Decentralized exchanges are being talked about more and more.
Vitalik was a bit aggressive in an interview with Tech Crunch in July, saying “go burn in hell” about his dislike of centralized exchanges, which, in his view, undermine the transparency and openness of the cryptocurrency space.
However, the attack centralized exchange did not choose to stand in the opposite of decentralized exchange, there is “in the next few years, decentralized exchange will replace many centralized exchange share” consensus, initiative to accept the decentralized exchange, even put it into their own ecosystem.
What is a decentralized exchange? How is it implemented? Why do so many industry leaders place such high hopes on it? But why is it still not mainstream?
With this in mind, Carbon Chain Value spoke to the ONEROOT team, which is working to provide a solution for decentralized trading by creating a decentralized trading standard protocol R1. With R1, all traffic parties, including exchanges, wallets and media, can submit applications “with one click” to set up their own decentralized exchanges and share the liquidity and depth of transactions through Relayer.
This article discusses the hope for the future, but does not avoid the problem of reality. It is hoped that readers can understand the revolutionary road of decentralized trading layer by layer through this article and the project route of ONEROOT.
Decentralized exchanges vs. centralized exchanges
Carbon chain value: What are the advantages and disadvantages of DEx (Decentralized Exchange) compared to CEx (Centralized Exchange)?
ONEROOT: The biggest feature of DEx is the decentralization of assets, which means that your assets are in your wallet, or in a contract, not in a centralized organization.
CEx is like a bank, where users deposit their money and the bank can invest it and give some back to the user. As for DEx, the control of the currency is in the hands of the user and not given to the exchange, so the exchange cannot do anything with the user’s currency.
In terms of disadvantages, DEx has two major problems. One is that it does not do well in cross-chain. For example, there is no good solution for the exchange of Bitcoin and Ethereum.
Second, the speed of transactions can not be as high as CEx. Dex’s transaction speed depends on the speed of the public chain. For example, ethereum-based transactions, ethereum’s TPS is only about 20, no matter how fast it is, the transaction speed is the same.
Carbon chain value: What do you think about these two big issues with DEx?
ONEROOT: For example, 20 years ago, could anyone have imagined playing a large 3D online game on a computer? No, but over time, as the hardware catches up, there will be more and more. Ethereum, for example, has only a few dozen TPS now, but in the future it could be in the thousands, all of which are closely related to the development of hardware. Anything is possible, and at that point, the present problems will no longer be a problem.
Carbon chain value: What about big traditional centralized exchanges to do DEx?
ONEROOT: First of all, they do DEx for a profit, so why do it? Because of security. At CEx, all assets are kept in a small vault, but the vault is vulnerable to hacking, and hackers are always watching CEx. If you change it to DEx, the service fee is still charged, but the user funds are stored in DEx mode, not in the small vault, so there is almost no risk of attack.
Everyone is saying that the future trend must be decentralization, so CEx’s DEx is also a technical reserve to occupy a territory first, in case something very advanced comes out of a sudden.
Carbon chain Value: Why wouldn’t hackers attack DEx?
ONEROOT: Hacker attacks CEx and can transfer assets directly. Hackers attack DEx, but there is nothing in DEx, you can imagine there is no vault behind DEx, why do hackers come? What else is there to do but smash the facade?
Carbon chain value: The original business model will not change if CEx makes DEx?
ONEROOT: It’s too early to say until DEx comes out. In addition, any CEx does not dare to publicize real transactions, but all transactions of DEx are real and there is no way to fake them. Without knowing these transactions, the owner does not have the courage to upload all transaction information and make it public.
Decentralized trading protocols VS decentralized exchanges
Carbon chain value: What ONEROOT is doing is building a standard protocol for decentralized trading, not a decentralized exchange? ONEROOT: that’s right.
Carbon chain value: What is the relationship between decentralized trading protocols and decentralized exchanges?
