Digital currency users should have traded on the exchange, and the current mainstream is still the form of the Centralized Exchange (CEX), although it is widely criticized. For example, Mt.Gox operators want to cover up and explode epic scandals, and 5 years of long-distance rights protection; such as the 2018 Japanese exchange Coincheck suffered the "biggest hacking in history", losing 500 million new coins worth 530 million US dollars; For example, in the recent exchange data leaks, hundreds of thousands of currency users KYC information was publicly uploaded by hackers.
In contrast, Decentralized Trading (DEX) does not require KYC, has good anonymity, and is interoperable. It can also dispel the doubts that users are obsessed with the exchange, manipulate the market, and pull the network cable. This solution is also considered to be the inevitable direction of the future.
On the other hand, DEX is also a major contributor to DeFi's ecological liquidity, because DeFi products such as stable coins and loans are not the logic of high-frequency trading. From the data of DeFi.review, the trading volume list is almost entirely occupied by the DEX project. The site divides DEX into two categories, one is the repository DEX, including Uniswap, Kyber, Tokenlon, AirSwap, and the other is the order thin DEX, including IDEX, Ox, and Hydro.
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Looking back on the history of the development of the DEX protocol, from Bitshare specializing in writing a public-chain development to the centralized exchange, to the first generation of Ethereum to represent the EtherDelta decentralized exchange, and then based on the Ox open source agreement, many DEX have been established. Today, more and more competitors have been born on the track of the DEX protocol, including Hydro, Road Printing Agreement, ONEOOT and so on.
For example, DDEX forked Ox at the end of 2018. The reason is that DDEX uses the match mode, and the Ox-based Open mode DEX cannot share the liquidity, and the Open mode does not solve the problem of preemptive transactions and order conflicts. So the team killed the protocol layer from the application layer, created the Hydro protocol, provided a series of smart contracts, matching trading algorithms, developer tools and resource packages, and completed the cryptocurrency transaction through atomic exchange, which is convenient for developers to build DEX.
Another example is the Road Printing Protocol, based on zkp technology, which not only has a set of open smart contracts for executing transactions and matching operations, but also a group of participants under the chain to match and broadcast orders. In Print 3.0, relaying is a very important part of the ecology. It combines individual trader orders and then broadcasts successfully paired orders to the blockchain.
Another example is the ONROOT R1 protocol, whose ecological architecture is divided into three layers: the R1 intelligent contract layer is deployed on the Ethereum blockchain; the Relayer layer is the order relay system, which interacts with the R1 smart contract and is responsible for submitting the winding and order matching. And the Relayer layer provides OpenAPI externally, allowing third-party exchanges to submit orders to the matching engine.
After the foundation concept is over, we will listen to the team members of the three decentralized agreements to talk about the advantages, dilemmas and trends of DEX and the opportunities and challenges of the DeFi market.
On August 8th, the "DeFi Feature Series" jointly sponsored by a chain learning community, DeFi Lab, DOS Network, and Hydro started the second online AMA around "DEX". The event was invited to ONROOT CMO Zeo Xiong and Lu Yin. The co-founder Jay, the co-founder of the agreement, was hosted by DeFi Labs promoter Dai Shichao.
Moderator: We usually think that DEX1.0 stands for etherdelta and DEX 2.0 stands for 0x. So how should DEX3.0 be defined? What is the overall development trend of DEX?
Jay: One of the core subtexts of Dex 3.0's development trend is "trusted computing." In other words, we need to prove through technology that the code logic running outside the chain is 100% trustworthy. This trust is mainly for the corresponding smart contract in the chain. Only the calculation result outside the chain of intelligent contract trust is used to make the transfer on the chain. If the smart contract trusts the results of the out-of-chain calculation, then the user should be able to trust the calculation results of the relay, and thus trust the decentralized transaction technology as a whole.
Dex 3.0 should include a set of smart contracts on Ethereum to verify the proof of trusted computing, and to do the reloading of the cash withdrawals when necessary. It also includes a very large in the centralized relay system. The big tree contains all the important information about this DEX.
