The everyday activity of centralized exchanges is declining, and this area is breaking through. Most recent DEX research document _ Chain Capital Research

Foreword: Over the past ten years of advancement of the crypto market, with the development of level and richer asset sorts, a lot more gamers are attracted to enter the marketplace, and the requirement for trade and transaction between assets is also rising. In the field of trading, which includes the most funds and users, as well as the centralized exchanges (Centralized Exchange, known as CEX) and digital wallets (Digital Wallet) that users get in touch with most regularly, decentralized exchanges (Decentralized Exchange, known as DEX) It is also a component with great advancement potential. In this document, we will specifically describe the knowledge points and advancement status linked to DEX, and explore the potential possibilities and future trends in this field. 1. The ecological map of the encrypted world

Before entering DEX, it really is worth understanding the current Dapp ecosystem in the crypto world. As a difficult core component of the crypto globe, Dapp (decentralized software) can be an region that blockchain practitioners vigorously explore. On the current three major general public chains: Ethereum, EOS and TRON, Dapps are usually mainly divided into 8 sorts: gambling, video games, and dealings. As proven in Figure 1, from the perspective of the full total underlying chain, the very best 3 Dapps are usually gambling, video games and high-risk groups, while you can find 207 investing (DEX) Dapps, accounting for 6%. From the evaluation of the underlying chain, thanks to the huge programmer community and first-mover advantage, the ecology on Ethereum may be the almost all abundant, with a proportion of 60%.

Figure 1: Dapp distribution of each underlying chain Databases: Dapp.review

Specific to the field of encrypted asset exchanges (trading platforms), according to the degree of centralization, there can be three forms of centralized exchanges, decentralized exchanges and wallets. The next figure shows the most representative platforms among various types to help understand the distribution of exchanges.

Figure 2: Distribution of crypto exchanges

2. Decentralized Exchange (DEX)

1) DEX type

Specific to the study object DEX of the report, we first start with the core knowledge points of DEX, including DEX types and specialized principles. According to different trading modes, DEX currently out there can be roughly divided into the following three categories.

01) Order guide hosting mode

Transactions are completed by means of an purchase book. According to whether the transaction is verified on the blockchain during settlement, it could be divided into two sorts: on-chain order guide and off-chain purchase book.

a) Order guide on the chain

* General process: Maker (seller) fills in the purchase request, signals it with an exclusive crucial, and submits it to the blockchain for lock. Taker (purchaser) selects the purchase that he really wants to trade from the on-chain order guide and initiates a transaction. Then your smart The agreement matches the transaction requirements of Maker and Taker, and settlement is done on the chain following the transaction is prosperous. * Typical example: Earlier Ethereum-based decentralized trade EtherDelta (now shut) * Advantages and disadvantages: because of the recharge, The complete process of placing orders, complementing, settlement, and withdrawal is certainly completed by sensible agreements, and settlement will be verified on the chain. This type of DEX transaction has the highest transparency and protection. However, as the whole process is certainly on the chain, and the current underlying technology of the blockchain nevertheless provides bottlenecks, it really is tough for this sort of DEX to avoid troubles such as for example slow transaction rate, poor transaction depth, high transaction costs, and bad user encounter b) Off-chain purchase book* roughly Procedure: The DEX of the on-chain purchase book design enhances transaction transparency and protection while sacrificing transaction rate and asset liquidity, and also brings higher transaction costs. In reaction to this problem, some DEXs possess optimized the on-chain process, choosing to place only the final transaction purchase and clearing and settlement process on the chain, while others are prepared off-chain, thereby improving transaction rate and user encounter* Typical illustration: Take the decentralized trade 0x predicated on Ethereum as an example. It uses state channels to choose off-chain complementing and on-chain settlement, and introduces the part of Relayer (purchase relay), that is in charge of the collection and collection of off-chain orders. Matchmaking and on-chain submission* Advantages and disadvantages: greatly reduces transaction friction and speeds up settlement, but the disadvantage is certainly that it sacrifices some decentralized features. 02) Reserve pool mode

