[CLOSED] Express Relay Prototype

TL;DR

• Building on its experience developing oracle protocols that provide low-latency data to blockchains, Douro Labs has been experimenting with a prototype solution for cost-effective liquidations and value-additive means to discover such liquidations
• The intuition behind the solution prototype is to enable DeFi to increase its efficiency by retaining value that might have traditionally leaked to block builders and increase access to parties that are able to compete over opportunities
• Douro Labs showcases the current prototype running in testnet and would like to open up a DAO discussion on the viability to further develop the current prototype and deploy a DAO owned instance into production

Two Problems addressed by Express Relay

• DeFi protocols and their users leak value to arbitrageurs and block miners in the form of deep discounts in order to reduce the credit risk that results from underwater positions and/or vaults
• By virtue of the fragmentation of DeFi, searchers that scan for liquidation opportunities are limited by the number of DeFi applications they can monitor and build integrations for

The Solution

The current prototype solution allows DeFi protocols to each independently auction off the rights to liquidations via its own order flow auction (OFA), re-aligning incentives away from actors that impact and benefit from the (re)ordering of transactions.

In the following diagram, the traditional workflow is illustrated on the left-hand side whereby value is leaked to block miners. by contrast, Express Relay removes the ability of miners to extract value for the benefit of searchers scanning for opportunities and enables DeFi protocols to capture the majority of value from Searchers. Protocols will effectively reduce the discounts that they have to provide to deal with the risk of bad debt, further improving the economic efficiency of their applications and providing users with better experience.

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Key Features / Characteristics

• Current prototype is focused on DeFi deployed on EVM chains
• Liquidations are resolved in one-transaction within the same block
• Express relay is oracle agnostic. Searchers and Protocols can use separate protocols to measure health factors and price the liquidation opportunities
• The solution is immune to single transaction sandwich attacks that prevent liquidations from being triggered

Market Validation

The initial response from a number of community members on the idea and the current prototype has been positive:

• 7 searchers so far have expressed interest in integrating if a DAO-owned and governed production system were to see the light
• 8 DeFi protocols so far have expressed similar interest in using Express Relay as a primitive to process liquidations and recoup value leaked otherwise

Current Prototype Deployment Details

The current contracts are deployed on optimism sepolia testnet (op-sepolia) using the following addresses:

Prototype metrics are available here.

The prototype features a set of high-quality searchers actively performing liquidations on the Optimism Sepolia testnet. The activity and performance of these searchers on liquidation opportunities can be seen here.

Request for comments

Douro Labs hereby requests the Pyth community to comment on the problem addressed and provide feedback on the solution proposed, prior to a potential PIP (Pyth Improvement Proposal) that the DAO can vote on to adopt the solution on mainnet.