Decentralized Exchanges: Why do they lack liquidity?

[Abiky]

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.

Not a bad idea, mate. This is could be a solution towards the security of the exchange's funds. However, I think that having a fully decentralized exchange would be better as there would be no central operator behind it, it will implement the security of the blockchain, and well as having full transparency of every trade made on it. Just like Bitcoin where there are no middlemen, company or central authority behind it, the decentralized exchange could be similar in a way to provide fast settlement, security, and a trustless system.

If decentralized exchanges like OpenLedger could become popular, then it would really take down on those regulated, centralized exchanges. In my own opinion, as more centralized solutions face issues such as hacks and theft, more and more people will realize the true potential of decentralized solutions, thus making it a safe and secure way to trade with no central operator, fast settlement, and no single point of failure. Just sharing my thoughts.   

[brekyrself]

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.

Not a bad idea, mate. This is could be a solution towards the security of the exchange's funds. However, I think that having a fully decentralized exchange would be better as there would be no central operator behind it, it will implement the security of the blockchain, and well as having full transparency of every trade made on it. Just like Bitcoin where there are no middlemen, company or central authority behind it, the decentralized exchange could be similar in a way to provide fast settlement, security, and a trustless system.

If decentralized exchanges like OpenLedger could become popular, then it would really take down on those regulated, centralized exchanges. In my own opinion, as more centralized solutions face issues such as hacks and theft, more and more people will realize the true potential of decentralized solutions, thus making it a safe and secure way to trade with no central operator, fast settlement, and no single point of failure. Just sharing my thoughts.   

This is correct.  The current "exchanges" simply become gateways into and out of the system.  It's a win-win for everyone as the exchanges still collect their fee's while also becoming less of a hacking target.

OpenLedger is a perfect example of this by them having their own open.assets while also allowing deposit/withdraw capability via fiat/crypto/etc...

User's also benefit.  Main example is say Openledger decides to close down without notice.  Another gateway can simply accept your open.asset and exchange for theirs or the actual asset.  You are always in control of your assets.

[Abiky]

This is correct.  The current "exchanges" simply become gateways into and out of the system.  It's a win-win for everyone as the exchanges still collect their fee's while also becoming less of a hacking target.

OpenLedger is a perfect example of this by them having their own open.assets while also allowing deposit/withdraw capability via fiat/crypto/etc...

User's also benefit.  Main example is say Openledger decides to close down without notice.  Another gateway can simply accept your open.asset and exchange for theirs or the actual asset.  You are always in control of your assets.

Exactly. That is the huge advantage of having a fully decentralized exchange using blockchain technology. Instead of using the common centralized exchanges which are subject to hacks, and are vulnerable to single points of failure, decentralized exchange could take the lead as they are a hundred times more efficient and secure. The only thing needed, is wide spread acceptance and usability to keep this concept going.

It would be neat if I could be able to trade most popular altcoins on DEX like OpenLedger, but I'm afraid that it would take a long time before people realize the true potential of these systems. Just my opinion.

By the way, I'm wondering if decentralized exchanges are subject to regulation when it comes to trade fiat against any other cryptocurrency. As centralized exchanges, must comply with KYC/AML regulations, it makes me wonder whenever decentralized exchanges could be easily regulated if operating via the blockchain. 

[s1gs3gv]

Price discovery seems to be pretty inefficient on decentralized exchanges

[brekyrself]

BTC38 hacked?

http://news.8btc.com/exclusive-btc38-hot-wallet-got-hacked-and-lost-1-5-million


If true, just another reminder why the dex is worthwhile.

[NemJoker]

BTC38 hacked?

http://news.8btc.com/exclusive-btc38-hot-wallet-got-hacked-and-lost-1-5-million


If true, just another reminder why the dex is worthwhile.

I think its fake, any confirmation?

[BTCRoyal]

I also would LOVE to know this. Services like bitsquare are out there available to the public and have no real support from crypto currency users.

[pereira4]

As some have pointed, in order to attract volume, you need to please the needs of day traders. No exchange is ever going to be big without day traders. Without fast speed movements all you get is a marketplace.

Apparently we may find a solution with the lightning network. We may be able to figure a way out to get a decentralized high velocity exchange. Exciting things in the coming years for bitcoin. Let's just hope we can get segwit as soon as possible.

[25forsure#]

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.

If this is true maybe we should be buying NXT.

[Abiky]

As some have pointed, in order to attract volume, you need to please the needs of day traders. No exchange is ever going to be big without day traders. Without fast speed movements all you get is a marketplace.

Apparently we may find a solution with the lightning network. We may be able to figure a way out to get a decentralized high velocity exchange. Exciting things in the coming years for bitcoin. Let's just hope we can get segwit as soon as possible.

That is certainly true. While fast settlement is key, to help make the trading process smoother and efficient, decentralized exchanges can soon gain traction as more people start using it.

