Decentralized exchanges have indelibly changed the way cryptocurrencies are traded. But in general, the technology driving these platforms is relatively young … which means that teething problems are inevitable.
Some of the heavyweights that currently dominate the market are known as out of order book markets. While it’s tempting and somewhat romantic that these platforms are driven purely by supply and demand, it often results in some unexpected drawbacks.
There is one obvious disadvantage that we do not need to mention too elaborate: high swap costs. We currently live in a world where it can cost hundreds of dollars to complete a small number of seemingly straightforward transactions on the best-known decentralized financial protocols. For the true potential of the DeFi sector to shine, these transfers need to be cheaper and faster than anything a centralized rival can offer.
Annoyingly, one of the things that makes cryptocurrencies so exciting can also get in the way of these assets being practical as a medium of exchange … and that’s blockchain. On networks like Ethereum’s, miners end up prioritizing transactions that pay the highest gas costs – and this can be disastrous for traders in a hurry. Opportunistic users looking to buy tokens at low prices run the risk of paying much more than they bargained for, especially if an asset’s value has increased by the time the transaction is completed.
We’ve also seen institutions start to take a growing interest in this space – and in many cases, these companies can be large lenders eager to bulk withdraw their digital assets. Right now, DeFi may end up being ill-suited for those looking to make large trades, and that’s because the size of these trades can shrink the liquidity available in the market.
If you experience all these hurdles, it is considered that you have managed to get to the stage where you are comfortable using a DeFi protocol. Clunky, confusing user interfaces can make these ecosystems extremely unpleasant, even for those who know their way around a traditional trading platform. And given the disastrous consequences that can arise if money is sent to the wrong place or if a wrong number is typed in a box, it is critical for newbies to have confidence.
On the face of it, it seems that a radical rethink is needed to build on the extraordinary success that the first generation protocols have already had – protecting the attributes that make DeFi platforms so popular, while keeping a few pages from it. playbook used by centralized rivals. The end result can be enjoying the benefits that a CEX offers, without the inherent dangers associated with putting your trust in a third party.
What if bulk purchases and sales could be made without liquidity being an issue and an asset’s price skyrocketing? What if decentralized financing protocols didn’t involve enduring endless bottlenecks affecting a trader’s bottom line? Is there any way to make sure everyone’s trades are equal and can all of this be accomplished while a user is in full control of their money?
‘The Perfect Decentralized Exchange’
A top priority for the crypto sector should be to ensure that a trading platform, whether decentralized or not, offers equal opportunities for all. The design of some ecosystems often makes for an unpleasant tradeoff – one that benefits traders more than market makers, or vice versa.
Order books here can serve as a knight in shining armor – responding in a split second to changes in global sentiments about traded assets. This can help eliminate the price shift that oh, so many traders end up grumbling … and end the painful wait times traders experience as their urgent trades make their way through the blockchain at an icy speed.
Polkadex Orderbook brings such a concept to life – enabling makers to create markets by placing buy and sell orders for buyers to consume. The project delivers a layer two system on top of the Polkadex network, and it claims that the order book can accept transactions in 20 milliseconds – with a capacity for 500,000 transactions to be processed per second.
Frontrunning becomes a vague memory by not paying any fees at all – meaning there is a “first come, first served” mentality about transaction processing. At the same time, this addresses the recurring problem that blockchains are too expensive to run.
While this may at first seem like there is a risk of centralization creeping into the DeFi space, an innovative turn is coming in the form of decentralized Know Your Customer controls. User privacy is preserved as Polkadex never receives the details of the traders using the platform – instead, they only receive cryptographic evidence that checks have been completed.
Users maintain control of their money at all times and traders can also delegate their assets to a third party to take advantage of algorithmic trading. A range of trading bots are also supported – including high-frequency trading bots targeting investors of all sizes, giving everyone a split second that often proves crucial in a fast-moving market. Risk management bots, powered by machine learning, are also growing in popularity.
Polkadex also plans to offer a fully on-chain IDO platform that provides a one-stop shop for new projects from the fundraising phase to the token list, all while removing barriers to entry for consumers who want to enter the market. ground floor of startups they are passionate about.
According to Polkadex, decentralized exchanges must evolve – and must evolve now. The team behind this project believes that their approach, which combines a fast order book and abundant liquidity levels with a slick user experience, can kick-start a new generation of DeFi.
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