In the past year, we’ve been quite vocal about the rapid development of decentralized exchanges, herein referred to as DEXs. For those who may have missed it, check out our DEX ecosystem research report here.
In the past few months alone, popular DEXs like Uniswap and Kyber have continued to reach ATHs in terms of both unique users and 24h volume. Predominantly led by an optimized UX and a lack of liquidity thanks to the advent of DEX aggregators like 1inch, it’s no surprise that more and more projects are taking notes on how to tap into this vibrant ecosystem.
This week, we saw two new players enter the space – both offering new DEX products to better propagate their underlying tech stacks.
The first, Matcha, is a DEX interface built on the 0x Protocol. This comes as big news seeing as 0x was historically used under the hood, with tools like 0x API providing smart order routing to mitigate slippage and provide the best real-time prices.
1/ We are excited to announce the beta launch of Matcha, your new home for fast, secure token trading! 🍵
Get early access by joining the waitlist at https://t.co/HZLTVmGQhX 🚀
To move up the list, refer your friends, family & colleagues with your personalized invite link. 📨 pic.twitter.com/aipNWaSXqp
— 0x (@0xProject) April 15, 2020
The next was Gnosis Protocol – A fully permissionless DEX that enables ring trades to maximize liquidity.
Gnosis leveraging five minute batched auctions, with unsettled orders from a current batch being passed to the next batch. While this means that traders will suffer longer wait times and that they are not guaranteed to settle, the theory is that there is no need to worry about slippage as the trade will only be filled if the right buyer comes to the table.
“Gnosis does not plan on winning the market by providing faster settlement experience: rather, it aims to appeal to larger traders and compete with other DEXs on price. ”
With Gnosis Protocol, we believe in a fully decentralized future with no barriers for token listings. Here's an example of how to add a token (in this case, LINK) to Mesa for trading in just a few clicks. pic.twitter.com/cLhVUZTcF4
— eric.eth (@econoar) April 15, 2020
Gnosis suggests this strategy is beneficial for protocols which rely on liquidation auctions – particularly in the instance of illiquid trading pairs in which solvent markets do not currently exist. With roughly $2M in cumulative volume during its private beta, it’ll be interesting to see if this designer garners attention from the very players it’s targeting.
When looking deeper into the volume, we can see that the largest liquidity pools are currently in stablecoins Dai, USDC and sUSD – signaling that most traders are likely to use Gnosis Protocol when looking to convert a niche asset directly to a stable value with minimal slippage.
The Larger Trend
While both of these projects utilize different designs, the premise of offering a permissionless mechanism to seamlessly swap Ethereum-based assets continues to gain traction.
As we continue to see the wider DEX ecosystem build on the tenant of composability, what emerges is a vast ecosystem of different players pulling from one another to offer efficient order routing in an intuitive fashion. While it’s still evident that DEXs are largely still a tool for specialized DeFi users, the argument for the benefits of using a DEX as an end-user or as an application is become stronger by the day.
We view Matcha as a way to expedite the progression and maturation of the protocol. By dogfooding ourselves vs. relying exclusively on a nacent developer ecosystem for feedback, we can materially improve the 0x dev experience and feature set offered by the protocol. https://t.co/zBi1zA7sBo
— Clay Robbins (@crabbylions) April 15, 2020
What’s more interesting to consider is that specific DEXs are starting to target niche use-cases. Rather than each and every DEX optimizing for instant trades at little to no fees, instead we’re starting to see solutions like Gnosis Protocol intentionally focused on specialized trades or products that favor liquidation auctions.
This signals that not only does the wider DeFi ecosystem benefit from deeper liquidity pools, it also benefits from specialized use-cases which allow the products relying on auctions – Set Protocol or dYdX being good examples – to take their operations to the next level.
For those interested in checking out the Gnosis Protocol, dive into their developer documents here.
Cooper is the Editor of DeFi Rate and an active contributor to leading DeFi media outlets like The Defiant, DeFi Pulse, and Bankless. He works with early-stage teams through Fire Eyes DAO to incubate governance models and grassroots community development. He is an ambassador to Set Protocol and an author of a weekly publication called Token Tuesdays. To stay up with Cooper, follow him on Twitter.