Is the reason why EOS did not plummet related to DeFi and AMM?

▼ ▼ ▼

On September 2, the market was affected by the investigation of Bithumb, the largest exchange in South Korea, and the downtime of Binance, and mainstream currencies such as Bitcoin plunged. As a result, the price of Bitcoin plunged directly from 12,000 points to 11,160, which led to a downward trend in the entire crypto market.

Among them, ETH opened at 480, fell to a low of 420, and closed at 430, while EOS closed at 3.3, fell to a low of 2.89, and closed at 3.0.

KOL Chaoyue pointed out that the reason why EOS market can recover is to a certain extent related to Defibox, the current star project under EOS. Defibox acts as a damper.

(Picture from Knowledge Planet)

Defibox is a star DeFi project on the EOS chain. It mainly provides two functions:

The first is Swap, which is a decentralized token exchange protocol and automated market making protocol (AMM). Similar to Uniswap, the protocol provides exchange prices in real time through a constant product algorithm.

The second is USN stablecoin, which is a decentralized collateralized stablecoin on EOS. By pledging EOS to issue USN (1:1 pegged to the US dollar), it can meet a variety of needs such as leveraged trading and obtaining liquidity.

Due to the congestion problem of Ethereum, many funds have been transferred to other public chains for mining or arbitrage. Defibox on EOS has taken over this wave of enthusiasm. According to official data, the total locked-up amount exceeded 15 million EOS in 45 days after its launch, and the locked-up amount is increasing by 1 million EOS on average every day. The 24-hour exchange rate exceeds 8.45 million EOS. Currently, EOS ecology ranks first and the total ecology ranks second on DappReader.

The contract code of Defibox has passed the security audit of SlowMist and Pidun. At the same time, Defibox has joined forces with multiple super nodes to realize multi-signature of smart contracts. As for the modification of smart contracts and fund transfer, in addition to Defibox, at least three other nodes need to jointly sign and confirm to complete.

As we all know, when the market fluctuates violently, centralized exchanges will experience mismatched transactions and insufficient liquidity, which will then create panic and lead to a sharp drop. The sharp drop on March 12 was largely due to insufficient liquidity caused by panic. The AMM mechanism currently commonly used by decentralized exchanges DEX can provide a supplement to this to a certain extent.

Take EOS on September 2 as an example. Huobi’s online transaction speed was slow, and users’ orders were always not matched. However, Defibox’s AMM model solves the above problems, with unlimited liquidity, instant human-machine transactions, and anyone can act as a market maker, which greatly increases the depth of transactions. Therefore, a large number of users bought EOS on Huobi last night and then went to Defibox for arbitrage, which stabilized the normal liquidity to a certain extent.

Why do centralized exchanges have such problems, and why can DEXs supplement them? Some even believe that in the future, core DEXs may take away the pricing power of centralized exchanges CEXs.

Referring to the OKLink research report, we can know that in the CEX bidding system, the price priority principle is the matching principle commonly adopted in the bidding market, and it is regarded as the primary priority principle, that is, the first priority principle.

This model requires brokers to buy or sell assets in the best interests of the client when accepting commissions to conduct transactions. That is, when buying assets, higher buy price orders will take precedence over lower buy price orders; when selling assets, lower sell price orders will take precedence over higher sell price orders.

In the AMM mechanism of DEX, there is no price discovery function. For example, in the transaction of a certain asset, user A (market maker A) places a buy order of $5/lot, and user B (market maker B) places a buy order of $10/lot. Under the bidding system or market maker system, user B (market maker B) completes the transaction first, but in DEX, because the price of AMM is driven by liquidity, the transaction price is determined by the assets in the reserve pool, not the order price, that is, AMM will automatically generate a transaction price.

For this reason, AMM has to introduce the important role of arbitrageurs: once the price on the AMM platform is different from the market fair price, there will be arbitrage space, which will bring the price back on track. So the arbitrage situation of Huobi-Defibox happened last night, which indirectly brought EOS back to normal market conditions.

From the perspective of future development, it is difficult for the automated market maker system to completely replace the existing bidding system and market maker system, but it can become a supplement to financial market transactions with its simple and flexible trading features. It is expected that DEX and centralized exchanges will divide the world into two.

Wu said blockchain is recruiting part-time writers/reporters who are looking for in-depth research or experience in a certain field.