DEX and the City: How DEXes Make Yield More Attractive
There have been two major developments in the crypto industry in recent months. One is the increasing popularity of non-fungible tokens (NFTs). They have revolutionized the way we think about intellectual property. But their potential applications go way beyond ownership. The other major development is the importance of Decentralized Exchanges, better known as DEXes.
When we compare the two developments, we find that fewer people recognize the innovative solutions DEXes offer crypto users worldwide. But they are no less important. DEXes have reinvigorated the hunt for yield, something that has been relatively unexplored for too long.
So, how can DEXes change the way you manage your finances?
The answers are below.
How a DEX is Different Than a CEX
To understand why DEXes are so popular these days, you need to know how they differ from CEXes. Of course, the main difference is right there in the name.
Centralization refers to one authority and its accountability for the exchange. Users grant the exchange control over their funds while using the platform.
A decentralized exchange has no central authority. Smart contracts make its financial protocols autonomous. Users get to keep control of their funds, not the exchange.
But how does this translate into practical differences?
Born to Be Fee
Centralized exchanges charge users different fees for different transactions. Apart from making life unnecessarily complicated, these fees can be high enough to exclude users who are unable or unwilling to pay them.
Third parties do not govern decentralized exchanges. So, there is no need to pay such high and variable fees. In many cases, there are no fees. And when there are fees, they are usually minimal.
Users of a centralized exchange are at greater risk of malicious attacks. This is because a centralized exchange requires users to give up control over their funds. This makes the exchange a much more attractive target. Hackers only need to compromise one target to access the funds of many users.
On a decentralized exchange, individual users are less likely to be targeted. But even if they are targeted, they have control over their own funds, can store their personal data more safely, and cancel transactions whenever necessary.
Why People Flock to DEXes
Malicious hackers are always looking for new ways to steal data, identities, and funds. With their increasing popularity and profitability, cryptocurrencies became a target for criminals looking to steal funds.
Users do not have to transfer their assets to decentralized exchanges to execute a transaction. This makes it harder for hackers to intercept funds. So, DEXes provide users with something invaluable: peace of mind. As such, users started to visit DEXes to conduct their business.
The History of the First DEX
The technology behind decentralized exchanges started to emerge around 2012 when prototypes such as LocalBitcoins were launched. But it wasn’t until Ethereum went live in 2015 that DEXes really started to take off.
Ethereum created a lot of buzz among experts. Many believed the network could be used to build a decentralized exchange. This led to a series of developments, including one of the first Decentralized Apps (dApps).
EtherEx was intended to be an exchange built entirely on smart contracts. The exchange adhered to the Central Limit Order Book (CLOB), which was the main design used by Centralized Exchanges (CEX). It was a resounding success. But as it grew in popularity, so did the fees. Additionally, there were problems with latency, meaning users had to wait for their transactions to appear on the network and get processed.
Efforts to improve upon EtherEx led to the development of EtherDelta. This architecture reduced the frustrating latency experienced by users of EtherEx. It also resulted in free order creation, which was achieved by making the order book off-chain. Market Makers (traders creating liquidity by trading assets) only had to pay a fee for execution and settlement orders. But new issues appeared. Traders’ orders showed as available while they were waiting to be mined. Moreover, users had to pay a fee to cancel an order. This meant mistakes were costly. And if mistaken orders were not cancelled quickly, they would be picked up by bots made by users looking to benefit.
EtherDelta developers realized the order book was the problem. It was only updated after trades were settled. The developers discovered the issue could be solved by implementing an Automated Market Making (AMM) protocol. A platform that uses an AMM can make asset trades permissionless. This is achieved by using liquidity pools instead of the traditional buyer-seller system. A liquidity pool is a new market for pairs of assets. All users can create and contribute to a liquidity pool, making Market Makers obsolete. The only requirement is that a user must stake a certain amount of the assets in the pool. This, combined with the new off-chain order execution solution, made IDEX 1.0. the first-ever Hybrid Liquidity DEX. This became the industry standard for DEXes for the next two years until the developers realized the off-chain infrastructure needed to be more robust. This was when they set to work on Uniswap.
