DEXs will become the new industry standard for crypto trading and attain the dominant market share of trading volume crypto-wide, but only with the following improvements. DEXs must first:
1. Coordinate high frequency, cross-chain bot trades effectively and with zero downtime.
2. Settle trades instantly, ideally with a success rate >99.9%.
3. Offer an experience that is better or, at minimum, comparable to the Centralised Exchanges in terms of ease of use, speed of deposits/withdrawals, and heavy liquidity.
4. Execute cross-chain trades between multiple blockchains with native assets as opposed to wrapped assets. Native interoperability (i.e. Bitcoin/Ethereum) and code agnostic frameworks are ultimately the way forward. Wrapped assets and DEXs built towards codependence are stopgap solutions.
All four of these principles are critical for attracting market makers. Combined, they lead to an ecosystem with drastically reduced operating overheads and aggressively-competitive incentives for both makers and takers.
X9 devs have built an exchange that successfully honors every one of the requirements listed above.
The Stakenet DEX will undoubtedly be a first of its kind. It has been precisely designed for high-frequency bot trading, and it’s coupled with a decentralized, lightning-speed, almost feeless (no blockchain transaction fees on Lightning or Connext) exchange built on Layer 2 – a solution which is urgently needed. The first version of the DEX will be launched soon to the public.
Common Layer 1 exchanges (or aggregators) like Uniswap, SushiSwap, or 1inch require every trade to be executed on-chain and with on-chain fees. At this moment in time, the upper limits of this scalability are being put to the test. The fees for one single trade have varied between $20 and $150 over the last few weeks, with even higher fees being reported during peak times. For an on-chain trade to complete, users must also wait for the transaction to complete. This process of waiting on blockchain confirmations can take anywhere from several seconds to hours and can lead to slippage. In most cases, this slippage is more than 0.50% of the total transaction value.
Furthermore, the vast majority of DEXs are strictly limited to Ethereum’s blockchain and ERC20 tokens, e.g. non-ERC dependent trading pairs with heavy trading volume and liquidity (BTC, LTC, EOS, XLM, BNB) have received little to no decentralized infrastructure for trading native assets.
Due to tx fees, slippage, and lack of decentralized support for non-ERCs (especially BTC), this approach of running a DEX is neither tech capable, nor economically feasible for a sizable percentage of global crypto volume.
A DEX must successfully execute high frequency, cross-chain bot trading with instant settlements and offer a better or at least comparable performance to the trading speed offered by major CEXs. Big liquidity providers spend millions of $ every week just in transaction fees — at Stakenet DEX they don’t have to pay this anymore (except for L1/L2 on-/offboarding).
Leading up to release, our Vortex team has been performing rigorous stress-tests of the Stakenet DEX. A whopping 71,000 trades in the last week, totaling over $1 Million USD. Already, the sheer number of trades for that amount of volume would be practically impossible from a technical and economical point of view, if it were on-chain, as the blockchain fees would most likely cost way more than the profit earned.
Trader A has a portfolio value of $10,000,000. He usually uses $500,000 of this to trade highly liquid pairs like LINK/BTC or BTC/USDT. Often, he trades smaller price movements, because a 1–4% value change results in a profit of $5,000 to $20,000 per trade. These smaller price movements occur dozens of times per day. Let’s assume 50 of these trades per day (50 buy + 50 sell = 100 orders) are automatically done by an algorithm.
Layer 1 DEX Scenario
On a Layer 1 exchange, Trader A would have to pay transaction fees for each of these 50 trades and take slippage losses (due to latency). Every market has orderbook slippage due to low liquidity and depth, in this calculation we assume for both DEXs to be zero.
Calculating with a trading fee of 0.3%, an average fee of $40 per TX, an average yield of 1% per trade, and 0.25% of slippage loss per trade:
Turnover: 50 trades * 0.01 * $500,000 = +$250,000 per day
TX fees: $40 * 100 trades= -$4000 per day
Slippage losses: 50 trades * 0.0025 * $500,000 = -$62,500 per day
Trading fees: 100 trades * 0.003 * $500,000 * = -$150,000 per day
Stakenet DEX Scenario
At Stakenet DEX there are no TX fees (once on L2 ) and no slippage losses due to latency. If there are no open and funded layer 2 channels, then one can be rented for $480 per day (for $500,000 USD channel capacity). In this example, Stakenet DEX will be much more attractive to use, especially for larger capital investors. Calculating with a 0.25% trading fees for market orders, negative fees for limit orders, and an average yield of 1% per trade:
Turnover: 50 trades * 0.01 * $500,000 = +250,000 per day
Channel creation and rental fees= -$500 ($20+480) per day
Trader A (uses limit orders): 100 limit orders = +$62,500 per day (taker pays maker=negative fees)
Trader B (uses market orders) 100 market sells * 0.0025 * $500,000 = -$125,000 per day
Profits: from $124,500 (for trader B) to $312,000 (for trader A)
Given the above, Stakenet DEX is very well positioned to become a high-volume exchange to offer valuable business cases for masternode owners, liquidity providers, and partners.
Moreover, our built-in feature “Vortex” will allow for cross-chain and cross-exchange arbitrage trading, all from one UI within the Stakenet Wallet and DEX. This will also increase the liquidity and the DEX’s volume. Read more about this implementation here: https://twitter.com/XSNofficial/status/1362829251435716610. Besides the explained example, this opens up even more possibilities for trades.
BTC/USDT is the crypto trading pair with the biggest global daily trading volume of $20,000,000,000-$50,000,000,000. This volume is solely being traded on centralized exchanges, not on any real-time DEX as there currently is no DEX that supports the combination of BTC/ERC20, instant trading, and feeless at the same time. Stakenet DEX will be the very first one to tap into this market.
High volume needs high liquidity, so we are establishing very profitable liquidity provider incentives. Some of those are:
· Taker pays maker.
· 0.25% trading fees for market orders.
· Negative fees for limit orders.
More incentives and the ideas behind the fee structures were described in detail in our previous article here: https://medium.com/stakenet/hydra-dex-network-upgrade-proposal-4b00a3a3fb8
Moreover, we are in negotiations with different Liquidity Providers that will greatly help to make Stakenet DEX one of the most liquid DEXs and enabling huge volume. These will be revealed later in Stage 2, called Prometheus. This in return will make our masternode service hosting model more and more rewarding, creating more attention, which will again benefit further growth. Furthermore, a marketing campaign will accompany this to set the best path to achieving a successful product.
All this is set to be put in motion and commence soon!
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