Tokenlon chooses a “multi-market maker price aggregation mechanism” model that is different from AMM in order to provide users with better liquidity.
Written by: Wang Lujie
Open CoinGecko, we will find that in the DEX (Decentralized Exchanges) 24-hour trading volume ranking, among the hot projects such as Uniswap, Sushiswap, Compound, and 1inch, there is a rather low-key DEX: Tokenlon.
Compared with Uniswap, the current leader of DEX, Tokenlon’s listed currency is only 1/65 of Uniswap, and the number of visits is only 1/110; but Uniswap’s 24-hour trading volume is less than three times that of Tokenlon. (Data as of December 18, 2020)
Today we will explore the past trajectory of this DEX track and the entire DeFi ecosystem of the “Asian Dark Horse”; I am even more curious as to where it will run on this unique road.
DEX and CEX
Since the birth of virtual currency, Centralized Exchange (CEX) has always occupied the mainstream position, from Mt.Gox to Huobi, OK, Binance, and countless second and third-tier exchanges.
The so-called “existence is reasonable”, centralized trading provides the most convenient one-stop service, from deposits and withdrawals, to the trading of mainstream currencies, to contract transactions, leveraged transactions, as well as wealth management and new innovation.
However, for the vast majority of ordinary people in the currency circle, the centralized exchange is like a besieged city, “people outside want to come in” but “people inside want to come out too.” Ethical and security issues are like bone gangrene, which not only brings capital losses to countless investors, but also deepens people’s worries about exchanges.
But before the Decentralized Exchange (DEX) really reaches the usable level, the rigid demand of the transaction allows investors to only choose to “will”.
For those users who are willing to use wallets to fund the management of assets, trading assets can only endure the inefficient and limited “recharge-transaction-withdrawal” process, and imToken was built in when it launched version 2.0 in April 2018. The centralized trading sector Tokenlon gave users the hope of getting rid of the “predicament”. At that time, it was half a year before the most popular DEX Uniswap was officially launched.
At that time, Tokenlon was still “hidden” deeply. It was not regarded as an independent decentralized exchange at the public level, and it was far from the mainstream media’s attention. However, Tokenlon started from this point and has already iterated four times. Five versions.
Source: https://www.coingecko.com/zh/dex
AMM vs RFQ
The quality of liquidity is the most critical indicator for the market to evaluate the quality of a trading platform. In order to provide the smoothest possible trading experience, centralized exchanges often access professional liquidity providers or even “out-of-pocket” for market making. It is this phenomenon of the next game wearing a referee uniform that makes the exchange naturally stand on the “opposite” of users.
When the decentralized trading platform achieves “decentralization”, how to solve the liquidity problem has become the top priority, and the Automated Market Maker has emerged. AMM relies on mathematical formulas for price discovery. While incentivizing liquidity providers to solve initial liquidity problems, it also provides an “exchange-style” trading experience without an order book, which is very friendly to novice users, and this is what Uniswap does. The basis of the story.
But the real world is far more complicated than mathematics. When trading on Uniswap, users will inevitably encounter “slippage loss”, that is, the difference between the expected transaction price and the actual price paid. In addition, its “democracy” provides convenience while also allowing “counterfeit currency” It flooded it unscrupulously.
All in all, the seemingly simple AMM is actually more costly for ordinary users than centralized exchanges, and the price does not necessarily have an advantage. Therefore, Tokenlon chose a completely different path from Uniswap from the beginning, namely the “multi-market maker price aggregation mechanism”, referred to as RFQ (Request for Quatation).
In the RFQ mode, Tokenlon cooperates with professional market makers. When a user asks for a currency quotation, Tokenlon will inquire all market makers in the back-end server, and aggregate the prices returned by the market makers, and finally Return the aggregated optimal price and order to the user. The entire process currently only takes a few seconds. Moreover, this price is similar to the “commitment” of a professional market maker, and there will be no slippage loss.
Taking the author’s personal experience as an example, when querying the price of ETH/USDT, the flash exchange page of Tokenlon will not only display the quotation of the mainstream CEX, but also provide the actual transaction price, which is the price provided by the professional market maker. This price is not better than a centralized exchange in some of the time, but if you consider the cost involved in the “transfer-purchase-withdraw” process mentioned above, the solutions provided by Tokenlon’s professional acceptors are still more effective Economical.
However, relying on professional acceptors naturally means that Tokenlon cannot be as “free” as Uniswap. At present, Tokenlon supports a total of 26 currencies, which is only a fraction of Uniswap. In this regard, Tokenlon talked about always implementing the principle of “the minority obeys the majority” and looking for the “largest common divisor” in the investment decisions of users. The 26 currencies selected by Tokenlon are actually sufficient to meet the investment needs of most people. .