* General process: Weighed against the order guide model, the DEX of the reserve model doesn't have an purchase guide, but a reserve pool (Reserves) to provide reserves, and quick clearing and settlement through sensible agreements. In this setting, it isn't that a seller must find a purchaser to trade, but can keep up with the liquidity of the transaction through the reserve pool* Typical illustration: Kyber System, Bancor and Uniswap are usually typical of the kind of DEX, and there exists a reserve pool / The concept of the liquid pool is different in that the quotations on the Kyber System are continuously up-to-date by the reserve manager, while Bancor and Uniswap have got the design of automatic market makers, designed to use equations (reflecting the partnership between source and requirement) to get the buying and selling quotations* Advantages and disadvantages : Investors' trading requirements can be quickly met without counterparties, that is suitable for solving the problem of long-tail market liquidity. The disadvantage lies in the necessity for reserve contributors and reserve managers to have a specific amount of start-up capital, and a strong operation push is required. 03) P2P mode

* General process: DEX in P2P mode has the simplest realization principle, that's, both events of the transaction negotiate the purchase price point-to-point beneath the chain, and put the agreed purchase on the chain, and total the transaction through the sensible contract, that is more much like an over-the-counter transaction * Typical illustration: AirSwap is really a typical example of this type of DEX. It really is predicated on Ethereum and introduces two functions: Indexer (relay) and Oracle (oracles), which are responsible for matching transaction events and providing quotations. * Advantages and disadvantages: P2P The DEX almost all conforms to the definition of “decentralization”, but the asset liquidity isn't good, and there is greater investing friction 2) Intro to the DEX project

The next table selects the info of 8 active DEX to greatly help understand the essential situation of typical projects.

Figure 3: The basic information of DEX

3) DEX VS. CEX

What advantages does DEX have over CEX and what deficiencies it faces? We will compare the two in detail from the sizes of security, currency listing, transaction liquidity, fee rates, working thresholds, and consumer experience.

Figure 4: DEX vs. CEX

01) CEX

* Core advantages: effective trading, convenient operation, high liquidity

* Key risks/disadvantages: facing huge dangers of internal fraud and exterior hacker assaults, reflected in:

* There exists a large amount of user info, including personal identities and monetary transactions, and privacy leakage might occur

* Asset keys aren't in the fingers of customers. Centralized exchanges act like "trading platforms + banks" and so are simple targets for hackers

* The transaction process is not in the chain, only the procedure of user funds flowing into the trade and out of the trade to an individual address is in the chain. It may happen that the trade guards theft, embezzles consumer funds, and manipulates prices. In the shape below, we usually do not fully count the main security incidents which have happened on CEX and DEX ever sold. It could be observed that the number of safe time information on CEX considerably exceeds that of DEX, and the monetary losses involved are often very high. Of course, DEX isn't absolutely secure and faces the chance of technical vulnerabilities

Figure 5: Protection incidents linked to crypto exchanges

02) DEX

* Core advantage: The user has control on the wallet/private key, and contains a high degree of protection without leakage, reduction or forgetting

* Key risks / disadvantages

* Once the user leaks, loses or forgets the private crucial and mnemonic term (or Ketstore document), the asset will never be recovered

* Poor user investing experience: cumbersome investing process, bad trading performance, reduced matching efficiency, and lack of liquidity are the dilemmas faced by most DEXs. As well as the efficiency constraints of the underlying network, it is due to the fact DEX lacks a consumer base and market maker. Figure 6 shows the transaction volume and visitors data of the past 24 hours on the reporting time. It could be observed that the current status of mainstream DEX is far from comparable to mainstream CEX. At the reporting date, Best10 DEX's 24h trading volume had been 2.3% of Top 10 CEX's, and monthly visitors accounted for only one 1.7%. Notice: CEX selects Best10 exchanges with a confidence level >=8 according to the official information, so there exists a certain error

Figure 6: Transaction volume and visitors ranking of each platform, data source: Coingecko

* Limited investing currencies: Due to the current advancement bottleneck of cross-chain technology, DEX's support for cross-chain property continues to be very restricted. For example, the DEX created predicated on Ethereum generally trades ERC20 tokens. Figure 7 shows the online position of some DEX tokens. On the other hand, DEX lacks a total and strict currency listing review system, the threshold for listing is certainly low, and the grade of projects varies. When it comes to investing currencies, the advantage of DEX will be that it can support some specific niche market currencies and provide liquidity in the lengthy tail market

