AMM Vs. OrderBook: How Will The DEX War Explode in The Future?
From the early Bitcoin electronic cash system to Ethereum represented by EVM, and cross-chain projects Polkadot and Cosmos, to the rise of NFT, DeFi, and DAO, the crypto world has slowly transitioned from the barbaric era to multiple application scenarios.BSC/Solana/Avalanche, a low-cost, high-speed smart contract public chain, has absorbed tens of billions of dollars in user management assets, and Arbitrum/Optimism/Polygon’s L2 blockchain aimed at supporting the expansion of Ethereum is becoming an integral part of the blockchain infrastructure market.We are experiencing an era of strong infrastructure. DeFi, a sophisticated and high-performance financial system that is complex and scalable, can now be applied to these smart contract public chain. Its birth has opened up new applications for crypto finance and provided opportunities to transform traditional financial models into the future. Important to note that DeFi has created a variety models such as stable currency and lending, DEX, derivatives (prediction market, insurance, payment platform), etc. In less than two years, DEX was developed. This model was among many that DeFi has created, including stable currency, lending, derivatives, prediction market, insurance, payment platform, and DEX. The platform offered Counterparty DEX innovative functions and all Counterparty tokens were able to trade on the DEX based upon the Bitcoin network. OasisDEX, an Ethereum-based platform, opened the first onchain settlement and matching and became the primary source of liquidity for platforms like Uniswap or DYDX. OasisDEX was the catalyst for the development of mature spot funds like Uniswap and SushiSwap. DEX is also known as DEX of DYDX, Kujira’s derivatives contract system and OrderBook DEX such as D5 Exchange. These have low slippage, aggregated liquidity and multi-chain transactions. After several years of ups and downs, DEX has now evolved into four branches, starting with The current categories are mainly divided as follows:Classification of DEXName of DEXAMM spotUniswap, SushiSwap, Curve, Balancer, QuickSwap…Aggregator1inch, Dodo, D5 Exchange, Matcha, ParaSwap, CowSwap…DerivativesGMX, Gains Network, DYDX, Perp…Order bookDYDX, D5 Exchange, Kujira, HyperliquidX…The main representatives of each DEX track:(1) AMM spot: DEX that provides spot exchange transactions; representatives: Uniswap, SushiSwapUniswap: As the leader of DEX, Uniswap has been the king for a long time, and its trading volume can reach half of the DEX market. The success of the AMM mechanism is the reason. The second is the wealth effect. Uniswap has been through many stages, starting with the Classification of DEXName of DEXAMM spotUniswap, Curve, Balancer, QuickSwap…Aggregator1inch, Dodo, D5 Exchange, Matcha, CowSwap…DerivativesGMX, Gains Network, DYDX, Perp…Order bookDYDX, D5 Exchange, but soon dropped to its liquidity. SushiSwap has no disadvantages. It is a continuation of Uniswap’s design and does not create a new model. In the early stages, it adopted the exchange pool + model. As a “shadow” type, Curve and other rising stars have started to assert their power in Uniswap v3. They are now not in the top 10 DEX discussion. Comparing the transaction volume shows that the gap between SushiSwap & Uniswap are huge. SushiSwap now faces increasing liquidity loss and inadequate product model innovation. Source: CoinMarketCap(2) Stablecoins serve the asset transactions of stablecoins. Curve is a representative of Uni, Sushi, and other spot DEXs that concentrate on volatile asset transactions. Curve offers extremely stable and efficient USD stablecoin transactions. It allows users to trade stablecoins at low slippage and low transaction costs, greatly reducing the loss pressure on LP users. Curve’s core design is the swap curve for stablecoins. Curve can achieve a higher rate in small transactions than CEX because the swap curve is more smooth in the 1:1 range. This is why Curve is able to attract users. It also uses AMM, as opposed to Uni and Sushi. However, it has created a number of innovative mechanisms to encourage LPs to provide liquidity. The industry is ahead of its competitors in terms of business capabilities. (3) Aggregator: A DEX that increases transaction efficiency by aggregating liquidity from major decentralized exchanges. Representative: 1inch1inch, which is the earliest DEX to bring together the liquidity from decentralized exchanges, is the DEX. It assists traders in improving transaction efficiency by finding optimal token exchange rates. 1inch is the best DEX aggregator currently. 1inch uses the Pathfinder algorithm. This algorithm can help users find the most efficient transaction path within a matter of seconds, which greatly improves exchange speed. 1inch allows users to choose between a lower gas fee and a path that offers higher overall returns to satisfy their various needs. 