A five-minute overview of DEX, the "second world" outside of Ethereum

Source: Lao Lu's blockchain notes, edited, click to view original text

DEX stands for Decentralized exchange, which means an unlicensed and non-custodial exchange. The main feature is that most exchanges do not require KYC, registration and login, and provide trading and exchange services on a ready-to-go basis. DEX is one of the important categories of the Defi ecosystem. DEX can be divided into three types according to the matching method: order book, reserve library, and aggregator. Below I will briefly introduce Ethereum's DEX, and then focus on DEX outside of Ethereum.

IDEX, dydx, Oasis Trade, Dex.blue, Curvefi, DDEX, Radar Relay, Switcheo, Saturn, Mcafeeedex, Leverj, Vite, Token.store (will be closed on June 22)

The most representative of this type of DEX on Ethereum is IDEX, formerly AuroraDAO's AURA. The current token name IDEX is the platform currency. IDEX, which was once glorious in 2018-2019, is a trading market for a large number of altcoins. Looking at the trading volume of IDEX, you can see the rise and fall of DEX. The use process of order-based DEX is similar to that of centralized exchanges. The login method is changed to login to the wallet. The transaction is completed at the same time as the limit order transaction is issued. When the depth is sufficient, one asset is exchanged for another asset after a smart contract and returned to the wallet. If you experience this trustless trading method for the first time, you will feel the charm of blockchain.

Looking at the price of -92%, the highest point in two years, users who insist on being optimistic about DEX will begin to doubt themselves. Judging the value of DEX is similar to evaluating centralized exchanges, and the following points will be referred to.

① Exchange security

② Difficulty of technical implementation

③ Trading experience

④ Trading volume

⑤ Team vitality

There were DEXs before IDEX. EtherDelta was one of them. The dominant Ethereum DEX in 2017 was completely decentralized due to disputes and fraud, and many investors suffered heavy losses. I personally think that with the SEC's focus on IDEX in 2019, the restriction of mandatory KYC for users in the United States, the slow update of its own products, the decline of the copycat market, and the delisting of trading volume, IDEX lost its halo. It was gradually surpassed by Bancor and Uniswap, which were based on algorithmic reserves at the same time.

By the way, ForkDelta, which was able to compete with IDEX in terms of daily activity, was relatively cumbersome to list on IDEX. Listing on ForkDelta only required access to the token contract, and it only took a short time from token minting to the start of trading. In the era of ERC20, not every project could curry favor with centralized exchanges and IDEX. At this time, ForkDelta became their best choice. Shouldn’t emphasizing free trading be the pursuit of DEX? Even junk assets need freedom. Of course, as time goes by, it is gradually eliminated by the market. Although there are many online currencies, the low trading volume is an indisputable fact.

To sum up this type of DEX, except for dydx, which has taken a different approach and is a leveraged trading DEX, other DEXs have chosen to start over with the second-layer network, leaving IDEX struggling to survive, and being surpassed by storage DEXs that are endowed with core competitiveness by algorithms in terms of user experience, transaction depth, and wealth-creating effects, and the gap between the two is getting wider and wider. Even with the IDEX 2.0 upgrade, when users are stuck in Generating, the poor mobile experience means that most users will close the page before they have time to try to trade.

Looking forward to the DEX on Ethereum Layer2 that is comparable to the response speed of centralized exchanges, such as Injective, Loopring, Leverj, Deversifi, etc.

Storage

Uniswap, Bancor, Kyber, Matcha, UMA, JellySwap, Balancer, Airswap, Tokenlon, Nuonetwork

One sentence to describe storage DEX, a smooth curve without needle DEX. Whether through liquidity pool incentives, atomic swaps, AMM (automatic market maker) and other technologies, it finally achieves stable liquidity of assets without the need for orders. For example, the constant product market maker algorithm of Uniswap, which currently ranks first in Ethereum transaction volume.

