I want to lock a token on one chain and unlock it on the next. What we're doing is you want to essentially execute a message and distribute it across multiple chains and you want to distribute it across multiple DEXs. So this is just the beginning and really just a test.”
Paloma’s Security Model
Taariq explains that the security model in essence depends on the value of grains:
“We do more volume every week so that the value of grain would reflect the value of the tokens and the messages executed on the network. If we want to increase the value of grains, then we need to get more messages sent across the Paloma network. That is the security model.”
He maintains that the price of grains will take care of itself as long as more bots are launched.
“So what's our goal? Launch more bots and get people building and launching their own bots. The value of the grain will correlate with the value of transactions on the network. All we need to do is get more transactions.”
He assures that the security model holds. He encourages everyone to share, retweet, and get the word out to let people know that messages are being sent and secured remotely on Paloma. He adds:
“Bots are definitely a massive opportunity for growth and an opportunity to build and also essentially participate in the value of grain.”
MEV and Slippage Management
All Paloma bots will have their own slippage management to prevent sandwich attacks. Taariq announces that Volume has been working with BloXroute to implement MEV endpoints for all validators:
“So if you're a validator Paloma, you will soon be able to get your own BloXroute account and implement it so that if a message requires MEV, you'll be able to relay that message with MEV endpoints of your choice.”
Refunds for validators have increased due to the increased volume of transactions. As the network gets more usage, refunds grow in value.
Pigeon Feed and Validator Happiness
While the aim is to see more refunds, Taariq states that the goal is to end refunds and embark on the Pigeon feed project. He defines Pigeon feed:
“Pigeon feed is where every validator gets to set their own relay price for sending messages. We want validators to participate in a fee market for relaying messages so that validators will want to relay more messages and set their price.”
This will encourage more people to use the network and also motivate more validators to come on board and secure the network. Securing the network also increases the value of the network, Taariq muses. Pigeon feed will ensure that both validators and stakers get paid. Taariq explains further:
“So not just validators are getting paid because they get to charge their relay fee, but those people who are delegating stake get to participate in the relay fee benefit and the relay fee value transfer.”
Paloma Upgrades
Taariq announces the upcoming upgrades and that the Gravity Bridge is underway.
“We're going to be relentlessly releasing Paloma every week with new upgrades to focus on validator happiness.”
He believes that validators will want to put their time and effort into a network that is constantly improving where the value of grains is rising because more bots and more programs are running on Paloma.
He also announces the recent deployment to Base and the plans to upgrade to Arbitrum and Optimism:
“We're going to have an Arbitrum upgrade where we can deploy to Arbitrum. That's going to be exciting. We're already on Base and that's exciting. We have folks who want to build Paloma on Optimism. So that's opening up as well. Again, massive, massive growth at Paloma.”
In closing, Taariq announces that the goal is to surpass the USD 8 million in transaction volume on the network.
He sends a big thanks and congrats to all the validators receiving new delegations.
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!
