In an article published by Cointelegraph on June 22nd, the “alarmist” headline “Automated Market Makers are Dead” was used.
The article sets out the core 3 points: 1.
- the biggest beneficiaries of the AMM model are not LPs but arbitrageurs. 2. because LPs are moving to a new sidechain, AMMs running on layer 2, making liquidity more fragmented. 3. to save on Gas fees and improve trading efficiency, traders and developers will flock to layer 2 to build DeFi applications, and the liquidity war between AMMs on the underlying chain will be fought on a new battlefield.
Instead of saying “AMM is dead”, the new liquidity war has already started in Layer2 (hereafter L2).
Before Ether really breaks through the performance cap and lands on-chain fractional ETH 2.0, the L2 track will continue to climb in popularity and more DEX will be deployed on L2. It is believed that L2 + DEX will become a new milestone because they are more secure and faster. At the same time the aggregation effect of funds to head projects on L1 is becoming more and more obvious.
Why is L2 so important for DeFi projects?
The main bottleneck is because L1’s protocol does not support complex programs and structures such as futures, options and other derivatives well, and the fees are quite high. senior analysts at Messari also said, “L2 solutions are now a catalyst for DeFi growth and stimulating new users.”
In “Layer 2 Series I: The Great Ethernet Scaling Solution PK, Who is the King of Problem Solving? we introduced five mainstream L2 solutions in the present day, including Sidechain, Pipe Channel, Plasma, Validum and Rollups, and the data from the chart below can visualize the TVL data of each scaling solution (excluding Sidechain) to analyze the extent of its adoption.
The first quarter of 2021 was led by ZK Rollups, followed by Validium. The second quarter saw Validium explode first, followed by the rise of Plasma to dominate.
The difference between Validium and ZK Rollup is that the former is more suitable for high-frequency applications that do not require as much trust, such as gaming DApps, which can process 10k transactions per second and store data off-chain. ZK Rollup is more suitable for payment and transaction scenarios with high security requirements, and the data is stored on the chain.
After introducing all the mainstream solutions, let’s narrow our focus to DEX, which can be considered the core of the Layer 2 ecosystem. Different trading platforms have adopted different solutions, and representative projects include
Using Optimistic Rollup technology: Uniswap V3, SushiSwap, MCDEX, DODO
ZK Rollup technology: Loopring, dYdX, ZKSwap
With Plasma technology: OMG Network
Using Validium technology: DeversiFi
Arbitrum Rollup is also a network based on Optimistic Rollup technology and has become the preferred choice of many well-known projects and developers because of its easy integration with DApps and full compatibility with Ether EVM. It has become the preferred choice of many well-known projects and developers.
With the L2 network effect heating up fast, how are the familiar DEX headliners Uniswap V3, DODO and dYdX performing?
To further gauge the current data and trading experience on DEX and CEX, we will briefly compare the following 3 metrics.
DEX VS. CEX
- Liquidity: 24-hour trading volume (divided into spot and futures), number of user visits, supported trading methods
(Data source: Coingecko, DeBank, FTX, the official website of each trading platform, statistics time: 2021/6/29)
According to the above data we can see: each DEX 24-hour spot trading volume in the first place in Uniswap V3 (L1) accounted for only about 5.8% of the Binance. Meanwhile, the 24-hour trading volume of some of the head DEXs on different sidechains in L2 are.
● PancakeSwap (BSC): $ 342,091,865
● QuickSwap (Polygon): $ 208,976,311
● SushiSwap (Polygon): $ 55,816,630
No L2 “dark horse” DEX has yet been able to surpass the trading volume of DEX on L1 and is still in the stage of gathering more users and liquidity. So how do the two trading experiences compare? We continue to analyze. 2.
- trading experience: fees, supported currencies, supported pairs, slippage, interface
(Data source: Coingecko, the official website of each trading platform, statistics time: 2021/6/29)
*Slippage calculation method: Take the ETH/USDT trading pair as an example to calculate the disk spread of 1ETH
Excluding the Gas fee that needs to be paid on the chain, DEX’s per-transaction fee has been basically on par with CEXs, and the head DEX supports trading coins and trading pairs that can already catch up with the head CEX, including more long-tail assets.
In terms of the highest 24-hour trading volume pairs, you can see that the highest volume coins traded on CEX are mainstream coins such as BTC, while on DEX is the stage of on-chain exchange with stablecoins and DeFi eco-assets such as ETH, and long-tail assets have not reached the mainstream.
The trading interface of dYdX has converged very much to the order book model of centralized exchanges. Through a combination of non-custodial, off-chain order books plus a management engine, traders can better manage risk, develop trading strategies, and in the table above trading slippage is approaching CEX.
It is particularly worth mentioning that on June 15, dYdX completed a $65 million Series C round of funding led by Paradigm, with top investors also including Kronos Research, the quantitative investment and research organization that incubated Wootrade, and well-known investment institutions such as QCP Captital and HashKey. L2 expansion is provided by StarkWare Powered by StarkWare, the platform will also see a boost in trading volume when more pairs come online.
The investment trend further indicates a preference for a more “silky” transaction in the L2 track, and whoever can attract more users to trade assets in the DeFi ecosystem, provide a high performance, high speed and low slippage trading experience, and allow users to move between the main network and L2 “senselessly”, will stand out from the crowd.
DEX users have 100% regulatory ownership of their assets, so it can be said that the privacy and security are more than CEX, but if the user loses his private key string in DEX, then the property in the wallet may be permanently lost.
In summary, whether it’s a sidechain or other scaling solution, the road to DEX on L2 is still long, and in the future there is a particular need for head well-known projects such as Uniswap and dYdX to continue to bring up transaction volume, and the PK between AMM model and order thinning model is getting more and more intense.
The liquidity battle is happening, but whether it’s CEX or DEX on L2, different users have different needs and options, what is your choice?
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/is-the-trading-experience-on-dex-on-l2-comparable-to-that-of-cex/
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