ONEROOT: The protocol is the engine and core of the exchange. It stores user data and stores all transaction data, including asset data, on the chain, unlike CEx, which has its own database.
Protocol is a standard, like the HTTP protocol of the Internet, and the FTP protocol of file transfer, which is equivalent to a standard established for communication between parties. It will not be messed up according to the standard.
ONEROOT created a decentralized trading protocol R1 that any party, including exchanges, wallets, media, project parties, etc., can use to build their own DEx. A decentralized transaction agreement is a common understanding of the implementation of decentralized transactions.
Carbon chain value: How do I use THE R1 protocol if I want to build a DEx?
ONEROOT: It’s easy. Just find us and we will check your qualifications to run an exchange and see if you have the ability to do such a thing. If approved, we will open an exchange for you, which you can use immediately without any technical reserves.
For example, if you want to open a merchant on Taobao, ordinary users can use your shop as long as they have registered and passed the examination. There are also users who want to access taobao platform, but feel that the store template provided is not enough, and they do not like it, so they can modify it. We have the ONEROO API for the underlying transaction interface, we have the UI for the upper level that you can call yourself, we have various development kits that they can build on top of.
Carbon chain value: Can wallets use R1 to function as a decentralized exchange?
ONEROOT: As long as it’s a standard DApp wallet. The DApp will have a built-in browser and open with a standard Web3 interface, so it can be accessed seamlessly without any installation. Users can trade directly with the local wallet DApp.
Carbon chain value: does the party who built DEx need to pay any fees to you? Do I need your tokens?
ONEROOT: Not at the moment, but there may be plans for that in the future.
Carbon chain value: What ONEROOT seems to be doing is building an ecosystem of decentralized transactions through the R1 protocol, not just a DEx? Why such a goal?
ONEROOT: Our understanding is that blockchain has several phases. 1.0 was Bitcoin, and with Bitcoin, people had a new alternative to fiat money and the freedom to control their own assets. 2.0 is represented by Ethereum. At this time, people can issue assets by themselves, and they have the freedom to issue assets with their own real assets or personal credit.
In the bitcoin stage, you can only own assets, and the process of owning is still to exchange from other channels. It is an investment asset. In Ethereum, through smart contracts, you can anchor your physical assets to the chain through some mechanism and issue them. But the value of an asset is not only the use value, but also the transaction value.
A lot of the value of the asset itself from the transaction, as I need salt, you need meat, but I only meat you only salt, meat with me don’t create value, the salt in there you don’t create value, only we exchange, the two sides use requirements can be satisfied, on the basis of the exchange, we have something just can have value.
It’s important for assets to be able to trade. Therefore, we believe that the blockchain 3.0 stage is the freedom of transaction, which means that we can first own assets and then issue assets. However, when we have assets, we need to exchange them to realize the maximum value.
Carbon chain value: Do you want the old centralised trading ecosystem to allow everyone to trade assets freely?
ONEROOT: Yes, and what’s happening now is that in terms of securities it’s in the hands of national exchanges, in terms of cryptocurrencies it’s in the hands of exchanges.
Carbon chain value: Is this situation not free?
ONEROOT: If you can be free, you can only expect these “centers” to be self-disciplined, but it is hard to expect them to be self-disciplined, because there is no mechanism to force them to restrain their rights. It’s like someone else can “pull a cable” to make you suffer, but you have to trade here. Decentralization is the possibility of freedom, independent of centralized institutions.
The model of decentralized trading
Carbon chain value: Besides R1, are there other projects in the industry that are also doing agreements for decentralized trading?
ONEROOT: Yes, well known ones are 0x, Loopring, Kyber.
Carbon chain value: Is there a consensus among these agreements, or are they different?
ONEROOT: Each of these protocols has its own characteristics and weaknesses. We also developed R1 because 0X had its own issues, and Loopring had its own issues.
Carbon chain value: have you discussed forming a common industry agreement?