Figure 7: Foreign currency support of DEX, data source: Coingecko

4) Data evaluation between DEX

Since the data support of the Ethernet DEX may be the highest, this part mainly targets this type of DEX, and compares and analyzes the development of DEX from the two dimensions of transaction volume and number of transactions. As proven in Figure 8, we have counted the transaction volume information of 11 mainstream DEX platforms on Ethereum right from the start of 2020 for this. It could be observed that the common weekly trading volume for 2019 and 2020 year-to-day will be 46 million U.S. bucks and 300 million U.S. bucks, an increase around 6 times. Since the beginning of the year, the every week value has been significantly higher (or near) the 2019 regular. It could be mentioned that DEX is rolling out a great deal this year.

From the comparison between platforms, the very best 5 DEXs ranked by volume last year were: IDEX, Oasis, Kyber, Uniswap and 0x. This season, the ranking transformed to: Curve, Uniswap, dYdX, Kyber and 0x, especially Curve It has shown explosive development since June. In terms of the number of transactions, the full total active customers of DEX are usually mostly between 3,000 and 8,000, and the fluctuations are usually small except for individual times.

Figure 8: The transaction volume and number of active customers of Ethereum DEX

Databases: Dune Analytics, Dapptotal

3. Opportunities to watch in the future

1) Platform currency

System tokens generally make reference to platform tokens issued by investing platforms. Most of them possess two attributes: collateral and utility. In the shape below, we have counted the currency price efficiency of many CEX and DEX platform currencies during the past year. The two currencies with the best returns during the period are usually KNC (+635%) and OKB (+183%). In DEX, the search positions from high to reduced are: KNC (+635), BNT (+117%), ZRX (+37%) and IDEX (+3.6%), which are quite different. The solid efficiency of KNC could be linked to the Katalyst improve this season and the rich economic model.

Figure 9: System currency price trend, data source: Coingecko

From the perspective of the circulating market value, the full total market value of the 7 platform coins reached two peaks in mid-2019 and February this season. The 4 DEX platform coins accounted for 2% to 13%, the latter since May this season The development has been really obvious since. As of the reporting day, the circulating market value of the 4 DEX platform coins rated from high to reduced: KNC (289 million U.S. bucks), ZRX (286 million U.S. bucks), BNT (104 million U.S. bucks) and IDEX (29 million U.S. dollars). In line with the distribution of investing volume in this season in Figure 8, the marketplace value of the 4 tokens could be mismatched to some extent, and investors pays attention to trading opportunities.

Figure 10: Marketplace value of platform currency inside circulation, data source: Coingecko

02) Impact on the underlying chain

As an important part of the Ethereum Dapp ecosystem, DEX can be classified as Defi (decentralized finance), that ought to affect the performance of ETH to a certain extent. The chart below shows the trend of ETH price and regular DEX volume since January 2019. It could be found that the good and the bad of the two are basically the exact same, and the correlation coefficients in 2019 and 2020 are usually 0.91 (strong correlation) and 0.63, respectively. When evaluating the development prospects or fundamentals of the underlying chain, DEX ought to be a web link that can't be ignored.

Figure 11: ETH price and DEX volume trend, data source: Dune Analytics

3) The future outlook of DEX

Summarizing the above, we discussed the particular dilemmas and deficiencies faced by DEX in today's development stage of blockchain technology. In the short term, it seems that DEX continues to be only a dietary supplement to CEX, and its own market talk about is relatively little. In the medium and longterm, with the advancement of the underlying technology, such as the improvement of open public chain efficiency and the breakthrough of cross-chain technology, and also the development of user groupings, we have reason to believe that DEX provides large room for advancement and is really important in the decentralized monetary landscape. An important part. In recent years, the very best three CEX exchanges have got deployed DEX, that may furthermore reflect the advancement potential of the field. Decentralization may be the hard primary component of the blockchain, and dealings are the most energetic part of the crypto world. In the future, we shall still absorb the advancement of DEX.