Ofu, Manu'a Aug 11, 2021 (Issuewire.com) - The world is changing at breakneck speed because to technological advancements. Our institutions have improved over time, and more crucially, our perceptions and approaches to finance and executing financial transactions have evolved.
The growth of Defi, the decentralized financial system, was fueled by the demand for financial inclusion as well as potential to earn wealth for people all around the world. Defi has laid the groundwork for transferring value and using financial goods without the use of middlemen, preparing the world for a tokenized future.
In the midst of a catastrophic sequence of events, Defi triumphed in 2020. Decentralized exchanges (DEX) and protocols grew the market, and the community grew at an exponential rate. The broad adoption of blockchain solutions was driven by Defi DEX platforms, and the total value locked (TVL) in various DEX systems peaked at $28.21 billion.
However, DEX systems continue to struggle against large-volume centralized and custodial exchanges, mostly because customers must accept for less in return for a better user experience, high liquidity, and quick trade execution.
Exchanges That Are Centralized
The bitcoin exchange ecosystem is now separated into two categories: centralized exchanges and decentralized exchanges, on a more detailed level. Most crypto traders are familiar with centralized exchanges. Custodial exchanges are owned by individual institutions and rely on active market-makers for liquidity.
Because buyers and sellers can quote prices they're ready to buy or sell the underlying assets on the exchange, producing an order book or a list of future orders, centralized exchanges are also known as "Order Book Markets." These trades are then performed when the user's buy order price and another user's sell order price match, resulting in the asset's new market price.
The user experience and minimal latency are the major benefits of centralized exchanges. Centralized exchanges are among the most immersive and user-friendly choices on the market, abstracting much of the complexity that is common on DEX platforms. Because they're usually aimed at newbies to the crypto world, their design must be inviting and intuitive.
Users can manage transactions in under 20 milliseconds on centralized exchanges, making it an ideal solution for swing trading. Another significant advantage of centralized exchange platforms is that they enable customers to directly convert their fiat currency into cryptocurrencies, as well as convert crypto to fiat and withdraw monies to their bank accounts.
Centralized exchanges, on the other hand, are super-custodial and centralized. One of the most serious issues with these exchanges is that they are less safe, and their KYC procedures might be inconvenient. Because you're in the digital economy, anything associated to cryptocurrency must be resistant to malevolent manipulation if you want to know your money is safe.
Because keeping huge sums of money in a custodial setting makes them vulnerable to attacks from hostile actors, centralized exchanges generally pose a lot of security problems. This is where decentralized exchange systems excel, thanks to their unrivaled security as a result of their robust decentralization.
Exchanges Based On AMM That Are Decentralized
To compete with their centralized equivalents, decentralized AMM-based exchanges were established. The exchanges based on AMM (Automated Market Making) are built on passive market making and are handled by supply and demand in liquidity pools.
By leveraging liquidity pools instead of traditional markets with buyers and sellers forming an order book, AMMs enable permissionless and automated processes for trading digital assets. Unlike centralized exchanges, these AMM-based DEX systems are open for trade 24 hours a day, seven days a week because they are not reliant on traditional buyer-seller interactions.
Furthermore, AMM DEX systems are akin to decentralized digital assets, implying that no single entity has control over or manipulation of the system. The system is built on a network of users who can provide liquidity and earn incentives based on their portion of the pool.
When it comes to security and KYC processes, decentralized exchanges outperform their centralized equivalents; nonetheless, they have a number of drawbacks, including price shocks, slippage, frontrunning, and arbitraging.
When consumers place trades that are larger than the market's liquidity, DEX platforms are frequently subjected to price slippage. AMM models that can't work without arbitraging, frontrunning, and large transaction costs are among the other drawbacks.
There doesn't appear to be any AMM DEX on the market that can overcome these limitations. Despite their enormous volume, DEX platforms cannot compete with their centralized counterparts. Last month, total DEX volumes were well over $160 billion, compared to $2.3 trillion for the centralized exchanges.
Exchanges Based On A Decentralized Orderbook
Cryptocurrency trading must be secure, intuitive, and simple regardless of your experience in the crypto field for an optimal trading environment and the crypto industry's growth. Centralized exchanges are becoming increasingly centralized and exclusive, whereas AMM-based Decentralized exchanges are constrained by issues such as arbitrage, frontrunning, and high transaction costs, among others.
We now have a DEX platform that operates as an order book to overcome this challenge. Unlike custody and centralized exchanges, these order books are truly decentralized, so there are no inherent problems with AMM-based systems, such as price slippage and arbitrage. Therefore, if the order book processing transaction is performed through on-chain processing, it has always been the goal that the global blockchain technology community has been pursuing. Many companies and teams have devoted a lot of effort to the development of the order book DEX. Among these many teams, we have noticed the SpaceDEX Protocol.
SpaceDEX is a set of decentralized on-chain order book processing and matching protocols that can be used to deploy applications such as decentralized exchange platforms, clearing and settlement centers, and cross-border payment gateways. At present, the SpaceDEX team has launched a set of decentralized trading platform, which combines the characteristics of decentralized and controlled exchanges. It is a decentralized platform that uses order books to trade tokens in a trustless peer-to-peer ecosystem. The order book structure enables SpaceDEX to provide its consumers with strong liquidity, fast transaction speed and a highly secure trading environment.
The launch of SpaceDEX has attracted the attention of many institutional investors. Since SpaceDEX is very likely to become a decentralized order exchange center, the first project to successfully implement the landing, it has attracted the attention and investments of Grayscale, Coinbase, Ark Investment and traditional family funds - the Rothschild Family Heritage Fund.
With the rapid rise of the crypto and defi industries, we must address the urgent need for practical, intuitive, and interactive trading platforms as more users enter the area. Custodial and non-custodial solutions are the only options for the growing number of crypto traders joining the ecosystem. Non-custodial solutions have numerous drawbacks, but we are seeing a lot of progress in this sector, from AMM-based models to now a decentralized order book method that will help the Defi DEX space grow faster.
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