Uniswap is the first successful implementation of a DEX that is based on an AMM protocol, where the users of the exchange provide the entire liquidity for the markets. These users create liquidity pools, allowing traders to swap and trade assets on the Ethereum network. This simplified the permissionless trading of crypto assets in a decentralized manner.
CEXes and DEXes: Market Makers and Liquidity Providers
Any exchange’s success depends on the amount of liquidity it can provide. If an exchange has a low trading volume, it is a sign of low liquidity. This leads to irregularities in the value of traded assets. Traders then have one of two options. They can wait until liquidity becomes available and market value is restored or accept trades on assets above market value. No one wants to pay above market value, so they wait for liquidity. But with cryptocurrencies, holding for a longer time is not always the best option.
Money makers and liquidity providers exist to solve this problem. Their sole purpose is to maintain an exchange’s liquidity and the viability of financial markets.
Meet the Market Makers
Market Makers often operate on CEXes because they deal with more traditional third parties. The name itself refers to traditional financial institutions, without which markets would not exist.
Market Makers source liquidity from various markets, offering profit margins in some in exchange for liquidity that can be offered to others. As highly active traders, they are able to hedge positions in traditional financial markets and offer liquidity to crypto markets. They have one foot in each camp, so to speak.
Meet the Liquidity Providers
Cryptocurrencies grew out of a desire to break away from traditional financial systems. Liquidity Providers are an extension of this ethos. Liquidity Providers look to provide the same service as Market Makers, but without involving third parties. This is achieved through the use of liquidity pools.
The Benefits of DEX Liquidity Providers
There are many advantages to using a DEX instead of a CEX. The following are the most relevant to crypto users worldwide.
Security and Trust
As mentioned above, Liquidity Providers remove the need for third parties. This greatly improves the security of the network. Firstly, the overall health of the market does not depend on how many liquidity traders are able to source from traditional markets. Secondly, DEXes are not subject to the market volatility of traditional markets. And thirdly, DEX users do not have to rely on markets that have lost a lot of trust in recent years.
Liquidity Pools and Market Value
An incentivization model helps maintain a liquidity pool’s amount of liquidity, which is the equal share of both assets. Users are rewarded with Liquidity Provider tokens (LPs) for providing liquidity, incentivizing them to maintain as much as possible. The result is an exchange where market value trades are more probable.
Democratic Market Making
Since anyone can create a pool and set the initial price of the paired assets, DEXes are more democratic than centrally managed CEXes. This is in keeping with the spirit in which cryptocurrencies were born. Users no longer need to depend on the practices of centralized authorities. And since all users are responsible for the overall health of the exchange, it cannot be used to benefit a particular party.
Wallets and DEXes
Users who want to take advantage of a decentralized exchange must first install a wallet. This wallet interacts with the exchange, making it possible to store assets, exchange tokens, allocate funds for staking, provide liquidity, begin farming, and more.
There are many wallets available, but MetaMask is one of the most popular options.
This crypto wallet that facilitates a secure connection to decentralized applications. In November 2021, the wallet recorded over 21 million monthly active users. There are several reasons for this.
- Browser Extension
Unlike some wallets, MetaMask can be installed as a browser extension. This makes it much easier for the average user to make the wallet a part of their everyday experience in the crypto sphere.
MetaMask is what’s known as an aggregator. It interacts with many different DEXes. This means users do not need to scan multiple DEXes for the best price of an asset. MetaMask does the hard work for them, which is a great time-saving advantage.
- Token and Swap Approval
MetaMask offers users the chance to interact with multiple DEXes at the same time. Each action on one DEX is mirrored on all DEXes. This means a token swap only needs to be approved once rather than individually on each DEX, which would be very time-consuming. And since each action could involve a fee, MetaMask is a far cheaper option.
