GLOBs in one page

The gradual limit order book (GLOB) is a novel market structure¹.

The GLOB is a disruptive invention that has many advantages over previous market structures and simultaneously is very well suited for decentralized networks. It enables efficient markets that are always fair for all users by construction. Additionally, GLOB markets scale to any size without costs or risks.

The key difference to the common central limit order book (CLOB) or pool-based automated market makers (AMM) is that the GLOB forbids instantaneous trades and instead clears markets at a uniform price over time. Previously, market takers could suddenly fill maker orders (or liquidity provider (LP) positions in an AMM) at a first-come first-served basis such that changes to the sequence of the trades had an acute impact on the respective prices paid by the individual actors. In a GLOB, the order in time plays no distinguished role; time matters only proportionally to how much of it has passed.

A simplified version of the algorithm

1. A clearing price is computed based on supply and demand.
2. Matching orders gradually clear at this uniform price.
3. Whenever supply and demand change, restart at step 1.

This robustly mitigates a large array of extractive high-frequency trading strategies. Additionally, it gives the two sides of the market a chance to match with each other directly (aggregated p2p), thereby removing the need for liquidity providers as middlemen. The GLOB ensures that every actor's trade is consensual and open: a trade requires publicly expressed, sustained interest in acquiring or selling a position at prices better than some personal limit, and can be stopped at any moment during its streaming execution by the actor.

When the market price crosses limits of users, their trade streams automatically start and stop respectively (or restart, or even change side for those providing two limits). This means that GLOBs ship with built-in trading automation. It is this empowering of traders to act as if they were market makers that allows for GLOBs to function without designated middlemen.

Footnotes