The Only Way out for Decentralized Exchange — Distributed Decentralized Exchange (DDEX)
After experiencing the era of centralized exchange 1.0 and Decentralized exchange 2.0, the global digital currency exchange market seems to have entered the era of 3.0: the era of Distributed Decentralized Exchanges (DDEX).
[if! SupportLists] I. [ENDIf] The application of traditional decentralized exchange is unsatisfactory
In traditional monetary theory, there is the “impossible triangle” theory, that is, a country cannot achieve the independence of monetary policy, exchange rate stability and free capital flow at the same time, and can only meet the two goals at most and give up the other goal.
Similarly, there is an “impossible triangle” in the current blockchain field, that is, efficiency, decentralization and security cannot be achieved at the same time, but only two of the three.
In traditional decentralized exchanges, customers’ funds are more secure from hacking attacks, and each transaction is reviewed on the chain. However, the liquidity of funds is limited, and it is difficult to meet the needs of traders in the speed of dealmaking, transaction cost, cross-chain and other aspects, and traders’ experience is greatly reduced. At the same time, users have high learning cost and threshold of use, which is also the reason why centralized exchange is still the mainstream at present, but decentralized exchange is becoming a trend.
How do you tell if a decentralized trading system works? Look at its matching and delivery on the chain balance point, and other trading systems circulation problems, cross-chain trading ability.
A prime example of hosting deals on the chain is EtherDelta, the oldest decentralized exchange on Ethereum. If the order book is hosted on the chain, it means that both the order issuing and the order withdrawing need to pay the commission cost, and there is a high threshold on the cost, which limits the user flow.
The 0X protocol does this for asset management: users do not need to deposit assets into smart contracts. This solution seems to bring some convenience, but users still need to authorize 0X smart contract transfer tokens before using 0X transactions (0X smart contract cannot transfer users’ tokens without authorization), which greatly reduces the convenience. In addition, if the user moves the asset out of the wallet without canceling the order, the transaction may become invalid.
Below is the listing process for traders of 0X. In the smart contract protocol layer on the right, the traffic between DApps is not interoperable and exists independently. Therefore, each exchange connected to 0X is in competition with each other, which causes the problem of lack of liquidity when there are few users of decentralized exchange.
[ENDIF] Distributed decentralized protocols could lead to an “exchange Revolution”
The R1 protocol does all of these things very well. In terms of the balance between matchmaking and delivery chain, it separates order matchmaking and order execution, and makes order matchmaking complete on Relay, which not only ensures the sense of trading experience but also guarantees the security.
Relay is outside of the intelligent contract by a dedicated platform for dealmaking, make the assets of the buyer and the seller before the contract into intelligence have complete matching, intelligent contract only need to undertake asset allocation, don’t need to deal with “will you or will you not give me the money” this kind of game problem, can provide approximate centralized exchange experience.
Frictional fees can be eliminated and the entire transaction process can be dramatically speeded up. Each order content sent to Relay will also contain the signature of the user’s private key, so the user’s intent is not forged or tampered with and can be verified anywhere.
Why are they called distributed decentralized exchanges?
This is because the R1 protocol makes flow sharing between exchanges possible. ROOTREX’s ability to share order data and liquidity with all participants is a major milestone in the blockchain space and could even be the start of a “revolution” in digital currency exchanges.
At present, cross-chain is also a hot issue, and no real progress has been seen anywhere in terms of technical implementation. If distributed decentralized exchanges can solve this problem in the future, it could provide a near-perfect experience for digital currency enthusiasts.
With Binance and Bithumb both starting DEX, the exchange revolution has already begun. The volume of Bithum. IO has exceeded 3,000 Ethereum in the first four days of its launch, which is the first successful example of a centralized exchange transforming DEX.
Perhaps for a long time to come, decentralized exchanges and centralized exchanges coexist and play their respective roles. But technology has evolved to take decentralized exchanges to the next level.