How DeFi DOJO is Disrupting the Ecosystem
There are two major downsides to using DeFi products. One is that the protocols are complicated, and transactions are often more expensive than the average user is willing to accept. The other is that interacting with these complicated products can be time-consuming. Staking, leveraging DeFi composability, and measuring impermanent loss require a lot of experience and expertise to get right. This is why aggregators have become so popular. They do all the hard work for the user without the same expense.
DeFi DOJO provides users with a “one-stop DeFi” ecosystem. Our suite of products has been compiled to make financial products easily accessible to anyone with a smartphone and an internet connection. Trends in e-commerce highlight the marketability of one-click solutions. Users want their lives to be less complicated, one click away from achieving their goal. DeFi DOJO gives users the opportunity to do just that in the crypto sphere. The chance to earn the best rates available with NFTs is just one click away.
Pick Your Pool
DeFi Dojo allows users to choose between several liquidity pools from various platforms. DeFi DOJO automatically provides the most optimal investment solutions for the users who seek the highest ROI on their investment.
DeFi DOJO will use third-party DEXes’ liquidity pools like Aave, Curve, Compound, Sushiswap, and Quickswap during the very first iterations of the DOJO ecosystem. Aave’s aTokens will be the primary interest-bearing assets available early on when DeFi DOJO goes live.
The Search for ROI on Polygon
Polygon is a scalable layer 2 solution for the Ethereum network. There are two reasons to be excited about this. The first is that gas fees are significantly lower than in the past. The second is that Polygon dramatically improves the network’s average transaction speed. Since these are the main concerns for Ethereum’s users, many DEX protocols have begun migrating to Polygon.
Recognizing the benefits of this trend, DeFi DOJO has created a platform and facility that gives users easy access to liquidity farming on the Polygon network. This makes it possible for users to quickly and cheaply navigate the best possible ROIs, APRs, and APYs the industry has to offer.
Streamlined Access to Yield
Out of MetaMask’s 21 million users, only around three million have ever used DeFi. This is a huge gap in the market. Any platform that convinces the other 18 million users to interact with its DeFi products will show tremendous growth.
At DeFi DOJO, we aim to offer these users a convenient onboarding system that puts them on the fast track to DeFi evolution. Access to the Polygon blockchain translates into extremely low transaction fees, high transaction speed, and scalability for the future.
Our yield NFT hybrid tokens are an interesting way to revolutionize how you manage your finances. Most NFTs just sit there, looking pretty but doing nothing. If your fiat money were in a zero-percent interest bank account, you would move it. DeFi DOJO puts your NFTs to work, generating yield as you admire them even more.
Automated Rewards from Farmers
We are all familiar with the royalty system that pays artists for the sales of their work. The artist wakes up to find a check in the morning post. What could be better than that? Well, take the process one step further. Imagine if the rewards went straight into your wallet.
DeFi Dojo has designed an automated process for farming rewards. You simply stake funds on our platform, go about your daily routine, and take comfort in the fact that rewards are being automatically added to your wallet.
NFTs: The DeFi Samurai Series
You can also own one of the special DOJO NFT Samurai Masks. Combine these with our yield NFTs (yNFTs) to unlock even more fantastic opportunities.
Our yield NFTs reduce the transaction costs on your DOJO Account. Each DOJO Mask has unique features that allow you to access special perks during the staking process, while buying assets and selling tokens.
Decentralized exchanges have helped take the crypto industry into the future. They have been interesting for a while now. But with the advent of such new products as yield NFTs, DEXes are beginning to look even more attractive.
DeFi DOJO makes use of the most anticipated launch in recent history. Ethereum’s Layer 2 solutions are expected to take transactions into warp speed. This is more than enough of a reason to migrate to Polygon. But with the added advantage of even lower fees, the network is impossible to resist.
NFTs are so popular that they transcend the industry. Celebrities like Snoop Dogg have exposed new audiences to this exciting way to connect with artists. DeFi DOJO takes advantage of this trend by turning intellectual property into yield.