The above is the transaction page of Uniswap. Storage-type DEX does not need to display order depth and historical transaction records, so it has a simple interactive page. The essence of trading is what I paid and what I can get at what price. If it is suitable, trade it, if it is not suitable, cancel it.

When using storage-based DEX, you need to pay attention to the following issues:

① Liquidity issues

When using it, there will be no pins, and the orders will be completed smoothly and completely, but this is based on the premise that the depth is sufficient. When the amount of funds in the entire liquidity pool is not high, once you buy, there will be a huge price slippage , which is unacceptable to most traders. While being surprised at the increase in the currency in Uniswap, you can pay attention to the transaction volume and the size of the fund pool on the Info page. Smart players will not put themselves in liquidity risks.

  ② Suitable trading pairs

If you want to sell 100 ETH in Uniswap, your best choice may not be USDT but DAI and USDC. Choosing USDT-ETH transaction will cause you to lose 2% of your funds due to liquidity.

③ Handling fee issue

The handling fee includes Ethereum's gas fee and DEX's handling fee. The DEX handling fee is 0.3% and the gas fee varies over time. The handling fee of centralized exchanges ranges from 0.049% to 0.02%. The handling fee can be further reduced through VIP, point cards, etc., so DEX does not have an advantage in terms of handling fees. The gas fee is about 0.5$-2$, and the transaction cost of a single transaction is not counted. Therefore, it is not a wise choice to conduct small swaps on DEX.

④ Counterfeit currency attack

The threshold for issuing ERC20 of the same name on Ethereum is very low. Before Balancer's governance token BAL was issued, Balancer Pool Token (BPT) had already appeared on Uniswap and was airdropped to major liquidity holders of Balancer. Uninformed users would buy BPT because they were optimistic about Balancer and lose money.

We can think about the balance problem of a DEX. ForkDelta, which has more freedom, is full of junk assets, while Matcha and Kyber, which have less freedom, only list high-quality assets and screen them for users. But isn’t this another centralized decision?

(Uniswap can freely splice token contracts for trading)

Therefore, when Dex begins to turn to DAO governance, the most basic right of the governance token is to vote for listing .

If an ERC20 is ready to be listed on Compound, whether it will be listed is decided by COMP holders. At this time, those who vote in favor will receive a considerable ERC20 airdrop. COMP holders will tend to vote in favor out of human nature, and the ERC20 will be listed on Compound. The first person to eat crabs will be discussed and indirectly affect the price.

The above is the trading interface of Kyber and Matcha based on 0x. From the aspects of interface design, interactive experience, cross-terminal transaction (Walletconnet), there is a reason why storage DEX is favored by the market.

Aggregator Class

1inch, dex.ag, shiftly, dex.blue, bambooorelay, cross-chain atomic swap Switcheo, JellySwap.

By aggregating the depth of other Dex and protocols, it brings together multiple DEXs (Kyber, Bancor, Uniswap, Oasis, Curve, 0x) and its own capital liquidity pool to provide users with trading services that seek the best transaction price.

Taking 1inch as an example, when trading 0.1 ETH to find the best price, the Gas fee for initiating the transaction is estimated. At this time, after using Kyber to generate a $4 transaction fee, the cost-effectiveness of this transaction is very low.

You can also use Dexindex to find the best price for transactions in each DEX. The following is the best trading method for exchanging 10,000 DAI using DEX.

When you are ready to exchange 100 ETH for KNC, Matcha helps you find the best option through a combination of three DEXs, 4% through 0x, 42% through Uniswap, and 54% through Kyber.

DEX is an important infrastructure in the Defi ecosystem. Storage-based Dex with automatic market makers and better experience is eating up the order book market. The best way to judge whether a DEX is worth investing in is to experience it yourself. While being overwhelmed by the Defi craze, you might as well experience it. You will find that Defi is not that complicated.