I have the feeling that the concept of a DEX will improve over time, rendering centralized exchanges with middlemen or central operator a thing of the past. Take a look at OpenLedger, InstantDEX, and EtherEx. They are all good decentralized exchanges with huge potential to change the way you trade cryptocurrencies. Just my opinion. 

[dinofelis]

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.

We see here how far we got away from true crypto.  People are complaining about LATENCY when trading crypto tokens with a block period of 10 minutes !  The idea that a "bitcoin" can be exchanged 50 times between two successive blocks illustrates the ridicule that trading has become as compared to the original idea of crypto, which was to have "free (as in freedom) money on the internet" to buy and sell stuff.

An exchange should only have been a thing where you could exchange fiat for crypto, to use that crypto (and eventually, to exchange back crypto to fiat if you needed it).  Turning crypto into an exchange IOU fest where most of the volume is done off-chain, at higher "transaction" speeds than the block rate, has totally killed it.

[pereira4]

As some have pointed, in order to attract volume, you need to please the needs of day traders. No exchange is ever going to be big without day traders. Without fast speed movements all you get is a marketplace.

Apparently we may find a solution with the lightning network. We may be able to figure a way out to get a decentralized high velocity exchange. Exciting things in the coming years for bitcoin. Let's just hope we can get segwit as soon as possible.

That is certainly true. While fast settlement is key, to help make the trading process smoother and efficient, decentralized exchanges can soon gain traction as more people start using it.

I have the feeling that the concept of a DEX will improve over time, rendering centralized exchanges with middlemen or central operator a thing of the past. Take a look at OpenLedger, InstantDEX, and EtherEx. They are all good decentralized exchanges with huge potential to change the way you trade cryptocurrencies. Just my opinion. 

We will never fully get the full decentralized experience until we get the lightning network working, possibly with segwit too in order to avoid certain problems... so we are maybe looking at 2 to 5 years until we have decentralized exchanges that can finally replace poloniex and whatnot. Of course, im speaking about crypto->crypto exchanges, I don't see how fiat->crypto exchanges can ever become decentralized since you still depend on the banking system.

[Abiky]

We will never fully get the full decentralized experience until we get the lightning network working, possibly with segwit too in order to avoid certain problems... so we are maybe looking at 2 to 5 years until we have decentralized exchanges that can finally replace poloniex and whatnot. Of course, im speaking about crypto->crypto exchanges, I don't see how fiat->crypto exchanges can ever become decentralized since you still depend on the banking system.

It may seem so. In order to have fast settlement, then there needs to be viable scalable solutions that would help ease the process of trading cryptocurrencies.

Until we get enough consensus for SegWit to activate, decentralized exchanges will not grow that much in terms of liquidity and user attraction. We should give it a couple of more years, until the technology matures and becomes more usable. As more people become victims of hacks on centralized exchanges, they will turn themselves into decentralized solutions which provide the security and stability of the blockchain.

It would be very surprising to see decentralized exchanges to overcome centralized ones like Poloniex in the future. Just my opinion. 

[ulhaq]

Decentralized exchanges will get a lot more attention with the Chinese exchanges being outlawed, and as it happens in other countries.

One of the big problems seems to be trust. What limits many of the current crop is that you have to have some token of trust in the system based on prior trades (which new traders don't have, and anyone can cheat on their first big transaction), or one has to put up collateral, which many don't have, or there is a limit in volume one is allowed to trade. So the exchange needs to be able to receive and send each of the currencies to the users. Is there a way for a decentralized exchange, who is acting as the middleman, to do that?

[Tidsdilatation]

The biggest issue that i think p2p exchanges have is the user experience. Alot of these are new and not as easy as a normal exchange. But in 2-3 years ALL exchanges will be decentralized.

[100degrees]

It just has to do with the amount of people using them. They typically do not have the same resources as centralized exchanges. HEAT is a great example of a DEX that is small but growing. They have an active community and work to add pairs on a regular basis.

[GazorpPozorpec]

Honestly I think that people are just afraid to use them, because in case of a fall of the exchange they are afraid not to find someone to blame.

[86B]

Liquidity issues are constantly being worked on by good DX products. Partnerships are being made to where orderbooks can be shared across both decentralized and centralized platforms - like this with Blocknet (BLOCK) and Bitfinex's Ethfinex https://medium.com/@theblocknetchannel/blocknet-to-integrate-with-ethfinex-b9f11f57a8bc

Also, bots can be run on the DX to help the order matching process including the ability to place all differemt types of orders that you typically find on centralized exchanges.

The technology is already working for these DX's like the Blocknet - check out their trade videos on their Youtube channel... it's really impressive stuff

[000JC88]

This is not possible at the moment and I think won't every be possible. There is only a semi centralized organization I know, which is Lykke. It started as an ICO

[Nutt]

Decentralized Exchanges: Why do they lack liquidity?

Why??

because it is so slow.

Sometimes the order struck in the board for a while and the transaction already doomed.