Zeo Xiong: I am very optimistic about Ethereum. For now, DEX does not have enough cross-chain transactions in the user's trading needs, but these technical problems can be solved through technical iteration updates. Since 2019, the overall volume of DEX has increased threefold. But what we have to think about is that if DEX still does the same thing as CEX, there is no way to overtake the car in the future. The shortcoming of CEX is that users do not have absolute control over their own assets. We have to think about the new trading protocol usage scenarios, more gameplay, and these are things that CEX can't do. Moderator: DEX can be divided into 3 classic modes, order book mode, fund pool mode, Dutch auction mode. What do you think of these 3 different types of DEX?
Jay: Order thin mode, such as IDEX, IDEX is the first decentralized smart contract trading platform based on Ethereum to provide real-time trading. IDEX enables users to trade continuously without waiting for processing. It can process multiple trading orders at the same time, and there is no charge for canceling orders.
The fund pool model, such as Uniswap, is actually a model for market makers to provide liquidity, but this market maker is a mathematical algorithm. It automatically calculates the price of each sale through a price curve based on the amount of the market capital pool and the amount of buy and sell. Uniswap's liquidity and price range depend on the size of the market capital pool. The larger the size, the smaller the price fluctuation.
Dutch auction mode, DutchX is based on the Dutch auction trading model, through the pre-set price curve, and the buyer's participation to determine the final transaction price. DutchX and the road printing mode, DutchX guarantees that the transaction will be completed within a certain time, but does not guarantee the specific price of the transaction; the road printing order matching mode guarantees the price, but does not guarantee a certain transaction or transaction time. Moderator: The essence of DEX is to provide trading functions for assets. What do you think are current quality assets?
Jay: Quality assets include mainstream cryptocurrencies such as Bitcoin, Ethereum, and future underlying asset backed assets. Cross-chain is also a direction we will study later. In addition, the combination of assets such as Set is also a solution.
Moderator: How does DEX get more liquidity? Is DEX sharing liquidity a false proposition?
Jay: Let me give you an example. For example, Bancor is a self-regulating protocol whose smart tokens automatically maintain liquidity. Bancor has its own internal liquidity mechanism to ensure that any ERC20 tokens are exchanged with other tokens, with no market makers in between. The Kyber Network (KNC) differs from Bancor in that, first, liquidity is provided by physical tokens from fund managers, whales, and token teams. Therefore, Kyber has market makers and is encouraged by spreads to provide liquidity to the network. Create a free market between reserve providers, resulting in the most attractive exchange rate. DEX sharing liquidity is not a false proposition. The user's order can be matched by multiple relays at the same time, so the liquidity can be decentralized and shared.
Moderator: The core advantage of DEX is liquidity, but how to motivate DEX to share its liquidity to others seems to be a problem?
Zeo Xiong: In essence, DEX still serves the transaction, so it is necessary to meet the liquidity needs of users. We define liquidity as the convenience of realizing the rapid realization of assets, providing users with a good sense of experience and depth, and now the original DEX flow Sex is not good, and each family will compete with each other for traffic cakes, and the depth will only be more scarce.
As a decentralized exchange solution provider, we are committed to a shared liquidity solution by creating a decentralized exchange ecosystem consisting of digital currency brokers, relay portfolios, clearing layers, and their own communities. Access to the sharing of third party exchange data at our protocol level. And we also communicate with some exchanges built on the 0x agreement, which is very inclusive. Moderator: How do you see the interoperability of DeFi?
Zeo Xiong: When it comes to interoperability, maybe we can work together to develop industry standardization and become a decentralized exchange alliance. Now everyone is developing their own API interfaces based on Ethereum or their respective public chains. The data format interface standards have not yet formed industry standards. In the future, industry integration will occur. When industry standards emerge, each company can develop itself according to standards. API, all DEX applications can call these interfaces to meet their application needs.
Imagine if all of these tools and protocols can be connected and run together, creating a huge financial center can overthrow existing banks and credit institutions step by step, and achieve cheaper transactions that truly inclusive finance.
Jay: Interoperability in DeFi is one of the most difficult challenges in blockchain technology. Different blockchain networks have different communities, consensus and hashing algorithms, which makes standardization and collaboration tricky. However, if we can continuously improve the user experience and take advantage of network effects by creating interoperable blockchain solutions, we can only unlock the true value of the blockchain in DeFi.