Dex is essentially for human use. As a trading tool, it should compete for the market with good interactive experience, trading depth, and security , rather than relying on its own token economic model and fake volume to cheat market rankings. It is not accurate to value Dex based solely on trading volume. The fees obtained by natural persons through trading volume and the fees obtained by project parties through robot volume need to be distinguished. The volume-brushing phenomenon is particularly obvious in high-performance public chains.

Debank data

Taking into account the transaction volume, transaction times, and number of users, we can see that the DEX with the highest transaction volume, Uniswap, has no more than 4,000 users, and DEXs with less than 100 users can also have daily transactions of nearly one million US dollars. There are also DEXs with single-digit users that are on the rise.

There are also options DEXs that require higher professionalism, such as Opium, Opyn, Potion, etc. introduced here, but they are not suitable for ordinary users.

Of course, it is not enough to judge the strength of a DEX based on surface data alone. Different DEXs have different technical implementation difficulties and different team strengths. Some DEXs with poor data may introduce assets outside the blockchain for trading in the future with their resource advantages, showing the vitality of the team and thus increasing the valuation of the project. Some DEXs exist in name only, and the core team has already started a new business. Some DEX teams have a long history of bad deeds, and a makeover is not enough to clean up their past behavior. These are not visible through ordinary data. Only deeper research can reveal the truth .

EOS DEX

As of now, the number of EOS Tokens is 5143. In the early days of EOS, DEXs were everywhere. So far, there have been 32 DEXs developed based on EOS. If you are an early EOS user, you have more or less heard of and used FINDEX, BTEX, Chaince, and AKDEX. Now all of them have ceased operations.

Counting on my fingers, there are only Newdex, WhaleEx and Switcheo left in the EOS DEX. All three are cross-chain DEXs and have implemented their own cross-chain solutions.

Dappreview data

Newdex leads with an average daily trading volume of 18M USD (including Swap trading volume). The average daily trading volume of the most active EOS/USDT trading area should be around 100,000-150,000 USD.

EOS has not seen any storage DEX yet, but there are sidechain DEXs, but the transaction volume is also very small. Currently, only some projects have emerged that generate stablecoins by staking EOS, but their scale and influence are not enough to support the Defi ecosystem. Of course, EOS's own Rex is the largest Defi application on EOS.

Currently, the more promising one is equilibrium, which is cooperating with Polkadot and PToken. The scale of EOS collateral is 4 million, about 10 million US dollars of collateral, and 2.73 million EOSDT has been minted, with a system collateral rate of 385%.

EOS-based tokens, apart from the lottery tokens, are either the platform tokens of the three exchanges or KEY and EOS wallet tokens. Application tokens and game tokens are beginning to seek a way out in Ethereum and other public chains (KARMA, PGL, XPET, Three Kingdoms). At present, we only hope that Voice can bring a glimmer of hope to EOS. At the same time, the blockchain game Blankos Block Party produced by EOSVC and Blizzard is also worth looking forward to.

NEO’s DEX

NEO 3 is about to be upgraded, and the built-in oracle of the public chain seems to have laid the groundwork for Defi. It is unknown whether NEO will put its focus back on Defi. From the official information, NFT will be the next track that NEO will pay more attention to, and NFT+DEX can also become a market.

Currently, there are two DEXs developed based on NEO, Switcheo and Nash, with an average daily trading volume of 50,000 to 200,000. However, Nash was valued higher by NGD in the early stage, and its current market value is 20 million US dollars. Switcheo belongs to a Singaporean team, and it did not receive investment from NGD in the early stage until it participated in the NEO competition with DEX and received investment from NGD. Its current market value is 2.7 million US dollars.

Dappreview data

Switcheo was born in the early days of EOS mainnet launch. After the token swap from Ethereum's SWH to NEO's SWTH, Nash was looking for compliance and could not launch products. At this time, Ethereum Dex was going downhill, and the explosion of tokens in the early days of EOS mainnet was in urgent need of Dex to carry circulation. Switcheo made the mistake of developing a DEX based on ETH first. By the time they finished developing Ethereum's DEX, the ETH market was sluggish, resulting in unsatisfactory trading volume.

