Continuous Clearing Auctions: The new standard for bootstrapping liquidity

Transcript

All right, good afternoon. So, my name is Kai. I'm a research scientist at Uniswap Labs. My name is Eric. I'm a protocol engineer at Uniswap Labs. Very happy to talk about continuous clearing auctions with you guys. Where we're exploring a new mechanism for continuous price price discovery and fair on-chain participations. So, one thing we noticed that is an issue for new and low liquidity is that these tokens looking for built liquidities. And for right now, this is primarily happens on centralized exchanges.

There's a couple of issues with that. You will usually runs into these extractive fees if you want to work with centralized exchange. They can charge upwards about 10% of the tokens supplies to work with them. Usually, you want to involve professional market makers where this initial liquidities is often provided by these sophisticated market makers who can dump at any time. These usually involve some opaque agreements behind the door. It's usually not very clear what exactly is the detail behind these launches, which biasing towards the insiders.

Um And ideally these questions when we when we say these are opaque markets, ideally when we put it all on chain will ideally will solve this. But is that the case? Not necessarily. So, there's also a lot of solutions that we see on chain right now. But they all have their own shortcomings. For example, if we think about airdrops, there are practical empirical results and then there are academic papers that says more than 60% of the tokens are bot farming and then they have immediate dumping once TGE happens. And then the real issue is there's no price discovery at all. Zero price discovery. Even with fixed price sales, there are some price

set, but the issue is mispricings. If you set the price too high, there will you will be no one is participating. But if you set the price too low, over subscriptions, then you have to decide who gets to purchase. That's which leads to priority races and gas wars. Um you can fix these with with some sort of flavor of Dutch auctions. But Dutch auctions are really complicated. There are strategic waiting issues and then there's professional dominance. Or more native to um crypto is that our bonding curves. But we we all see the issues with bonding curves where you see these MEV exploitations and their time sensitivities of when do you participate in these markets.

So, the common thread is that these existing mechanisms all rewards kind of timing and sophistication over genuine valuation of the token genuine valuation of the projects creates these opportunities for manipulations and doesn't really provide immediate sustainable liquidity. So, we think we should a better approach will prioritize something with fairness. People should compete on valuations. It should not should not be on timing or technical sophistications. This should be transparent. We should have visibility into price discovery that happen in real time. We want it to be credible. We want the final price actually reflects the actual demand, but not some sort of

manipulations of the price. And we want on-chain liquidity afterwards. Um Ideally, we have decentralization. We don't want any gatekeepers in this process. So, this is what a Uniswap CCA, the continuous clearing auction protocol, is going to delivers. If I have to summarize what CCA is in one sentence, it would be it's a continuous time uniform auction which the supply is going to release over time on a schedule. And at every moment, we're trying to clear auction demand against the supply at one price for everyone. So, this is very abstract.

Let me offer you something even more abstract. >> [laughter] >> Because we are at Uniswap Labs, we love pool. So, let me just use a swimming pool as a visualization for what it is for CCA. So, imagine we're building a swimming pool. This swimming pool can be any shape. So, so the supply curve of your token sale auction could be any shape. So, you can imagine the width of this swimming pool. It's a the the rate of how we're releasing these tokens over time. So, so if it is narrow at the beginning, we're releasing a little bit amount if it is wider, then we're releasing a lot.

And the depths of this swimming pool, imagine that's the price. So, at the very beginning, this swimming pool we build it like this. We need to dump some sort of water into these pool to fill fill the swimming pool. But as more demands coming into this auction, um in order for this pool to not overflow, we want it deep deeper of these swimming pool such that we can accommodate more water, more liquidity inside this pool. And then the height at that point will be higher price such we can accommodate more liquidity flowing into this auction process.

And at any given moment, we're trying to um match the supply and demand. That's when we're kind of like we're going to lock some areas. And then as the auction process go through, we're going to lock all the areas. And then at the end, we will have a pool that is full of water. So, that's kind of like very high level understanding of what potentially this auction is going to do. But I'm going to hand over to Eric to discuss more. Cool. Yeah. So, maybe making a bit more concrete, what does CCA look like in action? So, there have been a few CCAs already in production.

Generally, this is the clearing price chart that we expect. So, again, like Kai said, the clearing price is the highest price at any point in time in which the auction can sell the remaining tokens to willing buyers. So, on the left-hand axis, you have clearing price denoted ETH. On the bottom axis, you have time. This was over about a week, week and a half. And every dot, if you really really look, represents a checkpoint. And checkpoints are loosely correlated with blocks. It's basically just any block in which there's any any activity in the auction. And so, you can see that the clearing price is increasing over time as more people participate in the auction, as more people are willing to buy for higher prices.

