Could xDEXs Do To UniSwap What UniSwap Did To DEXs and CEXs?

On September 22, 2020 a new cross-chain decentralized exchange (xDEX) launched called mimo 8 - a fully decentralized protocol with automated liquidity.

Powered by the IoTeX blockchain, mimo uses smart contracts and automated market making algorithms to support peer-to-peer trading and community-managed liquidity pools of ERC20 & XRC20 assets.

IoTeX is compatible with DeFi because it is fast (5-second blocks with instant finality), inexpensive (almost-zero gas fees), and has cross-chain flexibility. Assets available now on mimo: IOTX, VITA, wETH, BUSD, UNI, PAXG, wBTC, LINK, with more on the way.

Mimo was developed by CapitalMu 4, a fintech research group consisting of engineers and practitioners from the National University of Singapore. The group's longterm vision for the platform goes far beyond peer-to-peer trading.

In addition to the trading of cross-chain digital assets (IOTX/ETH), mimo is expanding to enable the tokenization and trading of IoT datasets and devices, asset-backed derivative products and more.

It is intended to empower new decentralized finance (DeFi) applications on IoTeX and provide an infrastructure for an ecosystem of #DeFIoT 2 products and services, which will help to unlock the trillion-dollar IoT data market 2. 

Demystifying Decentralized Exchanges

Decentralized exchanges (DEXs) emerged in 2014 after a series of well-known controversies involving centralized exchanges. The most famous is perhaps the Mt. Gox collapse. Mt. Gox went into insolvency in early 2014 after user requests to withdraw Bitcoin were not fulfilled. As a result, the market bled and confidence in the cryptocurrency industry was severely impacted.

Centralized exchanges have improved their service and now operate with secured insurance and safeguards that Mt. Gox never had. However, it can't be ignored how the supposedly decentralized and trustless cryptocurrency assets continue to trade mainly on centralized exchange that lack transparency. In addition, because of the centralized storage of assets there are still security issues that cannot be eliminated.

The centralized model cannot compare to the safety, transparency, and consistency of decentralized exchanges. DEXs execute trades using automated smart contracts that let users to hold on to their assets until the time comes to trade. There is no need to deposit into an exchange. 

A New DEX Dawn

The first decentralised exchange was Etherdelta, founded in 2016. It listed many ERC20 tokens that dominated the ICO craze of 2017/18. Etherdelta was an innovation but had inefficiencies. Its primary issue is having to wait for Ethereum blockchain confirmations to execute an order. The time delay introduces a bottleneck for algorithmic traders looking for instant settlement available on centralized exchanges.

Building on the concept of Etherdelta, Uniswap was introduced in early 2018 and has ushered in a new paradigm for decentralized exchanges. Uniswap replaces the traditional order book that lists buy/sell offers and replaces it with a single liquidity pool that automatically incentivizes market-making. Market making consists of posting both sides of a given trading pair, and the pro-rata share of the trading fees are issued automatically.

Uniswap currently processes hundreds of millions of USD-equivalent daily transaction volume. However, this is still only a small fraction of the tens of billions of daily US dollar digital asset volume moving through centralized exchanges.

xDEX Goes Beyond Uniswap

Just as Uniswap built upon Etherdelta, mimo builds ion Uniswap by expanding capabilities to include cross-chain functionality, a.k.a.: an xDEX

Cross-Chain

Unlike Uniswap and other DEXs that support assets from one blockchain, mimo supports assets from multiple blockchains. This facilitates cross-chain swaps. ioTube 2, a cross-chain bridge developed by IoTeX, underlies the cross-chain capabilities of mimo.

For liquidity providers, mimo offers a return for anyone who deposits digital asset pairs (e.g., IOTX/ETH, IOTX/VITA) to liquidity pools. mimo currently supports ERC20 & XRC20 assets and is planning to add new assets from more blockchains in the future.

Fast Execution

Uniswap and other Ethereum-based DEXs are now suffering from slowdowns in high transaction periods. This causes some traders to miss trades. Such stuck or missed trades are far less likely on mimo because the IoTeX blockchain has high tolerance for transaction volumes and trades are finalized within seconds..  

If crypto markets experience a period of rapid volatility where prices drop by 20% in a single hour, it could result in a severe price divergence on DEXs where transactions take several minutes.

This is relevant for arbitrage, which is the simultaneous trading of assets at different prices on different exchanges to earn a profit. With mimo, the potential for a price divergence is much lower since arbitrageurs can close the gap in seconds. 

Low Fees

Ethereum fees can fluctuate to the point where sending a transfer can cost $20 in gas fees. This is a significant barrier to entry for small-scale and retail traders who cannot justify these unreasonable fees.

Currently, only “whales” who trade massive volumes of crypto can afford to use Ethereum-based DEXs. With mimo, however, anyone with any amount of cryptocurrency can trade since gas fees do not got past a few cents per transaction.

What is Next for xDEXs?

The potential of xDEXs is not limited to crypto asset trading. The development of IoT is creating vast quantities of device data. This valuable data is the new primary input into the decentralized economy and xDEXs may become the foundation for buying and selling IoT data. With blockchain, this value can be unlocked without sacrificing privacy or user control.