Kinetex’s Liquidity Aggregation Mode: Risk Mitigation

Dubai, UAE, 9th January 2024, Completing the series of posts dedicated to the Liquidity Aggregation mode, let’s focus on the last aspect the team has not yet discussed – measures aimed at mitigating risks common during cross-chain swaps. The Kinetex team has repeatedly stressed the importance of security while developing the Liquidity Aggregation mode and following innovative solutions. Security, along with accessibility, arguably plays the utmost importance in ensuring the growth of the DeFi industry. From ensuring more stable prices to MEV protection, Kinetex employs several measures that make swapping more secure and advantageous.  

Rates & Slippage Tolerance

Managing price slippages and impacts is one of the most significant difficulties while using DeFi services. These sudden fluctuations in cryptocurrency prices can make trading assets slow-moving and unprofitable, especially for those only starting to navigate decentralized finance. In cross-chain swap scenarios without atomicity assurance, both price slippage and impact can quickly get out of hand, making things even harder.

One solution to avoid significant price changes during transfers is to detour bridges. Kinetex allows users to do so by providing direct cross-chain transactions with guaranteed rates, achieved with the help of the Kinetex atomic cross-chain protocol and integration with Hashflow. 

Such an approach eliminates concerns regarding possible dissatisfying trading results. 

The second solution is to employ slippage tolerance, a helpful tool that enables the selection of the maximum acceptable variation between a swap’s supposed and final rates. With this tool, Kintex users can narrow slippages when building routes, allowing them to better manage expectations about the pricing of transactions.

Last but not least, Kinetex assures more steady prices by prioritizing routes with intermediate assets that are either the same asset or stablecoins. If a swap fails within the set slippage tolerance, the user’s assets get fixed in the original token or a stablecoin, considerably minimizing risks related to price volatility.

Unsuccessful Transactions

Any transaction will fail if the desired slippage tolerance cannot be achieved. If transactions fail at the beginning, initial assets are returned to users. In other cases, users are given equal amounts in one of the available stablecoins. When more suitable conditions emerge, Kinetex relay nodes have time to restart failed swaps automatically. Usually, the deadline time for retrying is set at 20 minutes. 

MEV Protection

Decentralized trading is vulnerable to MEV attacks, especially during cross-chain swaps. Kinetex has taken several steps to minimize the impact of such attacks, one of them being concealing transactions from MEV searches. Relay nodes allow Kinetex to manage the publication of transactions in the mempool and prevent the details from being revealed prematurely. For that, Kinetex currently uses the Flashbots infrastructure. 

Additionally, Kinetex utilizes upgraded Swap structures. The team updated the contract to include the SwapStealth structure that only publishes the user-signed hash set of each SwapStep structure during the first transaction, while the data of the route’s each step is published successively during the swap. 

Managing Token Approvals

The last risk-related challenge is linked to token approvals. The Liquidity Aggregation mode allows users to choose between two token approval options. The first option involves a one-time approval for the amount a user wishes to swap. This approval needs to be reissued for any new swap. The second option is infinite approval, which provides access to the user’s full balance. While the first option is more secure, the second is more convenient. To ensure a safe and seamless experience, the team intends to create an interface where users can manage approval given to the Kinetex contract.

Final Thoughts

Ensuring the security of swapping in DeFi is a top priority for the Kinetex team (alongside accessibility, discussed in more detail in previous posts). By improving safety and user-friendliness within the DeFi space, projects can attract more users who may currently prefer traditional CeFi platforms. Through these efforts, the team aims to provide users with a decentralized, streamlined, secure, efficient, and empowering crypto experience while expanding the adoption of DeFi’s benefits to a broader audience.

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