ONEROOT: Everyone who makes agreements is trying to become an industry agreement. Everyone wants to be heard. I think the first thing to be clear about is that the industry is at a very early stage, and if you agree on a deal now, it’s very likely that it will turn out to be completely wrong and inappropriate later on. So now we need full competition and let the market decide.
Carbon chain value: The realization of decentralized trading currently has three modes, namely, order book hosting mode, which is adopted by 0X and Loopring; Reserve pool mode, which is adopted by Kyber; As well as P2P mode, Awap adopts this mode. ONEROOT’s R1 protocol uses order book hosting. Why?
ONEROOT: The order book hosting mode refers to that users send entrusted orders to Relayer, and Relayer collects orders from users and matches them, while on-chain hosting is responsible for on-chain settlement. For example, when a user initiates a purchase on the transaction interface, the front end will submit the purchase to Relayer, and Relayer will put the order into the order book for matching. The successful matching means that the transaction is concluded.
In the reserve pool model, the large reserve party provides liquidity and the price is also determined by the reserve party. It is a business order, which cannot correctly reflect the real demand of buyers and sellers in the trading market. Order book hosting mode is the user order, the buying and selling are decided by the user.
P2P mode directly carries out point-to-point price negotiation. In this mode, it is difficult to find clinchable orders and liquidity verification is insufficient. The order book custody mode is to put all the needs of buyers and sellers into the pool, and a third party is responsible for matching transactions, which can ensure fair prices and timely liquidity discovery.
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Carbon chain value: off-chain trusteeship chain settlement, chain to chain is a key point?
ONEROOT: First, the asset is on the chain, only the order is off the chain. Chain to chain is the process of trading up chain, which is the biggest difference from centralized trading. Uplink ensures that the user’s assets are settled on the chain, and also means that all transaction records are searchable on the chain.
Relayer will retry failed on-chain transactions; In order to reduce up-chain gas costs, R1 is designed to allow batch transactions and reduce up-chain times to reduce gas costs.
Carbon chain value: What is R1’s biggest advantage over 0X and Loopring, both of which are order book hosting models?
Version 1.0 of ONEROOT: 0X protocol was not friendly to matchmaking and only allowed orders of equal price to be closed, which had limitations. Loopring matching is not very useful in ethereum blockchain, because contract execution is limited, loop nodes cannot be many, and its mechanism also consumes a lot of gas for on-chain settlement.
The R1 protocol is designed specifically for dealmaking scenarios, with many optimizations. R1 protocol will match the price between the buyer and the seller, and the action of up-chain will be submitted by the authorized account, enabling Relayer to control the transaction process and improve user experience.
The biggest dilemma of decentralized trading ecology and the solution of R1
Carbon chain value: What is the biggest dilemma facing DEx right now?
ONEROOT: What DEx lacks most now is market liquidity. There are only a few users. If each DEx still plays its own game, the market will not flow.
Carbon chain value: How does R1 solve this problem?
ONEROOT: R1 unites the DEx through Relayer to achieve mobility. We have a rule that there can only be one Relayer, so that all transactions are based on it and liquidity is shared.
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Carbon chain value: Wechat group can also solve the traffic problem.
ONEROOT: The difference is that DEx transactions are “de-trust”. You made a call to someone in the wechat group, but he blocked you. Where can you find him?
In a decentralized transaction, you’re a party to a bill, and then your assets are put into a contract, and everybody’s assets are put into a contract. If you fail the order but have not clinched a deal, equivalent to this part of the assets were isolated, there is no way to take this part of the assets to place another order, but you cancel the order can recover the assets.
Carbon chain value: What is the core and difficulty of DEx to achieve liquidity?
ONEROOT: The core is sharing liquidity, which we did with Relayer. The hard part is getting the different exchanges to be able to make deals, and that means they need to be able to share their interests. But in fact it is not technical difficulties that is more of a need for this business model, because a lot of people like centralized exchange mode, liquidity is my liquidity, something I don’t want to share with others, share with a small exchange, I think, is a small exchange to take advantage of me.