There is also insufficient trading demand for projects based on NEP5, including Zeepin, which is seeking centralized exchanges and later NEO-based projects. Soul, LRN, TNC, QLC, and DBC have begun to fail and cannot bring ideal trading volume to DEX. They can only continue to develop DEX based on EOS. Unfortunately, after the development was completed, EOS Dex has been occupied by WAL and Newdex with a large market share. Switcheo, which has weak marketing, has not even cooperated with the mainstream EOS wallets in the market.

After going through this period, the Switcheo team recently changed its brand, redesigned its economic model, launched Trade Hub, a network based on Tendermint Core, and launched the mainnet at the end of the second quarter of this year to start staking as the settlement layer of DEX, breaking free from NEO’s own bottleneck limitations.

BNB DEX

Binance Chain is developed based on Cosmos. As the first public exchange chain, Binance DEX has attracted a large number of project parties. In order to compete for the opportunity to be listed on Binance through DEX, Binance Chain has 1,113 BEP2 Tokens, but only 132 can be listed on DEX. In the end, only two lucky ones, Ankr and Tomo, were selected to be listed on the Binance main site in this way.

The Binance DEX fee is 0.1%, and it is as low as 0.04% if BNB is used.

In the absence of liquidity incentives, free listing incentives are a good idea, and this method is expected to be repeated on the Binance Chain.

Rune has been performing abnormally on Binance Chain recently.

Rune: Uniswap of Binance Chain has a market capitalization of 53 million US dollars, which is a bit overheated.

DEX of other public chains

TomoDEX

The order book is thin, with the help of Swap Bridge, ETH and BTC are introduced to Tomo. Currently, the transaction volume is low and the transaction depth is poor.

YAS Codex

Through AMM, depth-free transactions can be carried out, similar to Synthetix's iETH and iTRX transactions, and more marked price indices can be introduced.

Bytom

A domestic Defi newcomer, using MOV as the entry point to introduce BTC, ETH, BTC, and BTM, and then completing asset exchange through two methods: magnetic exchange (order book fee 0.1%) and flash exchange (storage fee 0.3%).

MOV is a decentralized cross-chain value transaction protocol. Users can trade and exchange assets on the blockchain through MOV. Users can place orders for buying and selling in the protocol, or exchange with one click. According to the data on the official website, the cross-chain assets have exceeded 21M US dollars, and the transaction volume has also begun to take shape.

In the near future, MOV will launch a trading market based on the CFMM (Constant Function Market Maker) constant function market making mechanism, targeting the stablecoin exchange market. It is expected to obtain lower slippage prices and reduce transaction friction costs for users.

Blue represents the constant product surface, green represents the constant sum surface, and the middle is the constant function market making pattern.

The only drawback is that MOV's trading function is currently implemented on mobile devices, and most professional traders are PC users. Perhaps by opening up browser plug-ins, interacting with the Web, and introducing the Walletconnet protocol, Bytom is expected to stand out in the DEX field.

Coinex DEX

Coinex Exchange Public Chain DEX

Saturn Network

ETC-based DEX

Zilliqa

Switcheo to develop DEX for Zilliqa this year

Polkadot

?

There is a big gap between other public chains and Ethereum in DEX. They can mainly catch up in terms of high-quality assets, cross-end protocols (WalletConnet), storage DEX, liquidity incentive DEX, etc. Once Ethereum solves the congestion problem, other public chains will be left far behind. Before ETH2.0 is launched and Layer2 is widely popularized, it is an opportunity for other public chains.

Developing the Defi ecosystem is by no means a matter of supporting one or two Defi applications. Dex, Stablecoin, Margin, and Lending are all indispensable, and the four applications are closely linked.