Centralised crypto exchanges had a historic run in 2021, overseeing more than US$14 trillion in trading volumes. This value represents a 689 per cent growth rate as opposed to trading volumes in 2020. What’s more, both centralised and decentralised exchanges experienced exponential growth rates during this period, with the latter overseeing over US$1 trillion in trading volumes during the same period. The figure represents an 858 per cent enormous growth rate from 2020.
These statistics show a growing number of crypto users, fueled by various Web3 projects proliferating to the mainstream. However, launching a new digital asset comes with various challenges, among them the tricky price discovery process. Price discovery is the process wherein market participants decide the fair market value of the new asset as soon as the actual trading begins. For decentralised exchanges (DEX), it is riddled with competing market forces and bots that makes price discovery unfair.
Fortunately, the emergence of innovative price discovery mechanisms are solving this problem–smart enough to outsmart pesky trading bots.
Why bots hurt the entire trading experience
AMM (Automated Market Maker) bots have littered the current DEX landscape, ruining the trading experience for real users. These automated systems connect users to exchange digital assets on a DEX, without an intermediary. No banks or brokers handling your assets.
Bots always claim the available amount of new assets in a trading pool before any human trader can make a move, for example. Before any trader can click through to get their swaps in, faster automated bots will “front-run” the human trader.
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The AMM’s technical design by nature creates non-transparency for the end-user. For the underlying blockchain network powering the AMM, it also creates unnecessary congestion as bots pile in their swaps in a short amount of time. The project’s reputation then gets tainted during the process, despite not being responsible for the bot’s malicious actions. In the end, harmful bots gain everything while honest traders gain nothing.
For these reasons, there is a need for a better price discovery mechanism that fosters open and fair DEX trading environments, to ultimately drive further mainstream adoption.
Combining the best of both worlds
One of the innovations that have been long overdue in the DeFi space is the Dexalot Discovery solution. It is the first of its kind to enable transparent asset trading launches on Avalanche, the fastest smart contracts platform in terms of finality time. With this feature, traders can now stay ahead of bots and mitigate price manipulations. “This innovation leverages central limit order books (CLOB) on Avalanche network to fight bot manipulation, and bring transparency back to the traders. We combine the battle-tested CLOB model used by major financial exchanges, with blockchain’s transparency in order to benefit both experienced and new traders,” says FireStorm, Advisor of Dexalot.
Dexalot’s decentralised exchange means that the users’ assets are only controlled by the user, thus eliminating any manipulation risks by the exchange itself. At its core, Dexalot allows anyone to trade more confidently with higher transparency of what goes on behind the scenes when trading crypto assets.
Remedy with the Central Limit Order Book (CLOB)
The CLOB built on Avalanche is fully transparent and dynamic, giving traders the liberty to set their desired prices and execute trades only at their desired price. Similarly, users can enter limit orders and avoid expensive trades that might hurt their positions. In other words, you won’t get a surprise trade because you won’t buy for higher, or sell for less than what was intended. A checkmark for confident trading.
“We are solving these core problems by introducing a fully on-chain CLOB that merges perfectly with blockchain technology. With the best features from centralised and decentralised exchanges, we are bringing a user experience that balances security, mitigates manipulation, and enhances trading confidence,” says Dexalot Co-Founder and CTO Cengiz Dincoglu.
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Hands-on experiences for novel solutions
DeFi and crypto platforms can be quite complex for new users. Blockchain is still a relatively new technology that is still penetrating the mainstream. That said, it helps if projects incentivize users to get hands-on experience with new solutions to fast-track wider adoption.
“To help traders get hands-on experience with this new feature, we encourage our communities through gamified battles. This simulates real price discovery and order book trading sessions, for traders to test their skills with mock assets,” says Tim Shan, COO of Dexalot.
Discovering innovation in the crypto markets
Smarter price discovery is a feature that will change the trading game in many ways by vesting fairness back to the user. From transparency, a blockchain-based Central Limit Order Book, to a smooth user experience, a typical trader has much to explore and gain.
“Decentralised finance has certainly created a plethora of exciting new opportunities for projects as well as their communities. However, the other side of the coin is also true: the rapid pace of innovation brought about new challenges associated with price discovery manipulation. To continue the much-needed innovation that DeFi is driving, we are actively educating traders on solutions like Dexalot Discovery. This is an important step to ensuring a far more transparent and fair DEX environment,” concludes Nihat Gurmen, Co-Founder and CEO of Dexalot.
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This content was first published by The Human & Machine
Image Credit: The Human & Machine
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