Hooks Revolutionize DeFi Trading on PancakeSwap with Brevis Integration

Centralized exchanges like Binance and Kraken manage limit order books off-chain, which are orders to purchase or sell an asset at an optimal price. In contrast, decentralized finance (DeFi) platforms face challenges in managing limit order books on-chain due to the high volume of orders, making it costly. Additionally, DeFi's anonymous transactions make it difficult to apply traditional finance's dealership model, which relies on trustworthy relationships and asset inventories in over-the-counter (OTC) trading. This intermediary-free ethos of DeFi renders such intermediation unfeasible.

Decentralized exchanges (DEXs) have resorted to automated market-making (AMM) to leverage limit order books and the dealership model. In AMM protocols, liquidity providers (LPs) deposit a pair of assets for traders to swap, creating a liquidity pool. Traders pay a fee for each swap proportional to the swap amount, which LPs receive. Traders prefer highly liquid asset pairs with higher asset reserves to minimize the risk of slippage, which can lead to price manipulation and worse execution prices for large trades. This disadvantage is particularly pronounced for low-trading-volume pairs, as LPs have little incentive to provide adequate asset reserves due to lower fees.

Hook contracts have emerged as a feasible solution to these challenges. Hooks are externally deployed contracts that link to a liquidity pool and execute custom code when a specific event occurs. They offer personalized incentives to active traders and loyal token holders, deploy advanced incentives trustlessly without custodial risk, enable dynamic fees, provide modular DeFi infrastructure with data-driven dynamic logic, automate rebalancing logic without compromising security, and offer custom oracles. This innovation has transformed how DEXs interact with users, as seen in the recent partnership between Brevis and PancakeSwap.

Brevis' advanced zero-knowledge proof technology powers an integration to bring hooks to PancakeSwap Infinity, providing users with programmable, trustless DeFi experiences. This integration enables complex off-chain computations that are verified on-chain, maintaining L1 security standards while delivering powerful features at a fraction of the cost. Pool deployers can easily set up, launch, and manage hooks on the Brevis Portal, creating hooks using Liquidity Book AMM or Concentrated Liquidity AMM pool types, configuring VIP discount tiers based on historical data, and introducing dynamic fee structures within BeforeSwap hooks. This improves the user experience and makes DeFi trading more flexible.

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Brevis and PancakeSwap have launched Trading Volume Discount and Token Holder Discount hooks. The former reduces swap fees for traders who accumulate a higher trading volume within specific pools over a period of time without requiring staking or manual verification. The latter enables users to receive automatic fee discounts based on holdings of specific ERC-20 tokens. Users can configure discount tiers within the Brevis Portal, with attestation proving eligibility trustlessly. PancakeSwap's router fetches the attested data intelligently, calculates the best swap path, and applies discounts in real time.

Hooks achieve these benefits through callbacks, meaning hook logic is called before or after certain events take place. In DEXs like PancakeSwap, custom logic can be called before or after initializing a pool, before or after an LP modifies a position, and before or after a swap or a donation. Hook callbacks allow protocols and developers to define custom trading logic without forking the entire DEX and establish pools that give loyal users better rates. Hooks preemptively analyze a transaction and cancel or redirect it if it looks like front-running. Dynamic adjustments of swap fees in volatile markets reduce slippage for users.

Hooks also enable users to buy an asset periodically instead of in a single large transaction to benefit from price movements. Before the introduction of hooks, users had to make each swap manually. With hooks, they can do this using a time-weighted average market maker. To reduce the risk of front-running by MEV bots, the hook processes the respective orders with priority over other transactions in the pool. Transaction fees are typically static, but hooks can render them dynamic. One would want to adjust the fees during periods of market volatility to avoid impermanent loss, where the asset value becomes lower than the initial deposit's market value. Hooks make it possible to increase swap fees to protect liquidity providers from risk and reduce fees when volatility is low to encourage users to transact.

Hooks can also be used to reduce the risk of slippage by placing limit orders in a liquidity pool. Slippage refers to the difference between the actual price at which a trade is executed and its expected price. The hook contract is executed after each swap to make a limit order in a liquidity pool. Before the order is executed, the contract checks if the asset's current price is within the order's execution range. This ensures that traders get the best possible execution price, even in volatile markets.