Decentralized Exchanges: Why do they lack liquidity?

[Abiky]

We've seen the past events from centralized exchanges like Mt. Gox and Cryptsy become hacked, resulting in massive losses, thus scaring away new people to get into cryptocurrencies.

Now, what if people could start trading on decentralized exchanges based on blockchain technology, which is more secure?

The reason why DEX like OpenLedger hasn't gain much traction it is because of the lack of liquidity. This makes me wonder why people still trust centralized exchanges when they are subject to manipulation, hack of funds, and many other factors.

In my own opinion, as more centralized exchanges become hacked, people will then switch out towards decentralized ones when they realize the security and reliability it provides.

Nevertheless, I would like to know your thoughts about this. It would be very interesting to see the majority of altcoins to gain traction on these markets, in order to increase liquidity and volume, thus making centralized exchanges obsolete over time. 

[ttookk]

i think the main problem is that you need the fastest response times possible to attract daytraders. You can't really manage that with a decentralized system at the moment.

[Swisscoinex]

i think the main problem is that you need the fastest response times possible to attract daytraders. You can't really manage that with a decentralized system at the moment.

Technically speaking, the way decentralized exchanges work, you will always have a high trade latency. Most short-term traders prefer to rely on a centralized entity for faster and more accurate trade execution, and since they are the ones providing liquidity, they are more attractive to occasional and long-term traders as well. Liquidity on exchanges is analogous to the network effect, it's hard to get started but then the value grows exponentially.

[jjacob]

It is a chicken and egg problem. Once you have sufficient liquidity, the spread would decrease and more traders will be attracted to decentralized exchanges. Right now, I think people are complacent. They typically believe they won't be Goxed again. 

[DeadBirdzz]

It is a chicken and egg problem. Once you have sufficient liquidity, the spread would decrease and more traders will be attracted to decentralized exchanges. Right now, I think people are complacent. They typically believe they won't be Goxed again. 

Just wait till they get Poloniexxed........then maybe....

[charmingfreddie]

There was so much talk about this a couple of years ago and we have not come very far since then.

[rapazev]

it's just easier to use and better "advertised". A few investors in this market simply buy bitcoin and send to poloniex, they dont even know about websites like marketcap or bitcointalk, much less a decentralized exchange.

[CryptoSporidium]

A DEX needs market makers embedded into the platform, that's what SuperNET is doing with their InstantDEX, they've got built in trade bots that'll provide instant liquidity for all markets.

[NemJoker]

i think the main problem is that you need the fastest response times possible to attract daytraders. You can't really manage that with a decentralized system at the moment.

Do you envision it for the future where it will be faster to get fiat in and out and to conduct trades?

[talkbitcoin]

first problem i think is lack of awareness/advertisement for these things. for example i never knew there is something called decentralized exchange until recently and until now i don't know how many are there and which is which and how each of them are!

and i also checked some of them out and they don't seem to be offering the same features i get on regular exchanges. and there is always issue of fiat trading.

[Zer0Sum]

A DEX needs market makers embedded into the platform, that's what SuperNET is doing with their InstantDEX, they've got built in trade bots that'll provide instant liquidity for all markets.

Ya man, too bad it's vaporware built on buzzwords.

There are multiple, complex, fundamental reasons why p2p exchanges and markets fail to develop liquidity...
So it's MUCH easier to just sell you tokens, man... here, buy some more tokens with a cool name.

[ttookk]

i think the main problem is that you need the fastest response times possible to attract daytraders. You can't really manage that with a decentralized system at the moment.

Do you envision it for the future where it will be faster to get fiat in and out and to conduct trades?

I think without a centralized entity, it is impossible to have the fast response times you need, at least in the forseeable future. Any cryptocurrency needs validation by multiple instances, otherwise, you could screw the system hard.

A possible solution might be a way of IOU trading, where traders bind their coins in smart contracts that are managed and secured by multiple instances, while the trading itself is managed by a centralized entity, which provides an open, but centrally managed ledger.

Every few minutes, maybe 10 minutes, mabe 30, a snapshot is made, gets approved by the instances mentioned above and coins are being moved based on this snapshot. Ideally, this would function as a "killswitch": in case the central entity is attacked, the decentralized instances can shut down the transactions of coins, minimizing the amount of damage that can be inflicted.

Not to plug too hard, but this may be some usecase for this:

https://bitcointalk.org/index.php?topic=1689947.0

[Abiky]

i think the main problem is that you need the fastest response times possible to attract daytraders. You can't really manage that with a decentralized system at the moment.