1inch can provide better quotations but it must continue to collect more flow performance and lower gas prices to maintain its advantage. (4) Derivatives – DEX that offers derivatives transactions. A representative example is DYDXDYDX. StarkWare’s expansion tool not only delivers lightning fast transaction speeds comparable to CEX, but also adopts CEX’s OrderBook mode. DYDX was able to introduce multiple liquidity providers at an early stage and also designed transaction mining and liquidity. The reward system for property providers has attracted a lot liquidity and has exceeded Uniswap in terms of trading volume. DYDX uses OrderBook under the chain and order settlements on the chain to increase the efficiency of product and asset use. This is in line with CEX’s direction of attack. The data report shows that the TVL of DEX has accounted to more than half of the DeFi market for a long period. Without the support of DEX, DeFi will not be able to rotate the giant wheel of the crypto market, but there are advantages and disadvantages.Although DEX is adhering to decentralization To provide users with safe financial services under the concept of DEX, there are also more prominent problems. The most prominent problems with DEX were, at the time of its inception, poor transaction depth, impermanent losses, slow speed, and low transaction volume. This is due to comprehensive factors. However, DEX’s depth can be compared to CEX’s professional market makers. It has performed well in some currencies but there is still a gap with CEX in terms overall depth. Source: DuneTrading experience problems: DEX does not require KYC for traditional centralized exchanges. At the same time, assets can be managed by DEX, which guarantees its privacy and asset security. However, the downsides of DEX are obvious such as slippage and impermanent loss. Questions etc. A second problem is that traders are subject to greater transaction slippage due to the lack transaction depth. These are potential losses for traders and also hinder the development of DEX. With the birth of OrderBook DEX on D5Exchange’s chain, D5Exchange, and the support of the innovative model GMPB+GPML transaction slippage and impermanent losses have been reduced. With a significant improvement, traders can accurately execute pending order transactions according their own needs. Chart K-line trading makes each price transaction transparent and easier to understand. DEX relies on smart contract matching to make transactions between users. Smart contracts allow traders to deploy sufficient funds to benefit from the transaction. They are not controlled by a central party and are completely decentralized. There is no way to stop it happening. The Mango case is the worst. Hackers spent tens of million of dollars to acquire 116 million dollars worth of liquidity. Second, DEX will lead to slow transactions and high gas fees due to network congestion. This can reduce the user’s financial efficiency. DEX ensures transaction sovereignty and protects users’ transaction assets. It is based on the principle of increasing the user threshold. Many DeFi entrepreneurs are working on innovative solutions to increase the utility of DEX. There are obvious issues, such as the lack of a DEX that can handle reasonable transactions in various currencies. Uniswap cannot be used for long-tail DeFi assets transactions. Curve is better suited for stable currency transactions. Using off-chain transactions like DYDX to provide CEX trading experience can be useful, but there are security concerns. The competition for DEX is similar. Whether it is in the field of spot, aggregator, or derivatives futures, a powerful DEX will occupy a place in the market, which is reflected in optimizing transaction efficiency, user experience and model innovation.Optimizing transaction efficiency represents DEX developed on efficient smart contract public chains, such as the well-known PancakeSwap on BSC and QuickSwap on Matic, etc., which can ensure the transaction efficiency of users when dealing with different network environments and save its transaction costs, of course, there are many old-fashioned DEXs, including UniswapV3, SushiSwap, DODO, Bancor and many other DEXs, which are deployed on the L2 network to improve the transaction efficiency of the platform. Keep your market competitive. Source: DefiLama. In terms of trading experience, since the initial DEX adopted the automatic marketmaker mechanism (AMM) and many users are used trading through the chart Kline and OrderBook modes, OrderBook-type DEX Spontaneously was created. This is because each liquidity provider must become a market maker in order to increase the liquidity pool to ensure a fair price. AMM has the advantage that it can still trade in an illiquid market. AMM can also enable traders to get quotes regardless of how many valid orders are submitted to the trading platform. The disadvantages of AMM are obvious. They have low capital efficiency, high slippage risks of large orders, and can be