Frequently Asked Questions (FAQ)
More nuances about GTE
The simple answer is CLOB + AMM, but why?
There are 3 main reasons for the combination:
- Smart Order Routing
- Full Token Lifecycle
- Composability
The combination of CLOB and AMM allows for the depth of traditional order books with the constant liquidity provision of AMMs by utilizing the CLOB for blue chip assets and the AMM for long tail assets. This allows the entire token lifecycle onchain within GTE.
Central Limit Order Books (CLOBs) are inherently more capital-efficient than Automated Market Makers (AMMs).
In a CLOB:
- Liquidity providers (market makers) only post liquidity they actively want to trade.
In contrast, AMMs:
- Require liquidity providers to deposit large amounts of tokens.
The extremely low gas fees have significant implications, which include:
- Enable micro-transactions that weren’t economically viable on other blockchains.
- Allow complex smart contract interactions to become much more affordable.
- Open up possibilities for high-frequency trading strategies onchain.
GTE has chosen to build its entire protocol, including the order book and matching engine, fully onchain. This means all the code related to execution and matching is deployed and runs on the blockchain. The reason for this is that using off-chain systems or hybrid approaches sacrifices many of the benefits of building onchain in the first place. These benefits include:
- Composability: GTE’s protocol is fully onchain and can be easily integrated with other onchain protocols and projects. This allows for atomic execution and settlement of trades, which is crucial for complex DeFi operations.
- Transparency: With everything onchain, all operations are fully transparent and verifiable. Anyone can inspect the code and the state of the order book at any time.
Some exchanges use a hybrid approach where order matching happens off-chain, but settlement occurs onchain. But there are 2 main issues with this approach:
- Lack of Transparency: When matching happens off-chain, users don’t know exactly how their orders are handled. This introduces uncertainty and potential for manipulation.
- No Real Advantage: If the critical parts of the exchange (like matching) are happening off-chain, it’s not significantly different from using a centralized exchange.
We believe that MegaETH’s advanced capabilities can achieve the performance benefits typically associated with off-chain systems while maintaining a fully onchain solution’s security, transparency, and composability.