Binance, the largest centralized cryptocurrency exchange trading volume ($1.07 billion a day), said recently that he wants to launch their decentralized exchange (DEX). However, the investor in blockchain projects mark Howard believes that the new platform Binance is unlikely to be leading DEX in 2019. As arguments, he cites the result of the analysis of several hundred such sites and main, in his opinion, the qualities of successful decentralized exchange. Original article published on Hackernoon.
Binance, of course, will invite their users to a new DEX to boost liquidity. However, this will not be a competitive advantage. The liquidity problem have now been resolved including DEX-aggregators like Dexdex, which creates pools of orders from different exchanges. Dexdex looking for several platforms, protocols, and market makers, while ensuring the best price available. It’s an open technology, the code is available on GitHub.
For example, Dexdex can aggregate multiple orders for Protocol 0x to add them in your own virtual pool of liquidity. 0x is a Protocol for trading digital tokens on Ethereum (ERC20). It is used by many modern decentralized exchange. Dexdex could become “the aggregator of aggregators”. Imagine that you have the opportunity to combine the liquidity of the DEX all in one big “pie”:
The main problems of the majority of today’s DEX is liquidity and user experience (UX). Platform that will win the masses of users in the next couple of years, must have liquidity Binance and user experience Coinbase. But the problem is that while these platforms is no standardization — no common Protocol. For this reason, most DEX have low liquidity and trading volumes: they just do not have a common pool of liquidity. There are many projects trying to solve this problem. A leader in the integration of DEX is the Protocol 0x, which has the potential to become the standard in 2019. Why?
I analyzed the data on Github 258 known decentralized exchanges (Yes, they 258!). Removed 70 DEX with unknown or non-public protocols, leaving 188. Then created a chart (below) for better visualization. The lack of a standard Protocol on the exchanges is amazing. There are more than 20 different protocols! Leader — 0x, which is now running at more than 19% DEX.
Also one of the serious problems is that anyone can create the aggregator. But, if a project is budgeted millions of dollars on marketing, it needs to offer something else. In my opinion, the key point is user experience. Those who have never traded on the DEX, will have to take a word that is not a very friendly process, not suitable for beginners in cryptotrading.
Binance has a known name, a huge amount of money on marketing and by the user’s trust (if you define the trust based on the amount of money that they are willing to trust). But I believe that in 2019, leading DEX is the one that will offer:
- aggregated liquidity;
- cool UX;
- no need to trust;
- the minimum fee;
- automatic reconciliation of orders and instant transaction;
- network effect.
0x — the battle-tested Protocol that allows you to accumulate liquidity. This will allow Dexdex (I have no commercial relationship with the project) to compete with any DEX, which will create Binance.
Today, many decentralized exchanges Commission pay twice — first “GAZ” to confirm the transaction in the network of Ethereum, then the actual Commission of the DEX. Playground Binance will require the Commission BNB tokens for payment transactions in the blockchain.
A successful DEX will work without custom fees. As soon as she gets a sufficient volume of trades, there will be new opportunities for monetization (and to avoid huge fees for “gas”, the key components of orders can be linked to the sidechained).
But while the main clients of DEX is a curious enthusiasts and ordinary Hodler because the lack of speed and the possibility of algorithmic trading makes such platform is not a very attractive for serious players and day traders.