The DEX adopting the quotation model has smaller slippage and less trading friction than AMM. The limitation lies in the lack of price discovery capabilities.
Original title: “DEX industry is growing rapidly, Tokenlon’s first anniversary transaction volume exceeds 500 million US dollars”
Written by: Dabei
Since the second half of this year, the growth of the DEX industry has been very eye-catching, especially the AMM (automated market maker) model decentralized exchanges such as Uniswap, Curve and Balancer have recently achieved explosive growth, and many teams are also entering this field. In fact, in addition to AMM, the trading platform also has CLOB (central order book) and RFQ (quotation) modes.
For example, Tokenlon, the flash exchange application on the mobile terminal, is based on the RFQ mode established by the 0x protocol, which can provide users with highly competitive quotations and realize one-click exchange in the imToken wallet. Taking ETH/USDT as an example, its quotation can be said to be the best among all DEXs including Uniswap. ETH/USDT has accounted for 400 million U.S. dollars of the 500 million U.S. dollars trading volume since Tokenlon went online a year ago.
In-depth understanding of Tokenlon’s quotation model can be found, based on the 0x protocol, it has established an RFQ model of multi-market maker quotation and off-chain matching and on-chain clearing. This form is similar to Kyber Network’s price feed reserve, but because quotation, aggregation, and order matching are all off-chain (Kyber is all on-chain), the efficiency of market making has been greatly improved. At the same time, it also protects arbitrage behaviors such as runaways. Therefore, market makers have lower market-making costs, higher capital efficiency, and can provide the best prices.
When a user trades, Tokenlon will send the user’s order to multiple market makers off-chain, and select the best one from the quotes returned by the market maker to provide the user. After the matching is completed, if the user feels that the price is appropriate, he can sign to complete the transaction. For users, the experience of using Tokenlon may be similar to DEX such as Uniswap, but the design of Tokenlon has the following advantages:
- Slippage is small, mainstream trading pairs have better prices (such as ETH/USDT can be said to be the best in the entire network)
- The transaction failure rate is extremely low, reducing the waste of miners’ fees
- What you see is what you get, that is, the transaction exchange rate is determined when the user signs the transaction
- Short user path and low friction
Of course, the model adopted by Tokenlon also has certain limitations. For example, the quotation model lacks price discovery capabilities and cannot support the initial launch of new assets with zero audit thresholds like Uniswap and other AMMs.
The user experience of DEX is rapidly iterating and improving
This liquidity mining has brought large exchange demands between stable currencies, and the initial wave of new assets on AMM should be the main reason for the explosion of DEX trading volume. The essence of liquid mining is to subsidize users to use products. When users find that using products can make money, it will naturally activate a series of related user behaviors.
However, behind the continued growth, another reason is that the DEX experience is rapidly iterating and improving. For example, Tokenlon recently launched Approve&Swap, which packs the two actions of user authorization and transaction during DEX transactions into one, reducing friction. Tokenlon is also continuing to optimize its liquidity, increasing the single ratio limit for ETH/USDT exchange from the original 30,000 USD to 100,000 USD, meeting the needs of many large transactions.
At the same time, each DEX continues to iterate and innovate, and in some trading scenarios, it has obvious advantages over CEX. For example, large stable currency exchanges are carried out through Curve, or AMMs such as Uniswap or Balancer can provide liquidity and complete price discovery for tokens at a very low cost.
The recent popularity of DeFi and more and more USDT chain transfers have led to higher and higher transaction costs on Ethereum. At present, users can dynamically adjust the minimum transaction amount on Tokenlon, so that the miner fee will not exceed 10% of the user’s transaction amount.
Here Lucas, the head of Tokenlon, also gives users a suggestion. You can check the latest miner fee price in real time through Eth Gas Station. From experience, the miner fee tends to be lower in the morning. Currently Tokenlon is still investigating gas tokens, considering whether it can introduce gas tokens to reduce the cost of users’ miners.
It is only a matter of time before DEX transaction volume surpasses CEX
Since Tokenlon is based on the 0x protocol, 0x’s recently launched 0x API is a liquidity aggregation tool. Tokenlon can provide users with liquidity from Uniswap, Kyber, Balancer, Curve and other protocols by using 0x API. For Tokenlon users, it means that Tokenlon can trade tokens on these platforms at the best price in one stop.
In the second quarter of 2020, DEX transactions reached $191.48, which is about the level of the second quarter of CEX17. Lucas stated that it is only a matter of time before DEX transactions exceed CEX in the future. Uniswap’s current daily trading volume has surpassed many CEX, and is close to Coinbase’s trading volume. Recently, some currencies such as AMPL have higher trading volume on DEX than CEX. In fact, DEX has begun to threaten some small and medium-sized CEX. Project parties can list DEX at a cost of less than $100 to obtain liquidity, without having to pay high listing fees, and liquidity is no less than that of small exchanges. For users, DEX can be traded in the wallet, without deposit and withdrawal, and the assets are always in their own control. Since transactions are transparent and checkable on the chain, it is impossible for exchanges to issue counterfeit currency and misappropriate user assets on DEX. With the continuous iteration of DEX, small exchanges will lose their living space.
However, it is worth mentioning that a lot of trading volume on CEX now comes from derivative transactions, such as contracts, etc., but DEX has just begun in this field. For example, UMA, derivaDEX and other teams are creating a better chain derivatives trading experience.
Of course, the recent upsurge in market conditions will have a greater impact on liquidity digging. After the effect of liquidity mining has passed, the market should converge. However, for the second half of the year, Lucas is optimistic. The innovation of DeFi and some financial scenarios have been verified, and the value has been discovered. This is very different from the situation at the end of 2017 and the beginning of 2018. At the same time, with the popularity of DeFi, some concepts such as DAO and NFT have also been paid attention to by the market again, which should continue to boost the market.
In addition, Lucas also stated that it plans to connect the liquidity of Tokenlon with the liquidity on the chain, so that DeFi platforms such as 1inch and dydx can use the liquidity of Tokenlon, and users of Tokenlon can in turn call the flow of Uniswap and Curve. This will be able to enlarge the current trading volume of Tokenlon very well.
Tokenlon revealed that it is planning an incentive plan that will benefit all parties participating in Tokenlon and plans to launch it in the second half of the year.