That is certainly true. But if this system could become improved, then it would definitely take over the centralized exchanges with far more better security and scalability. As Bitshares claims that it could be capable to handle lots of TPS, then I have no doubt that OpenLedger would be able to handle real time settlement.

It is only a matter of usage and most of all scalability, to help these systems grow and become used in the mainstream world. Just my opinion. 

[Ayers]

It is a chicken and egg problem. Once you have sufficient liquidity, the spread would decrease and more traders will be attracted to decentralized exchanges. Right now, I think people are complacent. They typically believe they won't be Goxed again.  

Just wait till they get Poloniexxed........then maybe....

the funny thing is that poloniex was hacked already and this made it even more trusted now, so people will not give up on trading there very easily

i think the main problem is that you need the fastest response times possible to attract daytraders. You can't really manage that with a decentralized system at the moment.

Do you envision it for the future where it will be faster to get fiat in and out and to conduct trades?

I think without a centralized entity, it is impossible to have the fast response times you need, at least in the forseeable future. Any cryptocurrency needs validation by multiple instances, otherwise, you could screw the system hard.

A possible solution might be a way of IOU trading, where traders bind their coins in smart contracts that are managed and secured by multiple instances, while the trading itself is managed by a centralized entity, which provides an open, but centrally managed ledger.

Every few minutes, maybe 10 minutes, mabe 30, a snapshot is made, gets approved by the instances mentioned above and coins are being moved based on this snapshot. Ideally, this would function as a "killswitch": in case the central entity is attacked, the decentralized instances can shut down the transactions of coins, minimizing the amount of damage that can be inflicted.

Not to plug too hard, but this may be some usecase for this:

https://bitcointalk.org/index.php?topic=1689947.0

couldn't be done by bot? if two that are trading in a decentralized exchange, which is no different than trading on a forum in the merchant subsection of the alt section for example, and both run a bot for their trading they will get a fast response on their trading activity

[ttookk]

i think the main problem is that you need the fastest response times possible to attract daytraders. You can't really manage that with a decentralized system at the moment.

That is certainly true. But if this system could become improved, then it would definitely take over the centralized exchanges with far more better security and scalability. As Bitshares claims that it could be capable to handle lots of TPS, then I have no doubt that OpenLedger would be able to handle real time settlement.

It is only a matter of usage and most of all scalability, to help these systems grow and become used in the mainstream world. Just my opinion. 

I made a suggestion above:

get the funds secured in a decentralized way, let a central entity handle the trading "on paper", then every XX minutes, a snapshot is made, which is checked by the decentralized entities controlling the funds, which send funds according to this snapshot, provided they don't find anything wrong.

[brekyrself]

I created this thread with the same question: https://bitcointalk.org/index.php?topic=1513568.0

Liquidity has become much better on the dex over the last few months with active trading bots now working the spreads.  On the flip side when watching the chat box, new users are very overwhelmed by what they are looking at.  From the simple, where is the login button and how do i reset my password etc...

[densuj]

I created this thread with the same question: https://bitcointalk.org/index.php?topic=1513568.0

Liquidity has become much better on the dex over the last few months with active trading bots now working the spreads.  On the flip side when watching the chat box, new users are very overwhelmed by what they are looking at.  From the simple, where is the login button and how do i reset my password etc...

Yes, but liquidity is still Beta tester and untested safety, although it has become better on the dex,
Still there are no many people who use it.
The traders will be doubt use it, because it is because of money large of money, they will make sure put the money on right place and safe.

[tradesup]

One way to overcome some of these trading barriers is to follow the example set by Alcurex Exchange, where you can see they have created a platform that is secure, and allows for remote trading, thus enabling options for high liquidity.

What do you guys think?  Is this a good solution for liquidity?

[NorrisK]

There was so much talk about this a couple of years ago and we have not come very far since then.

There are only a few people that really care about decentralization. The vast majority will not care and rather take the risk of losing some coins than having to go through more trouble to make the trade.

When the technology matures more and the speeds increase, we might see an increase in adoptation.

[CryptoSporidium]

A DEX needs market makers embedded into the platform, that's what SuperNET is doing with their InstantDEX, they've got built in trade bots that'll provide instant liquidity for all markets.

Ya man, too bad it's vaporware built on buzzwords.

There are multiple, complex, fundamental reasons why p2p exchanges and markets fail to develop liquidity...
So it's MUCH easier to just sell you tokens, man... here, buy some more tokens with a cool name.

InstantDEX is finished, you can check jl777's code right now and test it even, just waiting for the gui,  like monero.