General flow

Liquorice is an infrastructure application that has two key components:

Lending pools tailored for intent based trading. Connected market makers can use borrowed capital when settling trades. The mechanism is fully integrated with settlement contracts, offering high capital efficiency for PMMs while providing LPs a transparent way to earn passive income

Offchain order matching. Liquorice is connected with solvers on core meta aggregators such as CoW swap, 1inch Fusion, and Uniswap X. We introduce a single entry API point for professional trading firms to provide liquidity across all core DeFi platforms

For example, here is what happens when pool is used during settlement with partial collateralization on Liquorice (PMM pays 1 ETH to trader against 4000 USDC, PMM pre deposited 800 USDC as collateral with 110% liquidation threshold, LP pre locked at least 1 ETH in lending pool)

• We receive signed order from trader and inform connected PMM and LPs about it specifying by what time solution must be found

• PMMs supply competing quotes. PMM may settle trade using their own capital which PMM can specify in signed order.

• PMMs compete via prices at which they are ready to settle the trade

• We pick the best price from PMMs

• Signed orders with signatures are submitted in smart contract and signatures are validated. PMM specifies both order details and lending details in a single intent. The following three steps occur as one transaction or fail all together

• 1 ETH is paid to trader’s wallet from the pool

• 4000 USDC is stored in the pool from trader as additional collateral. PMM needs to pay back 1 ETH to unlock it

• In smart contract we record a fact that PMM borrowed 1 ETH from the pool which he must return and his pre deposited collateral plus new tokens received support the collateralization (800 + 4000 USDC). LP receives a fee as percentage of trade notional and time based fee.

• Oracle service is used by LP or third party liquidator to call liquidation if PMM fails to return 1 ETH before liquidation threshold is reached. PMM calls our smart contract to return 1 ETH to LP.

• If PMM wins later on a trade which allows him to receive 1 ETH (or less ETH), he can repay existing debt with it in the same transaction

Alternatively, a PMM may hold his capital buffer (800 USDC) on a single chain while carrying out a similar transaction on any other suppoted chain. A set of oracles in this case report his collateral state between chains enabling decentralized liquidation flow to ensure safety of LP funds.

This page doesn't describe all features of Liquorice. Stay tuned for the release of full docs along the first version of protocol aimed at Q4 2024