DeFi Needs Innovation Badly

From the Summer of DeFi to the Spring of Layer One Blockchains, Crypto loves itself some activity. Aside from the fact that activities are fun and indicative of a healthy and vibrant industry, crypto punters treasure the extra bucks they bring. When Hayden Adams was retweeting Uniswap’s Twitter post in September 2020 to launch the UNI token, it was peak euphoria in DeFi, and everyone was scrolling through car dealerships, looking for the next gold-plated v12 engine Lamborghini. However, little has happened ever since.

DeFi is often described as the Wild West, where black hat fellows seek out and exploit loopholes within the system. One persistent issue has been manipulating prices to “steal” from other users. Several protocols have been innovated to address this, yet to minimal luck and effectiveness. In most cases, liquidity has been the bottleneck. Either it is fragmented or simply non-existent. In other cases, available liquidity is not bootstrapped properly for a lossless trading experience. Also important to opine that DeFi does not have the best UI designs out there. Hard to use when it is hard to understand.

Another pertinent challenge has been one-point access to multiple markets offering perpetual futures trading. Some kind of perp DEX aggregator. For instance, Andrew Kang – a notable futures trader on dYdX – suddenly finds better prices, fees, or general trading conditions on GMX. He would have to move his assets from dYdX to GMX. Not exactly sure this is ideal in anyone’s opinion. However, certain protocols are currently building exciting features to eliminate these challenges. Amongst them are Dfyn, Uniswap, and Serum. Finally, some much-needed activity in DeFiland.

Mainstream Adoption of DEXs: The Way Forward

Newbies in crypto have turned towards centralized exchanges because of the exorbitant fees they could potentially encounter on DEXs. As such, achieving a more cost-effective DeFi ecosystem could be a turning point for the DeFi landscape. That is why moves like Dfyn’s migration to Arbitrum with the mainnet launch of Dfyn V2 on the network are a welcome development. This decision to move to a more accessible, scalable, and cost-effective DeFi ecosystem can help make trading more seamless for both newcomers and seasoned DeFi enthusiasts.

Arbitrum’s competitive advantages include the following;

• High Throughput

• Low Layer-2 Gas Fees and High Security of Ethereum.

• A Flourishing Ecosystem and

• An Incredible UI and User Experience

  
  

This infrastructure makes it highly attractive for forward-thinking DeFi protocol building and designing.

Trade Execution: How On-Chain Limit Orders Can Solve a Major Issue in The DeFi Landscape

On-chain limit orders provide a convenient way for users to trade assets without relying on a central authority to match buyers and sellers. It also ensures the successful execution of every order.

With Dfyn V2, Dfyn has developed a truly decentralized on-chain limit order that allows traders to place orders on the blockchain specifying the minimum or maximum price at which they are willing to buy or sell an asset. As such, the trade executes automatically when the asset’s price hits that target, eliminating the need for a third-party intermediary.

Serum, on Solana, also features a decentralized on-chain order book, allowing users to execute trades without a third-party intermediary. The matching engine allows for price-time-priority-basis matching to users, enabling them to choose their trades’ price, size, and direction similar to a traditional CLOB but without the deficiencies. Serum also features a bootstrapping liquidity pool allowing new tokens to generate funds and liquidity for their ecosystem.

On-chain limit orders will allow DeFi users to enjoy the core benefits of traditional order books in the DeFi ecosystem while experiencing a truly decentralized financial system. As such, it will be great to see more DEXs follow in the footsteps of Dfyn.

Low-Level Liquidity on DEXs

Low liquidity has undoubtedly been a mainstay issue on DEXs. Achieving high-level liquidity on DEXs will undoubtedly drive mainstream adoption of DEXs, and more users will be open to trading on these platforms. A go-to solution will be this innovative hybrid model, which Dfyn V2 features. The model combines concentrated liquidity AMM and limit order liquidity to address the shortcomings and offer a superior solution for decentralized on-chain limit orders.

This model will provide more depth and liquidity to the market, addressing major concerns in the DeFi landscape. It further ensures price precision and reduces the risk of slippage for traders.

By combining both models, DeFi users can enjoy the best of both worlds; the concentrated liquidity AMM allows DEXs to offer enough liquidity for popular trading pairs, ensuring trades are executed reliably and swiftly. On the other hand, the limit order liquidity hands more control to traders as they can execute trades at their desired prices.

Uniswap is another DEX that has pushed for a more liquid DeFi market. Uniswap V3 features a concentrated liquidity feature that allows liquidity providers (LPs) to have more control over capital allocation. This feature provides for greater capital efficiency, paving the way for low-slippage trade execution, which according to Uniswap, can surpass both centralized exchanges and stablecoin-focused AMMs (high-level slippage trades occur a lot due to the low market liquidity on DEXs).

Rewards System Playing A Role In Liquidity Provision

Having an exciting rewards system in place is a great way to enhance liquidity provisioning and the growth of the DeFi ecosystem. For instance, Uniswap V3 features a tier-based rewards system that rewards LPs based on the risk they take in any particular pool. Such a system will potentially incentivize LPs to provide more liquidity.

Dfyn V2’s fee auction model is a feature that Dfyn will use to incentivize users. The platform will auction fees collected from swaps, and the highest bidder, who can bid using $DFYN tokens. This feature could spark the competitive spirit in users as they aim to outbid one another, leading to a more liquid market.

In conclusion, it is obvious that the DeFi landscape still has more room for improvement. Furthermore, there is a need for DEXs to step up and introduce more innovations, especially now that there is more scrutiny on Centralized exchanges (CEXs). Soon, DEXs may become the only option rather than an alternative, so it is necessary to make them more appealing and accessible to the outside world.