So, Aztec, who is here at ECC today, did the inaugural CCA auction raising over $60 million from over 17,000 bidders. We we really champion that CCA is good for fair token distribution. And you know, there's a lot of words packed into that. But token distribution, like we look at the number of users, right? Who contribute, you know, not insanely high amounts, right? So, we see that 99% of users actually contribute under 100K to the auction. And we also see that at the end of the auction, right? With the final clearing price ended 60% higher than the starting price, right? Showing that no matter like where you start the initial price, which is usually a

generally hard problem to solve, right? The auction and the mechanism allows for some discovery, right? Some growth beyond that point. Okay. So, the part that I'm really excited to talk about today as an engineer working on this is that we see CCA as a new primitive for builders and not just another type of auction. And so, what I what I mean by that is we should take a look at kind of what's being built on CCA today. So, you have the standard asset creation, right? So, using this new auction, this new mechanism as a better price distribution, sorry, price discovery and token distribution model, right? Using it in LBP strategies, right? In like token creation, new assets.

You also have agentic auctions being done on CCA, right? It's it's using things like cloud skills, plugins, etc. to teach agents how to interact with a complex mechanism. But, you know, because because they have that harness and they have that framework, they can easily interact with it. And we're seeing really interesting new platforms being built on these like really quick only agent led auctions. Additionally, DEX native liquidity. You know, part of the general goal is to reduce the reliance on centralized exchange listings for new assets coming to market, especially for DeFi native projects. Having CCA where the tokens

are being distributed and happen in the same place where liquidity and secondary trading happens, right? On Uniswap, is going to be very powerful for us in the future. Okay. So, yeah, just to zoom out a little bit. This is the general tech stack. We talked about the protocol at the very bottom, CCA. On top of that, you know, we have configuration. So, the protocol is maximally flexible. You know, it allows you to configure everything from the shape of the curve in which tokens are released to bidders to adding a contract that you design, which potentially restricts who can participate.

And on top of that, you have the application layer, which I think is where, you know, most of the innovation happens is people building new, you know, for like for example, a new type of order, right? Like a VWAP order. And and if you have more questions at the end, we can kind of go through some of these, right? But there are actually many more things that you can do with CCA beyond just token distribution. Okay. So, you know, before we open the floor to questions, I just wanted to go over some next steps for anybody who's interested. So, CCA is completely open source. It's MIT.

The contracts can be found on GitHub. We also have a cloud plugin under the Uniswap AI marketplace. So, if you use cloud code or any of those agentic tools, you can easily point your agent to our plugin and just tell it to learn what it is. Also, like explore the periphery contracts that we've made around CCA. So, there's like some that show you how to use the funds from the auction to create a liquidity pool. There are some that show how you can create like a all-in-one comprehensive platform for auctions where people can bid every every minute, you know, and like a new auction happening. And also support. So, reach out if you building something cool and want to talk. We're

like really happy to support any way possible, especially for technical questions. But, yeah, that's that's pretty much it. Thank you for listening and if you have questions, we're we're also happy to answer them if we have time. Two questions. One is you mentioned if you're building something cool, what do you consider cool? And the second question is what were the top three issues that the early participants faced that might be solvable?

Okay, I'll start with the second question. So, when we start designing designing this, one issue one general issue with auctions the theme of auction is when will people participate? If we have an auction that is just say one day and then we'll close the auction at the end of the day. The issue is there's really no incentive for anyone to participate early because that reveals private information, that reveals your information about valuation. You really don't have any incentive to participate early. You might as well just wait for the last seconds. You also don't have to lock your fund in the contract for a day. So, so the early participation incentive is one of the reasons why CCA works is that if you participate if your

participation is early, you kind of face a longer curve of the supply curve, which that means potentially there less competition at the very beginning. Which means the pool that the depths of the pool is going to be shallower. The price is going to be lower. So, in kind of like um On the other side of the story is you face a lot of uncertainty. So, so that's why the the CCA design has is that if you participation early, you have uncertainties, but then at the same time you're facing less competition over the time. So, then, you know, compared to like a one-shot auctions, that's the main motivation or main incentive for people to participate early.

And then the first part of the question is who is going to participate? Is that the is that did I get that correct? What do you consider cool? You mentioned you mentioned that if you're building something cool, what is cool? Um >> [laughter] >> Um Yeah, um I mean, I think, you know, we're happy to hear about anybody who's looking into auction theory, you know, we're happy to talk about any of that. In terms of actually building on Uniswap, like anything that goes into V4, we're very happy to support. So, if you're if you're building on Uniswap V4 CCA we're actually really, you know, really

interested in um agentic stuff. So, you know, I mean, that sounds like a slang word now, but like let's say any like novel way to participate in auctions that like might sidestep the traditional web interface, traditional kind of flow. Thank you. Hi, thanks for the presentation. I did not understood the interaction between the auction and the pool itself. So, after the the auction, the pool will be created?

Yeah, so that's that's um Sorry, let me just So, yeah, that's just one part of the puzzle. The auction is really meant to be one component of a system that creates you can just think of it as the outputs. So, like one output is a potential starting price and the other output is how much potentially ETH you raise. And you know, with those two outputs, you can use the funds to create a pool. So, it doesn't have to necessarily be a liquidity pool at the end. It could also be like a DAO treasury, right? Like in that case, you wouldn't really care about the

price. Maybe in the future you do some redemption or something, you know, for for for the buyers, but yeah, that's kind of why we talk about CCA as a component of a larger system, right? And not just like a one-shot auction, let's just only do that. Cool. Thank you very much.