Carbon chain value: Centralized trading One of the phenomena is that traffic and users tend to flock to the big exchanges, and those small exchanges are not easy to survive.
ONEROOT: that’s right. With Relayer we can connect small exchanges and share liquidity. Small exchanges can’t survive if they don’t, so they can try to share their stuff first and see the future. When you have one exchange, two exchanges, 10 exchanges doing this, maybe their liquidity or trading volume is equal to the flow of some slightly larger exchange, then liquidity comes up.
Moreover, through us, the technical maintenance of users is relatively simple, because they do not need to develop, as long as their own operation and maintenance can save a lot of costs. The net result is higher trading volumes on exchanges, but lower costs.
R1 implementation of the road
Carbon chain value: Who is using R1 to build DEx now?
ONEROOT: We started more on the traffic side. Flow party is not only the exchange, but also includes all kinds of media and public numbers, such as some big V, with hundreds of thousands of fans. One way is to recommend a kind of currency, build a good warehouse and let everyone buy it, but this way is unhealthy and overdraw credit. Another way is to open a DEx and tell users that there will be certain discounts if you trade here. This is a relatively healthy way.
Carbon chain value: What benefits can flow get from it?
ONEROOT: handling fee. What does the traffic side need to do? Good operation, make their own characteristics, really let a person think of you here to trade. The exchange will eventually become something of a rebooted operation, one that will simply provide users with a specialised service that allows them to trade with it.
Carbon chain value: Will transaction fees change when ethereum gas fees change? If the gas charges shoot up, will it affect the transaction? ONEROOT: The gas fees for all transactions are centrally controlled by us, so that there is no priority for miners to package deals. It is very fair and can be checked who orders first. We adjust the gas fee dynamically, and this value is displayed to the customer, who decides whether to order or not.
If the gas fee changes from 5 to 6, it is not a problem, miners will still pack, but if the gas fee increases from 5 to 20 in 10 seconds, miners may not like processing, in this case, we will cancel the order in a certain block, and then resend the transaction at the highest gas fee of 20. The transaction was not redone, just re-linked with higher gas charges.
Carbon chain value: What currencies can R1 currently support?
ONEROOT: We support Ethereum and EOS. We can trade currencies based on these two chains, which means we can trade currencies based on each chain. In fact, 95% of all currencies are based on Ethereum right now.
But cross-chain is still a problem, and the best cross-chain is CEx. If one day cross-chain is implemented, there may be no CEx.
Carbon chain value: What indicators can be used to measure whether a DEx is doing well?
ONEROOT: The best criteria are transaction volume and number of users, but transaction volume may have some problems of brushing, so it is better from two dimensions, one is the number of wallets, the other is the transaction amount.
Carbon chain value: How can DEx trade up?
ONEROOT: It’s a process, as is the evolution of centralized exchanges. For example, before there was a kind of currency, the centralized exchange has not been on, but when the currency was issued, someone added it to Yide without saying a word, and yide became the place with the largest trading volume.
Carbon chain value: What do you most want to achieve with your project? Or where do you spend the most energy?
ONEROOT: Our biggest goal is to get liquidity up and running and then plan for the future. That’s where we start.
conclusion
Rumi Morales, a partner at Outlier Ventures, thinks it is understandable that people are opting for centralised exchanges because they are more comfortable with the technology.
But technology is always moving forward, whether it’s TPS or cross-chain, new ideas are being proposed and new solutions are being implemented, and decentralized exchanges will one day overcome these barriers and go where centralized exchanges never could, bringing the freedom to trade assets to everyone.
As Rumi Morales predicted, “With the maturity of decentralized trading technology and the understanding of the concept of decentralized trading, decentralized exchanges will become more popular and widely used in the future”. That was the era Vitalik hoped for, where “Centralized exchanges go burn in hell as much as possible.”