Can the combination of decentralized derivative exchanges and account abstraction open up the next incremental entry point?

Can decentralized derivative exchanges and account abstraction create a new entry point?

Author: CapitalismLab

If decentralized contract exchange can be logged in with Google accounts, how much will its audience expand?

If assets are still in the hands of users while having the user experience of centralized exchanges, how much traffic will it gain when CEX encounters FUD?

The so-called “GMX starts quickly, dydx has a high ceiling”. How will combining the advantages of both work?

This article will introduce you to MUFEX (Most User Friendly EXchange), a decentralized derivative exchange designed for the above goals.

Core Mechanism

  1. DYDX-like asset self-custody mode, users can force withdrawals by themselves
  2. Uses Account Abstraction (AA) wallet scheme, which supports Google login and other better user experiences
  3. Mixed order book: There are both GMX/GNS passive MLP and traditional market makers like dydx

So what are the advantages and disadvantages of these mechanisms? Let’s analyze them in detail.

Asset self-custody

After FTX’s explosion, GMX received more attention and grew faster. This is related to the decrease in users’ trust in the asset security of CEX, and asset self-custody can solve this problem. Although trading matching is also important, there is more room for compromise. It should be noted that even GMX/GNS is not completely decentralized in this aspect.

Using Account Abstraction wallet scheme

After a year of strong growth, GMX’s user base has also reached a bottleneck period, with an average daily user number of 2k, of which contract trading users account for 1k. However, to be fair, considering that the rumored true number of active users on the chain is only tens of thousands, GMX has done quite well.

So how to further improve? It is necessary to further reduce the usage threshold. Undoubtedly, private key wallets such as Metamask have very high user education costs, and the currently mature Account Abstraction (AA) wallet is a breakthrough direction. This is also the solution adopted by MUFEX, which increases scalability under security. The intuitive benefit is to make the user experience better and simpler, similar to web2 product experience, such as being able to log in through email, Google account, etc.

With this, it is relatively easy to attract CEX users with a user experience similar to that of CEX. For CEX users, there is no learning curve in migrating to MUFEX, and asset security is improved. If there are token incentives at that time, there will be additional benefits, making it easier to increase users. What are the benefits of issuing BRC20? It’s simple!

Hybrid Order Book

As we mentioned before when analyzing GNS, the dynamic spread of its trades is calculated based on the CEX trade depth, and to some extent, it can be said that GNS actually blurs the CEX Orderbook.

  • Zero slippage = the buy/sell order left with the remaining trading limit at the spot price
  • Dynamic slippage = placing orders at different prices above and below the spot price

MUFEX is also based on this principle. Although it has created an Orderbook, it is essentially the dynamic slippage mode of GNS’s MLP, allocating liquidity through external spot data such as CEX depth. In addition to the liquidity provided by MLP, since MUFEX uses on-chain self-custody of assets and off-chain matching of trades, it supports market makers to place orders through APIs. What are the benefits of this?

Because MLP, as a passive LP, must be conservative in its principles to avoid large-scale losses, it is difficult to have an advantage in slippage and fees compared to CEX, and the upper limit on its scale will be relatively low (as shown in the figure below, the upper limit of GNS BTC OI is 10M), which will inevitably limit the ceiling.

MUFEX supports both passive market making by MLP and active market making by market makers. In fact, by exploring the successful GMX/GNS model that has been market-validated, the goal is to increase the ceiling by introducing more external participants.


From MUFEX’s design, it should be aimed at combining the following advantages:

  1. DEX asset security
  2. CEX user experience
  3. Low slippage of GMX/GNS
  4. Composability of GLP
  5. Orderbook ceiling

As for how complete the project is and whether it can have a good effect, we cannot draw conclusions yet. After all, this is still quite different from the current DeFi, and it requires strong operational capabilities. The operational capabilities of the project can only be reflected through market practice. MUFEX is currently being tested, and if you are interested, you can try it out and experience it for yourself.

CapitalismLab Review

DeFi has begun to focus on user experience. Perpetual contracts were invented by Bitmex, a small and specialized team that is similar to current DeFi projects. However, later exchanges like Binance, OKX, and Bybit, which are better at operating and user experience, still captured the vast majority of the market share despite not having much innovation in terms of underlying mechanisms.

Contract trading involves frequent user operations, so user experience is of utmost importance. Most DeFi projects do not make money in their respective fields, and investing a lot of resources in user experience is not worthwhile, but this does not include derivatives. MUFEX has taken the first step, and we can look forward to the performances of various forces that will follow.

We will continue to update Blocking; if you have any questions or suggestions, please contact us!


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