In other words, for most users of Tokenlon, the safest way for them to participate in DeFi in the early stage is probably to buy the DeFi currency listed by Tokenlon, because these have been screened by layers. “Quality” assets. In addition, the person in charge of Tokenlon’s growth also stated that Tokenlon will also have dedicated personnel responsible for researching current hotspots. Under the premise of in-depth research and extensive community consultation, in-depth communication with professional market makers will promptly list popular currencies or potential currencies. Kind.
When the author questioned the professional market makers in an interview, they did not disclose it for reasons of keeping secrets. They only showed that Tokenlon is just a referee and will not participate in the competition.
Source: https://zhuanlan.zhihu.com/p/68815647
The synthesis of the long tail market?
The scam on Uniswap reached its peak in July and August. Recently, we have rarely heard similar words. Surprisingly, we found that Uniswap has become more and more regular and has quietly become the first choice for many project parties to issue tokens.
For most of the current emerging projects, unless they have a financing relationship with a centralized exchange, DEX has become the first choice for listing; especially for many DeFi projects, especially with low market capitalization, the project party’s financing amount is small, Uniswap The zero-threshold listing conditions and the practice of encouraging ordinary investors to provide liquidity can just help the project party through the bottleneck period in the initial stage of the launch. IUO (Initial Uniswap Offering) has become a phenomenon that cannot be ignored at present.
These new projects, together with those mainstream projects, constitute the increasingly mature trading ecosystem on Uniswap, and the new projects among them occupy the majority of Uniswap trading varieties, helping Uniswap to firmly grasp the advantages of the virtual currency world. Tail market. The so-called long-tail market refers to the phenomenon that those products or services with small sales volume but a large variety of products or services that have not received much attention because of the huge total volume, the cumulative total revenue exceeds the mainstream products.
There are also investors who have gradually matured. After the baptism of the DeFi boom, investors have also become rational and have realized the nature of many bubbles. Investors have gradually become accustomed to choosing their favorite currency on various popular tracks, and then obtaining their contract address from the official channel of the project party, and by copying the contract address, to find the correct currency on Uniswap. There are fewer and fewer false myths of rich wealth on Uniswap, and the color of MLM has gradually faded.
In the face of the long-tail market that is still full of vitality on Uniswap, most investors have recovered their rationality and gradually matured.
Another typical representative of DEX is Curve. Public information shows that Curve is a decentralized stable currency trading pool based on Ethereum. It is characterized by an efficient and low slippage stable currency trading experience and low-risk fee income for market makers. Especially for large-value traders, Curve’s liquidity and transaction rates are currently the best among all DEXs.
The RFQ model currently adopted by Tokenlon relies heavily on the financial strength of professional market makers. Professional market makers are unable or unwilling to provide large amounts of long-tail token transactions under various objective conditions.
On the one hand, it is the maturity of the main users. On the other hand, there are some problems faced by the RFQ model. Can Tokenlon continue to run a third way beyond AMM and RFQ as a dark horse?
Perhaps now is an opportunity for Tokenlon to be compatible and packaged.
Exploring the value of stock from user needs
In 2008, Taobao has been around for five years and its transaction volume has grown rapidly. At this time, with the demand for B2C, Taobao Mall was established. Since then, B2C has embarked on a hurricane road, and Taobao Mall’s performance has been gratifying.
In June 2011, Taobao Mall became independent; half a year later, Taobao Mall was renamed “Tmall”, and it has been a success since then.
In the earliest days, many people attributed the success of Tmall to Taobao’s traffic. But now, after several years of development, especially with the boom of “Double Eleven”, few people remember that Tmall was once called “Taobao Mall.”
The same situation also happened to Tokonlon, many people attribute the success of Tokenlon to the help of imToken.
Looking back at the development history of Tokenlon, the assistance provided by imToken is undeniable; even if it has been in development for more than two years, the staff of Tokenlon also discussed in interviews that the current traffic of Tokenlon is mainly from imToken.
But this does not underestimate the value of Tokenlon.
In fact, having traffic does not mean everything. Similar cases are not uncommon in the Internet economy world. For example, Baidu, as the number one Chinese search engine, has the advantage of traffic, but it has failed to retreat in the face of the strong rise of other Internet companies. Its market value has fallen far behind the others including Ali, Tencent, Meituan, and Pinduoduo. enterprise.
Owning traffic is one thing, being able to take over and convert it effectively is another.
After in-depth study of the Tokenlon product iteration process and communication with the team, the author found that the Tokenlon team does not regard imToken as a burden and burden, but as an initial help and lasting motivation.
In the blockchain world, the needs of users are always diversified, which is not what a wallet can carry, nor can a DEX completely satisfy; only when the product format continues to diversify, can it be possible to provide users with better service.
But we need to be cautious throughout the process, not that the more products the better. Only by having an in-depth understanding of users and truly tapping into their universal needs, can new products be welcomed by the original customers and form a positive cycle in the product matrix.
The development history of Tokenlon reflects this.
So when we see the ranking of Tokenlon in the DEX field in the future, we must not only see its past, but also its future, and the principles that drive it step by step.
