Intent System: Potential Solutions to the Complexity Issues of DeFi

Before the collapse of Luna, I managed stablecoin yield strategies for a friend who was not very familiar with cryptocurrencies. Our collaboration involved him depositing funds into a hardware wallet, and then we held regular video conferences where I guided him step by step.

We diversify funds across multiple DeFi protocols on various chains. During each meeting, we perform a large number of approvals, transfers, exchanges, deposits, withdrawals, and other operations. Funds are transferred into various custom LP pools, lock-ups, etc., to maximize returns. We have used almost all mainstream cross-chain bridges, DEXs, and yield aggregators to obtain any possible yield.

The most difficult part of this process is explaining all the complex operational steps. Taking the exchange of USDC for FRAX/DAI LP on Polygon as an example, it requires 12 transactions:

1. Exchange USDC for DAI on Ethereum (2 transactions )
2. Cross-chain USDC and DAI to Polygon (4 )
3. Merge USDC and DAI on Polygon (4 transactions )
4. Deposit LP into the yield pool (2 transactions )

Although we are only mimicking the operations of a few yield farming DApps, the manual execution is extremely complicated.

From a higher perspective, all our operations have clear expected outcomes. For example, "converting USDC on Ethereum to FRAX/DAI LP on Polygon and staking it." This is the "content" of our operation, while the 12 specific transactions represent the "how" of the operation. A series of clear steps are needed from start to finish, and these steps are all quantifiable.

The powerful trading routing algorithm can simplify this process into 1-2 steps. We only need to describe the desired outcome, and the algorithm will return the best path, even directly processing the transaction. This path mapping structure is called "intention" and is an important direction for the future development of Ethereum middleware.

Although there is no consensus in the industry on the definition of intent, there are some common views. Paradigm defines it as: "Intent is a signature of a set of declarative constraints that allows users to outsource the creation of transactions to third parties while maintaining full control over the transactions." David Ma from Near believes that: "Transactions are imperative, while intents are declarative. Transactions specify how to execute EVM to produce state changes, while intents only specify the desired state changes, without concern for the implementation process."

Both definitions emphasize the "declarative" nature of intent, seeking external assistance through data sharing between the user and the "solver". The user declares the desired outcome, and the solver provides the means to achieve it. Unlike transactions with specific parameters, intent requires third-party mapping. Additionally, there are constraints that narrow down the possibilities into a smaller, filterable set for the user to choose from.

Taking my friend's example, the intent system allows us to broadcast the final goal to a group of solvers, which calculate the optimal path. We choose the price-optimal route and execute the transaction. All intermediate steps are handled by the solvers, and the user only needs to confirm 1-2 transactions.

The "intention"-based architecture already exists in the EVM. When using a DEX, it automatically finds the best trading route. For example, the Curve interface will automatically find the best LP for routing after selecting assets. For instance, the exchange from USDT to frxETH may go through multiple LPs: USDT > sUSD > sETH > ETH > frxETH, all completed in a single transaction. It will also provide an estimate of price impact and how to limit slippage.

This is just a basic example. More complex intent systems can handle more parameters. For example, "Exchange 100,000 FRAX for as many USDC as possible, valid until block X." The solver will determine the best exchange rate.

Aggregators like 1inch or DeFiLlama use an intent system to build swap trades. Users provide execution parameters and then receive a set of potential transaction relayer options. Users can choose the optimal solution based on fees and gas costs.

In addition to trading aggregation, there are several other types of intentions on Ethereum:

1. Limit Order
2. CowSwap-style auction
3. Gas Sponsorship
4. Delegation
5. Transaction Batch Processing
6. Cross-chain Swap

Although the types of orders are becoming increasingly diverse, the intention can essentially be seen as an upgraded limit order. It consists of two parts: the final state expected by the user and the transaction initiated by the solver.

Intent-based architecture design carries almost no risk. Firstly, the solver has no incentive to propagate intents that contain profitable MEV. The core feature of intent is data exposure, where users are essentially selling MEV in exchange for convenience.

As the intents cannot be directly broadcasted to the Ethereum mempool, they are stored in a private off-chain Interpool. These Interpools can be permissioned, permissionless, or hybrid.

Permissionless Interpool uses decentralized APIs, allowing for free sharing and execution of intents. However, they are vulnerable to DDoS attacks and cannot prevent the spread of malicious intents.

Interpool uses trusted APIs, which can resist DDoS and control the propagation of intent. They rely on trusted intermediaries, but there is a trust assumption.

Hybrid solutions attempt to balance the advantages and disadvantages of both. For example, the CoW Protocol uses a trusted party to operate auctions, but participation is permissionless.

Currently, the most popular Interpool is centralized and permissioned, with no incentive to share information with competitors. This poses a monopoly risk, which may lead to rent-seeking behaviors such as the introduction of additional fees.

Intent is actually a form of MEV arbitrage. The arbitrage opportunities created by long-unsettled orders may be more valuable than conventional trading. Unregulated opaque solvers may provide the worst routes to maximize their own profits. Users need to choose solvers carefully and use their negotiating power to force solvers to bid against each other.

CoWSwap adopts a batch auction design, finding the best settlement prices for traders through public competition among solvers. This ensures consistent pricing within the same batch of trades and eliminates front-running arbitrage. However, there is still some MEV in CoW orders, as market makers need to arbitrage elsewhere to make a profit.

Currently, some protocols are developing intent-based hybrid system infrastructures. For example, Flashbot's SUAVE is building private memory pools and block building networks, while Anom is focused on next-generation permissionless infrastructure.

Although the ultimate winner of the intent system has not yet become clear, it represents a middleware revolution happening in the crypto space. Existing crypto UIs are not user-friendly enough for the average user, and the intent system is expected to simplify operations and promote broader adoption. In the future, intents may apply to more general data and arbitrary data processing.

This creates possibilities for development on Fraxchain, such as default account abstraction wallets. A powerful intent layer can unlock new use cases for Frax products and simplify applications built on it.