Feature Overview

What are Smart Trades?

Smart Trades is a Spot trading tool that operates using single-sided liquidity. Users can create Limit orders with the option to utilise special conditions such as Dynamic pricing, set premiums, discounts, and even apply vesting schedules to their trades. These Limit orders can be traded against by other users.

Let's first examine the two common types of exchanges - Centralised Exchanges with order books and Decentralised Exchanges using Automated Market Making (AMM) - to provide context before diving into Smart Trades.

Centralised Exchanges - Order Books

On centralised exchanges, bids (buy orders) and asks (sell orders) are listed in an order book. These orders create a record of all available liquidity across different price points, and users can add to this by placing a Limit order of their own, or by making Market orders which take from the lowest bid(s) or highest ask(s), respectively.

Market makers play a vital role in providing liquidity by placing an array of Limit orders on both sides of the order book (bids and asks). In the order book model, trading activity directly determines the market price, with the last price reflecting the most recent buy or sell.

Decentralised Exchanges - Liquidity Pools & AMM

Most decentralised exchanges, like Uniswap, use an AMM model, instead of an order book. AMM relies on liquidity pools of corresponding assets (e.g., ETH and USDT). Traders execute Market orders that interact with these pools, extracting from one pool and contributing to the other. Unlike with the order book model, the price on an AMM exchange is determined by a calculation that looks at the pool size ratio rather than actual trading activity. There is no need for market makers with AMM, traders simply add to and subtract from the pools.

Eve Exchange Smart Trades - Single-sided Liquidity

Smart Trades on Eve Exchange function as Limit orders with specific prices and quantities, operating more like an order book than an AMM model.

Unlike AMM, where users take from one pool and add to another, Smart Trades enable users to express their intent directly: "I want to buy ETH with USDT" (a bid) or "I want to sell ETH for USDT" (an ask), hence we use the term single-sided liquidity.

Users create these orders, known as "Offers" on Eve Exchange, effectively forming an order book. Notably, Eve Exchange does not support Market orders like centralised exchanges; instead, users select the specific Offer they wish to trade against and can purchase the entire order or a portion of it.

The available liquidity and pairs on Eve Exchange are determined by the Offers created by users. Unlike traditional exchanges, where the last price is used as a reference, each Offer on Eve Exchange stands independently with its individual price and because of this you could say that trading activity does not have a direct impact on the market price.

Let's illustrate the basics with two practical examples:

Example 1 - Bob wants to buy ETH with USDT

If Bob cannot find an appealing trade in the existing Offers, he can create his own Offer to buy ETH with USDT.

Upon creating the trade Offer and confirming it through MetaMask, Bob's USDT goes into the smart contract, and his Offer becomes part of the order book so to speak.

Now, Alice, seeing Bob's Offer to buy ETH with USDT, decides to accept it, selling her ETH to Bob. Alice's ETH goes into the smart contract and is sent to Bob's wallet, while Bob's USDT gets released from the smart contract and goes to Alice's wallet.

Example 2 - Bob wants to sell ETH for USDT

Suppose six months have passed since Bob bought Alice's ETH, and the price has appreciated. Now, Bob wants to sell his ETH to lock in his profits. In this case, Bob creates an Offer with USDT as the "buying" asset and ETH as the "buying with" asset (the reverse of what he did originally).

Bob waits for another trader to accept his Offer, when someone does, assets are exchanged and the trade is complete.

Summary

Eve Exchange operates like a traditional order book but without Market orders, with users creating Limit orders to populate the book (they are the Makers) and other users trading against these orders (the Takers).

The process mirrors an institutional over-the-counter (OTC) trading desk, but instead of buying from a corporate entity, users are trading peer-to-peer (P2P).

Smart Trades offer several advantages over AMM-based exchanges:

• Zero price-slippage because the price of each order is fixed, preventing your trade from impacting market prices as it would on Uniswap, for example.

• No front-running (MEV) because you are buying at a fixed price, and if another user was to push their transaction ahead of yours, they would simply fill or partially fill the order you are trying to buy without having the ability to now sell to you at a higher price (unless they create an offer and you decide to buy it).

Smart Trades is ideal for low-liquidity tokens because you can buy any amount at a fixed price (as long as it's in the books) without creating any change to a liquidity pool like you would with Uniswap and other AMM-based exchanges. However, when we expand upon these foundations with special settings, Smart Trades can be used to execute all kinds of interesting strategies.

In the next sections, we'll explain the special settings available to you when using Smart Trades. Understanding these settings is crucial as they differentiate our platform from others and can offer significant advantages.