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Arise, Carbon!A next-generation decentralized exchange that utilizes asymmetric liquidity and adjustable bonding curves to create automated flexible trading strategies. Carbon will be deployed on the Ethereum blockchain first with deployments on other L1s and L2 scaling solutions expected in the future.Carbon Features:Asymmetric Liquidity: individual user strategies are composed of independent buy and sell orders, each of which trade in a single direction and are therefore irreversible on execution.Adjustable Bonding Curves: order conditions can be pre-defined using specific concentrated ranges and updated on the fly without closing and recreating the order.Recurring Strategies: multi-order strategies automatically shift liquidity between linked orders as they are fulfilled, automating and reducing the cost of manually creating orders.MEV Resistance: Carbon trades are resistant to sandwich attacks, the most common form of Maximal Extractable Value (“MEV”).Concentrated Liquidity: Carbon utilizes its own unique concentrated liquidity design via adjustable bonding curves.Universal ERC-20 token support: Carbon strategies are permissionless and can be created for any standard ERC-20 token.For a deeper dive on Carbon see the Litepaper. To simulate strategies and test your own, see the Carbon Simulator. Read on below for an overview of Carbon.Asymmetric LiquidityAsymmetric Liquidity introduces a radically new approach to on-chain liquidity where users execute personalized trading and market-making strategies. A defining characteristic of these strategies is their asymmetry: Whereas a conventional liquidity position uses a single bonding curve for both buying and selling, Asymmetric Liquidity allows for the creation of an individual user strategy composed of two independently Adjustable Bonding Curves: one for buying, and one for selling.In contrast to existing designs, as the curves underlying Carbon pools execute orders, acquired tokens are not repurchased by the pool if prices retrace. Therefore, Carbon on-chain orders are by design irreversible. In the case of a single-curve strategy (e.g., a limit order), as the order is filled, acquired tokens are taken “off-curve” and accessible only to the user who submitted the trade. In the case of a dual-curve strategy, tokens acquired in the first order become available for selling in the second order once prices move into the appropriate range. The one-directional nature of Asymmetric Liquidity is a highly innovative feature for users who wish to execute a trading strategy, and it greatly expands the design space for on-chain trading.To give a practical example, let’s assume a current price of 1700 USDC/ETH where a trader contributes 10k USDC to a strategy that buys ETH at a low price and sells it at a higher price. The first order in the strategy can be configured in a manner that will start to sell USDC for ETH when the price drops to 1600 USDC/ETH and will be 100% filled at 1300 USDC/ETH.Even if the price retraces in the opposite direction (e.g., if ETH climbs from 1300 USDC/ETH), the AMM will not sell the ETH unless the price reaches the sell range (2000–2200 USDC/ETH).ETH acquired in lower range order is made available in the second order. In this example, the ~6.93 ETH acquiree for 10k USDC is made available in the second order. This order starts to sell ETH for USDC at a price of 2000 USDC/ETH and is filled as the price climbs to 2200 USDC/ETH.If the second order is 100% filled then the trader ends up with ~14530 USDC which is now available in the first order. Assuming that the trader started with a 10k USDC contribution, the difference of 4530 USDC minus fees is the profit made in this strategy so far. This recurring trading strategy will execute in perpetuity until funds are withdrawn or the strategy is updated/closed.Adjustable Bonding CurvesAt the core of Carbon is a novel formula that can be used to create an infinite number of bonding curve shapes, including constant sum, constant product and anything in between. Each curve is controlled by a set of parameters (in addition to the token balance) which determine the curve’s shape and exchange rate profile. Each individual “order” corresponds to a bonding curve. To get a feel for Carbon’s math, the adjustable bonding curve design and underlying parameters, please see the example formula in desmos.Carbon curves are adjustable on-chain, allowing users to inexpensively change the conditions of a submitted order prior to execution. In existing concentrated liquidity pools, changes to a user’s position (e.g., moving liquidity between price ranges) require unstaking and re-staking the position. This is complex to manage, and more importantly, prohibitively expensive when trying to react in real-time to market movements. In Carbon, adjustments to an order can be made “on the fly” — i.e., without a user needing to close and recreate their underlying liquidity position. Parameters are adjustable via low-cost transactions involving minimal computational overhead, making strategy management significantly more gas-efficient.Consider order 1 in Alice’s strategy (below) which has a contribution of 5000 USDC to buy ETH when the price declines to 1500 USDC/ETH from the current 1700 USDC/ETH market price.After this strategy is created, order 1 can be modified to add or remove USDC in addition to modifying the acquisition price. An acquisition price of 1500 USDC/ETH is represented by a constant sum bonding curve and the trader can modify this order to acquire ETH over a price range or another specific price.As alluded to in the example above, Alice’s strategy contains a single order with a specific price. While all strategies are composed of two orders, a trader might want to disable the second order if they are