The problem LAP: Liquidity Auction Protocol solves

Currently, DeFi protocols must maintain a liquidity layer, and to sustain this liquidity, they rely heavily on regular reward emissions to incentivize users. This creates a challenge for DeFi protocols as they must constantly compete to attract and retain stakers. Moreover, these protocols and bridges often don’t require active liquidity at all times, leaving substantial funds idle in contracts, which significantly reduces capital efficiency. Users hesitate to stake these funds in the protocols due to multiple steps required for staking and unstaking funds. It costs them high gas fees which in case of ethereum can as high as $100.

To tackle this challenge, we introduce liquidity auction protocol (LAP). It auctions this ideal liquidity siting in user wallets (EOA, and smart wallets) to be used in defi protocols. Users can opt in by simply signing a message, granting the protocol controlled access to specific assets and amounts on different chains for use in the Liquidity Allocation Pool (LAP). This signed message is then transmitted to off chain auction house which makes it available for any defi protocol that wants to utilize this liquidity through an auction. DeFi protocol can just create am intent for this off chain actor. This intiates bunch of solvers to find a optimized path for providing liquidity. This means which accounts to choose, which tokens to swap into. Once the auction is concluded, solvers with highest bid wins the auction and gets a signature to relay the auctioned liquidity.

LAP ensures funds are transferred back to users which may or may not be on different chain. For users the funds might be transfered betwen chain, so it may be such that thier USDC balance on base can descrease but their optimism balance can increase. However their, universal balance will always increase. In addition, LAP can also provide a flash loan with JIT liquidity from users wallets and reward users for providing that liquidity.

Challenges we ran into

we used new socket-protocol which provide chain abstracted deployment and state read from multiple chain in a innovate smart contract env.

setting up was bit tricky as they have new node running.

auction house protocol have many moving parts and require lot of time and thinking to spec out the system but in the end finally got it running

Additional Features

we could have created more defi protocols to use this liquidity layer