Thoughts on the Development of Stabilizing Coins and the Repositioning of DEX

MakerDao added a BAT mortgage asset event, once again igniting the dispute between decentralized stable currency and centralized stabilization currency. Centralized stable coins are generally issued jointly by exchanges and institutions. For example, Bitfinex and Tether cooperate to issue USDT, Binance and Paxos cooperate to issue BUSD, etc. The motivation for issuing coins is mainly to help users to deposit funds on their own platforms. However, there is a problem of unclear funds. The exchange not only can easily access the funds of the user's existence platform, but also is likely to touch the underlying assets of the stable currency when extreme situations occur.

A well-known example is that we have pulled down the fig leaf that the exchange funds are not clear – Bitfinex has used Tether to redeem the USDT reserve to make up for the $850 million funding gap caused by the US government's freezing of the exchange account. This is the typical stable currency user paying for the exchange user. Although the two user groups have a large degree of overlap, they cannot be considered as one in the distribution of benefits. Therefore, in order to avoid the problem that the underlying funds of the stable currency cannot be self-certified, many exchanges will regularly issue audit reports through third-party custodians. For example, the USDK jointly launched by OKLink and Prime Trust is regularly issued by the US auditing firm Armanino.

Incorporating a regular audit by a third-party auditor is basically the greatest transparency that can be achieved by stabilizing the dollar's stable currency. For MakerDAO, the decentralized stable currency that anchors the token, anyone can audit the underlying asset ETH stored in the chain at any time. MakerDAO has almost no space to touch the underlying assets of the stable currency. A complete divestiture between the asset and the issuer was achieved. However, the problem is that ETH currently lacks a measure of value, and the probability of a sharp rise in price is large. But it is undeniable that the decentralized stable currency has indeed solved the problem of transparency to a large extent. This is the progressive nature of MakerDAO, and the emergence of Dai offers users a variety of possibilities in the choice of stable currency.

Centralized stable currency: centralized distribution + third-party audit (underlying assets, US dollar exchange rate stability)

Decentralized stable currency: Anyone can audit at any time and in real time (the underlying asset token is highly volatile)

Similarly, for a large amount of user funds deposited inside the exchange, as the general trend of compliance advances, it will be gradually divested from the exchange and handed over to the compliant third-party custodian. In this way, it is proved that the assets are still owned by the users although they are placed on the exchange. In extreme cases, the users can withdraw smoothly when the run occurs. In the current situation where such a compliance environment is unclear, many exchanges have made staged compromises to provide users with “holding rebate” services – as long as they hold the currency on the platform, they can receive interest on a periodic basis. For example, OKEx launches a monthly position rebate for tokens such as ALGO. For the exchange, since it is impossible to self-certify the question of "whether to misappropriate user assets," it is better to openly and honestly give users interest. Of course, the wool is on the sheep, and the interest allocated to the user's head comes from the platform to take the user's POS token to do the benefits of Staking, but can admit and share a piece of money to the user is also a self-cultivation of the contemporary exchange. It is.

Having said that, it is better to mention the value of the Decentralized Exchange (DEX). At present, there are many DEX products on the market, but the transaction volume has not been large. This is because there are problems in product design and positioning. The industry has mostly decentralized exchanges to benchmark the central exchange, and then to criticize its integration efficiency, the depth of the market and other issues. The author thinks that instead of saying that DEX is an exchange, it is better to say that it is a "token exchange tool", which should really be against the dark pool of traditional financial markets.

Centralized Exchange: Exchange Hosted User Funds + Position Rebate → Fund Isolation Hosting + Third Party Periodic Audit

Decentralized exchange: token exchange tool.

We all know that the depth of centralized exchanges is difficult to support large-scale trading, many large companies can only meet their trading needs through the off-site, OTC transactions can help large investors quickly reach a deal with a lower slippage. As far as the topic is concerned, as far as the exchange itself is concerned, large orders are obviously unwelcome and can easily impact the market. Especially for derivatives, it is very likely to cause unexpected losses to users. . Therefore, similar to the exchanges such as OKEx, a series of market price stabilization mechanisms such as price limit rules, strong flats, strong flat positions, and gradient margins have been introduced in the derivatives to avoid fluctuations in the market caused by large orders.

Go back to the topic of tool attributes in DEX and continue to look at OTC transactions. Over-the-counter trading consists of two major parts – the currency/coin transaction and the currency/coin transaction. For the former, the industry is mostly completed by the OTC Desk endorsed by the exchange; for the latter, there is still a lack of a trusted third party, and DEX can just make up for this problem, as a supplement to the OTC Desk, for the bulk trade of coins/coins. Provide services. The author's solution is as follows:

The two parties communicated the transaction in advance and communicated with each other. After reaching a transaction consensus, one party set the trading time, transaction currency, transaction rate, number of transactions and other restrictions on the DEX; the other party sets the reverse transaction that can be matched. Note that the trading time can be an interval, but the transaction currency and the number of transactions need to be accurately matched to achieve a transaction, so as to prevent mis-transaction by other users, and fully exploit the characteristics of the dark pool transaction in the traditional financial market.

For example, user Alice initiated the following transaction:

Trading hours: 12:00pm-12:10pm

Trading currency: A Token ⇌ B Token

Transaction rate: 1:2 (1 A for 2 B)

Number of transactions: 100 A

User Bob initiates the following transaction:

Trading hours: 12:00pm-12:10pm

Transaction currency: B Token ⇌ A Token

Transaction rate: 2:1 (2 B for 1 A)

Number of transactions: 200 B

What is perceptible to the user is to set the above four parameters, and the parameters can be matched to complete the transaction. In theory, users can initiate exchanges of any currency, any quantity, and any exchange rate according to their needs. Of course, they also include unlisted tokens that have no fair price reference, as long as the parties reach a consensus. This type of trading once again brings new living space to hackers.

DEX, which is located in the “Token Exchange Tool”, competes with non-tool products for the attention of users. Tool products do not need to be sticky, and they can meet the demand. It is a very good product.