Kapil Rathi is the CEO of CrossTower, a digital currency exchange and provider of manufactured products. He has served as a senior executive on the Chicago Mercantile Exchange (Cboe), the Bats Stock Exchange, the International Stock Exchange (ISE) and the New York Stock Exchange (NYSE). راثی در an essay Published on the Quin Desk website, it comments on the current state of decentralized financial management (DIFA). You can read the following text with Kapil Rathi.
Decentralized finance or DeFi has fascinated everyone. One of Defy’s subsidiaries is Decentralized Exchange (DEX), which is now more popular than ever. Decentralized exchanges, such as Xerox, Uniswap, and Kyber, have sought to compete with centralized exchanges by offering a peer-to-peer trading model. Theoretically, the peer-to-peer trading model does not require any intermediaries and, unlike centralized exchanges, does not require the trader to deposit money.
However, in decentralized exchanges, there is a big problem: liquidity, or rather, lack of liquidity. In the past, there were buyers who could not find a seller and there were sellers who could not find a buyer. Due to the lack of liquidity, the variety of prices on these platforms could not compete with centralized exchanges. Exactly the vital role of centralized exchanges can be seen here. They enter traders’ orders into a centralized order book so they can monitor liquidity.
The latest generation of decentralized exchanges, with “Automated Market Making” models, or AMM for short, have solved this liquidity problem. In these models, liquidity providers provide assets to the network that are controlled by smart contracts. In addition, the exchange offers buying and selling orders using an automated mathematical formula. People working in these exchanges can potentially achieve huge profits and returns by using methods such as “liquidity mining” and “yield farming”.
For friends who may not be very familiar with the field of digital currencies: liquidity extraction is rewarding marketers for generating liquidity with new tokens, and profit cultivation is an algorithmic way of lending digital assets to various pools for profit. Farmers may move from protocol to protocol for maximum profit. In addition, additional incentives or tokens are provided to reward profiteers.
One successful example of decentralized exchanges is the UniSwap platform. According to the latest news, the volume of transactions in UniSwap is probably higher than the volume of transactions in the largest centralized exchange in the United States. Many people consider the volume of transactions in decentralized exchanges as a measure of their success.
But before this comparison, it is better to take a closer look at an institution such as UniSwap and the volume of transactions on this platform. A large percentage of the volume of ounce swap transactions is related to coins that have just been introduced and may not have any real use. UniSwap allows everyone to create Quins on this platform. However, does the high volume of transactions of coins such as SUSHI, YAM and KIMCHI mean that UniSwap is better than other exchanges?
We are aware of the statements made against the suspicious volume of transactions in digital currency exchanges. Such claims have damaged the credibility of the digital currency industry and may be a barrier to new investors entering the field. Have we forgotten the ICO initial public offering madness and the time it took to recover the lost credibility of the digital currency industry because of this madness? I am not very happy with the increase in the trading volume of these food coins. Many new tokens have started with weird letters rooted in food; For example, the previously mentioned quinces, such as sushi, yam (Indian potato) and kimchi (a kind of Korean food), can all be considered part of the new Quinn food series.
Of course, it is true that mature coins such as Ethereum and Tetra also have high trading volumes on the UniSwap platform, however, some of the stable coins are also exchanged for food coins. In addition, these coins are built on the Ethereum network and, therefore, naturally have a high trading volume. But this volume of transactions does not mean that decentralized exchanges are efficient and effective.
The return on investment in some of these food coins has been very high. In some cases, 100 or even 1,000 percent of the profits will be made by the initial investors in a short period of time. not interesting?
But now, the ground beneath the feet of these quinces seems weak; In fact, it can be said that investors are involved in the pump and dump scheme. The suppliers of many of these dubious coins are simply looking to make money overnight. For example, a new token called HOTDOG, which again has a food theme, was launched on September 2 (September 12) on the UniSwap platform. The token price reached $ 6,000 in less than a few hours. Then, early buyers began selling tokens and saving profits; As a result, the price of a hot dog token fell sharply during a free fall, to less than a dollar in five minutes.
These events are less common in centralized exchanges; Because centralized exchanges have strict and strict criteria for listing coins, special trading rules are enforced in these exchanges. In addition, centralized exchanges strive to treat all traders equally.
For other reasons, the volume of transactions in decentralized exchanges may be high. Is it possible that a group of people who do not or cannot trade in centralized exchanges are trying to take advantage of the opportunity of decentralized exchanges? Some industry activists believe that the reason for the acceptance of decentralized exchanges is not the need to implement the Customer Recognition Process (KYC) on these platforms. Again, the question arises as to whether our ideal is an industry in which the absence of customer recognition and authentication criteria is seen as a positive feature or a drawback?
There are also problems with increasing gas. These untested coins, made available to the public by the UniSwap Exchange, have caused an unprecedented increase in transaction fees (transaction fees) in the Ethereum network. If this negative and inhibitory effect on the Ethereum network does not stop soon, it can have a detrimental effect on the value of the entire network.
Of course, we must also keep in mind the positive and important point that Uniswap and other decentralized exchanges have removed the barriers between order matching and marketing. Traditional exchanges, such as the Chicago Mercantile Exchange (CME), the Chicago Mercantile Exchange, and the Nasdaq (Nasdaq), have spent years trying to provide their customers with automated marketing tools. The types of orders in exchange offices allow automatic pricing as well as re-pricing for the benefit of customers, orders such as fixed orders (orders based on the index of the transaction rate), optional orders (special orders made through optional transactions) and orders only Posted (limited orders that are only accepted if not done immediately).
Due to the supervisory role of traditional exchanges, exchanges are not allowed to provide marketing services to customers on their behalf. Traditional market makers also do not trust exchanges to the extent that they leave control and authority to them so that exchanges can decide on transaction prices instead of market makers. Nowadays, market makers are more focused on giving decentralized exchanges, and this can be considered an extraordinary or at least a new development.
However, marketers are still likely to prefer centralized exchanges to decentralized ones; Because in centralized exchanges, they do not have to use the exchange algorithm. In centralized exchanges, marketers can build their own algorithms and adjust their advanced pricing and risk management strategies for pricing and then place orders.
Professional marketers may be reluctant to price a third party. A centralized exchange provides marketers with a platform on which they can compete effectively, while decentralized exchanges use a social approach to treating all marketers equally, without discriminating against specific market makers. Small customers can benefit from a strong market with multiple market makers; Because it reduces the price difference of sales offers, which is actually better pricing for the customer.
While we must respect innovation and creativity, we must also prioritize the security of trading environments in the digital currency industry. We must make sure that there is no room for discrimination, fraud or other manipulation of the market.
The people in charge of designing and developing algorithmic trading systems must also take responsibility for creating an equal and fair market. In traditional markets such as the US Stock Exchange and the Securities and Exchange Commission, licenses are required for algorithmic system designers and developers.
I expressed my views on diff and its use to improve interoperability, open source systems, accessibility and financial capacity. Centralized Finance (CeFi) can apply the principles of decentralized finance (DFA) without compromising market integrity and security. Decentralized finance provides extraordinary benefits to reduce the risk of defaulting on the parties to the transaction, allowing the parties to trade freely and without physical movement of assets.
Today, there is great potential for innovative products and services. Difai must be able to innovate within a centralized financial framework to facilitate peer-to-peer transactions between traders whose operations are ensured to be accurate. This is done to ensure the protection of the capital of market participants. We need to make sure that saboteurs do not have the opportunity to take advantage of the market to engage in illegal activities; Because these activities can prevent the expansion of the potential of this industry.