lost permanently by liquidity providers. Market makers will receive fee rebates to encourage them to provide liquidity. OrderBook has been a great choice for liquid markets. It is also the best choice to display market prices and large orders. It reduces the risk of slippage, and is widely used by individual and institutional traders. OrderBook can be used on DEX for better results. But it all depends on the environment where the project is located and its business direction. DYDX chose OrderBook because it was deployed on Ethereum at an early stage and needed to use OrderBook mode for order settlement and transaction performance. D5 Exchange, which uses OrderBook, will only use the AMM mechanism DEX for stable currency transactions. Order books must be adopted and how to manage order books on the chain. D5 Exchange’s breakthrough lies in the operation of the order books on the Ethereum mainnet using its unique OrderBook mode. We believe that D5 Exchange’s current activities have a positive impact on the future choice of DEX mechanism mode. (1) GMOB+GPLM transaction engineD5 exchange is the first fully decentralized, decentralized exchange built on Gridex Protocol. It combines the characteristics and AMM trading mechanism with the order book. Gridex Protocol is the first fully-decentralized protocol built on Ethereum’s order book. Grid Maker Order Book (GMOB ), and Grid Price Linear Movement GPLM are two innovative technologies that make up the Gridex Protocol. Grid Price Linear Motion (GPLM), is used for transaction execution and settlement. The GPLM algorithm can achieve the exact same level of resource consumption than the Constant Function Market Maker algorithm (CFMM), effectively reducing the Gas price of D 5 Exchange that runs on Ethereum. Consume. Maker orders can be placed at any price. It is possible to trade if the market price changes. The market may change the maker order, so it is possible for the order to be different than expected. Even if the user places a wrong order, it won’t have much impact. D5 Exchange is an orderbook on the chain and must consume Gas to complete the pending orders. It is important to mention that the GMOB model uses L1 chain transactions. This is a significant improvement over many DEXs that use L2 and even off-chain matching. (2) External and internal liquidity aggregation ensures adequate liquidity. D5 Exchange is not considered an exchange in the traditional sense. D5 Exchange can still function perfectly even without a market maker. D5 Exchange’s sufficient liquidity can ensure users a rich trading experience. Gridex has integrated UniswapV2 and Curve’s liquidity to provide the best exchange rate. It has its own maker lists internally. Gridex’s internal liquidity and external liquidity ensure that there will always be liquidity, even if there isn’t a market maker. D5 Exchange allows you to place orders at any price. Sometimes, extreme market conditions can allow it to be sold at extremely high prices. This ensures that the transaction is valid. (3) A completely decentralized “centralized trading environment” Unlike EtherDelta and DYDX, which keep OrderBook off-chain to achieve on-chain settlement, D5 Exchange deploys the order book on the chain. It also realizes the two-way matching transaction between on-chain & off-chain. D5 Exchange introduced OrderBook to provide intuitive transaction icons. It is an extremely rich liquidity depth, combined with lossless transactions, low gas fees, and allows for a trading experience that is comparable to CEX. D5 Exchange also adopts the L0-layer Gridex multichain protocol. This will allow users to conduct transactions on D5 Exchange and choose the supported network, which will improve the efficiency of asset trading. (4) Different token trading environments can be met by the Grid mechanism. D5 Exchange adopts Grid mechanism. The Grid mechanism is designed to facilitate different token transactions. A Grid must contain the D5 Exchange maker list. Grid can be divided into three types based on the resolution (granularity) of the unit price range. Grid can be used for tokens of all sizes, from small to large. A finer Grid allows for faster transactions. However, for trading pairs with high volatility, the maker prefers a coarser grid to earn better fee income. The D5 Exchange model is a great solution to current DEX problems. Future DEX development will focus on user transaction sovereignty and increasing liquidity. DEX currently has OrderBook as an application. AMM, on the other hand, provides a non-regulatory and unreview-free solution for trading liquidity pool. The future direction of DEX will be to coordinate the relationship between liquidity, transaction efficiency and capital return. We encourage you to do your research before investing.Join us to keep track of news: https://linktr.ee/coincuHaroldCoincu NewsTags: 1INCHAMMAvalancheBalancerBlockchainBSCCurveD5 ExchangeDeFiDexDODOEthereumMatchaOrderBookQuickSwapSolanasushiswapUniswap