The Revolutionary Trading Models of DEX
📊💎The heart and soul of DeFi is that people can freely participate in financial transactions, and DEX decentralized exchanges play a key role in the DeFi ecosystem.
With DEX, users can trade in a more open and barrier-free environment, no longer subject to the cumbersome processes and restrictions of traditional centralized exchanges. This characteristic of independence and autonomy makes DeFi a disruptive change in the financial industry.
In this context, an in-depth understanding of the two revolutionary trading models of DEX becomes particularly critical. This is not only the process of further exploration of DeFi, but also the thinking of building a more secure and decentralized financial system.
Order Book DEX
🔋The order book collects buy and sell orders in real time that have not yet been matched in the market, which is the basic model of digital trading platforms. The trading platform’s internal system matches buying and selling orders through the order book.
The Order Book DEX is similar to CEX, where users can submit buy and sell orders according to limit or market prices, the main difference between the two is the security of the assets. In CEX, trading assets need to be stored in the exchange’s wallet, while in DEX, users’ assets can be stored in their own wallets.
As early as April 2018, WhaleEx, a decentralized exchange based on EOS, innovatively combined an on-chain matching engine with an order book, leveraging the technological advantages of EOS to achieve trading speeds comparable to centralized exchanges.
However, during the market downturn in 2018–2019, the number of EOS users decreased significantly, which brought liquidity problems to DEX based on order books. Due to the gap between buying and selling positions, the transaction time for users’ orders was extended, resulting in a serious decline in the trading experience.
With the rise of the DeFi boom, the market has shifted its attention back to the DEX sector, particularly the order book aspect. In order to increase trading depth on the order book, many exchanges have introduced centralized market-making models, sacrificing a certain degree of decentralization. In the long run, this may potentially impact the development of decentralized exchanges.
DEX based on Automated Market Makers (AMM)
🔫Constant Product Market Maker are smart contracts on the blockchain that hold liquidity reserves and achieve spontaneous market making for both buyers and sellers.
Users trade according to a fixed formula x * y = k, where x and y represent the number of two tokens in the liquidity pool. In this formula, k is a fixed constant, which means that the total liquidity of the pool must remain unchanged in order to trade these reserves.
Anyone can provide liquidity for these smart contracts and charge transaction fees for both buyers and sellers as income according to their proportion in the liquidity pool.
In this mode, the token price is determined by an algorithm. Currently, platforms like Uniswap and Curve are representative of decentralized exchanges (DEX) based on liquidity pools, rapidly dominating over 90% of the DEX market share. As a decentralized trading platform on the Qitmeer blockchain, CandySwap also adopts this mechanism, offering users higher liquidity and faster transaction speeds.
🧬According to the latest data, CandySwap has achieved remarkable results since the fourth quarter of 2022, with its on-chain trading volume surpassing 200 million USD. CandySwap supports dozens of token trading pairs and offers cross-chain swapping. By using CandySwap, users can gain greater trading flexibility and convenience while avoiding the restrictions and risks that centralized exchanges may pose.
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🚁The core concept of DeFi is to empower individuals with more financial autonomy, and DEX, as the core infrastructure in this field, enriches the DeFi ecosystem and drives the entire financial industry towards decentralization.