In an interoperable ecosystem, if another user sends digital assets or tokens to you from a different blockchain network, you should be able to identify, identify, and interact with them without the need for an intermediary. Unfortunately, blockchain networks are highly decentralized and disconnected. As the industry grows, it becomes an increasingly important issue as each blockchain network has highly specialized and specific functions.
According to a study by Deloitte, "Standardization can help companies collaborate on application development, validate proof of concept, and share blockchain solutions." At the back end, interoperability enables enterprises and developers to efficiently build applications. And the growth and proliferation of these developments can lead to network effects, leading to higher growth. Moderator: What is the ultimate vision of DEX? What is the biggest dilemma facing now?
Jay: I think there are three possible development directions for DEX technology. The first is the generalization of DEX 3.0, providing a universal dApp expansion solution. To be more specific, this technology can be used not only to expand DEX, but also to expand almost all types of dApps. The second is to support cross-chain decentralized transaction agreements. The third is the decentralization of the relay or the state tree itself. The biggest dilemma is the need to increase throughput and reduce transaction costs in order to compete with the most mainstream centralized exchanges.
Moderator: How big is DEX and the entire DeFi market, how do you do incremental users?
Zeo Xiong: At present, the main user groups of DEX are divided into these categories: 1. Self-managed asset users 2, Defi users 3, and anonymous demand users.
DeFi as a whole is still in its infancy, and the decentralized lending market is currently the highest share of DeFi applications, and it is a fundamental advance in the financial market in the fully open lending market itself. Using smart contract technology combined with blockchain can better solve the trust problem in financial transactions, serve users, and protect more users from the popularity of blockchain technology while protecting user asset security. Real inclusive financial services are a very good development direction.
So if Open Finance is the ultimate goal, blockchain technology is only an important way to achieve it. Good DeFi products allow participating users to meet their own needs while creating greater value, if combined with traditional finance. , combined with traditional capital will be a big market.
Jay: I personally think that the high-probability of the killer DeFi app is a DEX with a great user experience. This DEX must be clear, intuitive, and solve problems such as user experience and thresholds. Moderator: What are the advantages and disadvantages of DeFi in Ethereum? Will ETH 2.0 solve these problems? Will there be a better smart contract platform and public chain environment?
The advantage of Ethereum is that it is currently the most popular and active smart contract platform. The downside is the need to address scalability issues. ETH 2.0 is not a panacea for solving current problems. There are still many issues to consider (for example, how to reduce the friction of current smart contracts from 1.0 to 2.0 and how they run in shards).
The blockchain industry is developing very fast. If other platforms have good appeal and development activities, DeFi can have a better application platform and landing environment. Moderator: What is missing from DeFI's large-scale application? How to deal with it?
Zeo Xiong: According to defi.review, DeFi daily transactions total less than $1.2 billion, and the decentralized lending market has a daily trading volume of 1 billion. The borrowing itself is not as high-frequency as the speculative currency, and the current defi The main focus is on the Ethereum, and there is no new capital in the market. In the early stage of the industry, the infrastructure for building the industry is slowly coming, and it is long and long.
Jay: DeFi is booming, but it is still in the early stage of exploration. From multiple dimensions, there are still a series of problems that need to be solved. Otherwise, it is difficult to have enough real and effective demand to support the market.
For developers and merchants, since the DeFi project is built on the blockchain, product development will be constrained by the performance of the existing blockchain technology. For example, the DeFi project development based on Ethereum will be limited by Ethereum limited. Throughput.
For the market users, Defi products have many problems, and they still face the problem that the user interface is not friendly and the user entry threshold is high. The current Defi application is still at the expense of the user's experience in exchange for privacy, asset security and asset management freedom.
At this stage, the advantages of DeFi decentralization are not completely natural. This is similar to the early days of Internet e-commerce, which requires continuous improvement of infrastructure and cognition. However, with the maturity and liquidity of DeFi technology, a very low-cost, transparent, trustworthy liquidity and lending market will soon come.