looking to sell or buy a token without making this liquidity available in the second order. This means that it is possible to create a strategy with a single limit or range order that’s configured to acquire tokens at a specific price or in a price range. Alternatively, it is also possible to create a strategy with dual orders in a range, specific price, or a mixture of both.Recurring StrategiesRecurring strategies in Carbon are composed of two adjustable orders that are linked together. Meaning that when the initial liquidity in an order gets converted to the desired asset, the acquired tokens become available in the other order. In practice, what this means is the liquidity will loop between each pair of orders whilst markets are range trading. Strategies are therefore never-ending in nature and will continue trading as long as liquidity is available.The flexibility of linked orders allows for the creation of automated strategies and makes them available to traders with low barriers to entry. On-chain automated trading strategies which typically require some programming knowledge are now made universally accessible via Carbon.MEV ResistanceAn important MEV attack vector for AMMs is the sandwich attack, where a genuine transaction is sandwiched between transactions of the attacker. An AMM sandwich attack works as follows:The attacker identifies a reasonably large trade order, e.g., buying ETH against USDC; this order is a “market order”, i.e., it fixes a USDC amount, and takes whatever amount of ETH it will get.The attacker inserts a similarly-sized order buying ETH against USDC immediately before the attacked transaction.The attacker inserts an equal and opposite transaction to (2) immediately after the attacked transaction.This particular attack vector is closed in Carbon, due to asymmetric liquidity and having two non overlapping (or at least far enough apart) bonding curves. While an attacker can still front-run a transaction as described under (2) above, the reverse transaction (3) will happen on the other curve, and therefore usually under vastly different conditions, making this particular attack vector no longer profitable.Concentrated LiquidityCarbon is able to address the requirements of concentrated liquidity via its adjustable bonding curves. In contrast to other AMMs, where a user has to choose between liquidity buckets when deploying concentrated liquidity, in Carbon this is done via fine-tuning the curve parameters. The set of adjustable curve parameters available for tuning includes:the mid-point of the liquidity rangethe width of that range, including zero-width (“constant-price”)the amount of liquidity deployedThis gives traders the flexibility to adjust their orders as the market moves without requiring redeeming and recreating their entire position. In practice, adjusting the parameters is as simple as selecting a range or specific price. The set of parameters that are adjustable in Carbon curves can be changed easily and cheaply.Standard ERC-20 token supportCarbon liquidity pools are permissionless and any user can create strategies for any standard ERC-20 token pair as well as other token standards as Carbon is deployed on other blockchains. In practice, this means creating a liquidity pool in Carbon does not require Governance involvement.Protocol FeesCarbon has flexible fees that can be collected when operations are performed by its users. Governance is in control of activating the fees in the Carbon protocol and can decide to enable certain fee switches while leaving others disabled. Fees on Carbon can take on the following form:Taker Fee:A trader that is acquiring tokens at the spot price may be charged a DAO-set percentage fee taken from the destination token at completion.Maker Fees:Limit orders that are filled may be charged a DAO-set percentage fee that is taken from the destination token. A fixed strategy creation fee may be enabled by the DAO and would be collected when strategies are created. Similarly, operations when updating strategy parameters, adding or withdrawing funds, and closing strategies may also incur additional fees if enabled by the DAO.BNT TokenBancor Network Token (BNT) utility in Carbon is at the discretion of the Bancor DAO and will be voted on via Carbon’s proposed governance token, vBNT. Protocol fees generated by Carbon may be collected and burned for BNT, pending DAO approval.Additionally, functionality may be implemented which makes BNT-based operations in the system free of charge. This means that any strategies that involve BNT would not have a fulfillment fee when the order is filled. Additionally, any other strategy-related fees (creation, closing, updating, adding or withdrawing) may be eliminated for BNT-TKN pairs.QuestionsOn Tuesday November 22nd at 8PM UTC there will be a Twitter Space for a deep dive on Carbon and a Q&A for the community. Questions can be submitted ahead of time via this form or in the Carbon lounge Discord channel.More updates will be released as development of Carbon progresses. Any and all feedback from the community on Carbon is welcomed.If you are looking to integrate Carbon and wish to get in touch, you can reach out via email (contact@bancor.networ) or via the Bancor Discord.To get involved and to stay updated on all Carbon related matters:Visit us on carbondefi.xyzRead the litepaper and the patent filingView and simulate strategies using the Carbon simulatorFollow Carbon on TwitterSubscribe to the Carbon MediumJoin the Carbon community on DiscordParticipate in Carbon GovernanceCarbon. A decentralized protocol for asymmetric liquidity and trading.Introducing Carbon was originally published in Bancor on Medium, where people are continuing the conversation by highlighting and responding to this story.

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