I come accross this Gridex Protocol recently which they sound strange to me when they say that now with DEX can be with Order Books and there is no need of Automated Market Maker? I try to figure out what are the differences beween the two. This becomes interesting topic that initially bitcoin had been invented as decentralized but why more and more CEXes are coming? How about the collapse of FTX? Where are the users going right now?
Will DEXes rise in 2023? But how about the limitation in DEXes?
Let's first try to understand what is Automated Market Maker: It is a norm in the world of DEX, it uses the algorithmic "money robots" to make it easy for individual traders to buy and sell crypto assets. It is very quick and effective, no complication at all. The AMM is called the new trend while order books are called traditional just like in the forex world.
Market makers are entities tasked with providing liquidity for a tradable asset on an exchange. Market makers do this by buying and selling their assets in their own account with the goal of making profits, they earn from the spread-gap between highest offer and lowest sell offer. This kind of trading activity creates liquidity.
Now, here comes next question, what are liquidity pools and liquidity providers?
The base of AMMs are liquidity pools, a crowdsourced collection of digital assets (crypto) that the AMM uses to trade with people buying or selling one of these assets. So what is requirement to become the AMM? Users need to deposit their assets into the pools and they become liquidity providers (LP)s.
How can you add liquidity inside the DEX? Let's take example in uniswap.org, users can go to pool section, they can add the pair ETH/SUSHI, then they can choose their earning fee based on tiers
0.01%, 0.05%, 0.3% (for most pairs) and 1% (for most exotic pairs/ rare coins), in LP you need to provide 2 coins, for example 50% of your asset in ETH and another 50% in Sushi coin.
So how much will you earn? If as Liquidity Provider, you contribute 1% of the total pool trading fees, then you will earn a sum of trading fee x 1% contribution = ??
Here comes the question, now if you already have such a powerful tool like Uniswap can help you to provide liquidity and you can earn 0.3% of each transaction fees, then why do you need others?
Because AMM itself has pain-points, such as:
-impermanent loss (if your token asset keep losing its value, this may be your risk to put your deposit in liquidity pool)
-high slippage (we all understand this already)
-Limited trading functionality (you can only have taker order, the current price, cant choose limit buy)
Gridex is the fully on-chain order book DEX which runs on Ethereum ecosystem? Why a fully on-chain DEX is needed?
I learned about five big main features or benefits with Gridex Protocol,
First one: Permisionless, anyone can be market maker, with no minimum or maximum amount of asset
Second one: Anyone can built application on top of it
Third one: No need deposit or withdrawal process, unlike Uniswap you need to deposit into liquidity pool and withdraw when you want to withdraw the money back to your account
Fourth one: High decentralization
Fifth one: Does not need centralized facility, will not shutdown as long as the underlying blockchain still running
How the order books of Gridex Protocol can be different from the normal CEX?
-The normal CEX order books need lots of computation, lots of complexity, lots of resource consumption while Gridex Protocol has its own Grid Order Order Book which is simpler, minimum resources
-Gas cost will be the same with 1 maker orders and 1 million maker orders
Besides, Gridex Protocol can help you getting zero slippage, negative fees and place orders of any size and at any price.
It is just like doing normal swapping but this time you become the maker order inside the Gridex Protocol.
What is the relationship between Gridex Protocol and also D5 Dex Exchange? Actually D5 is like the electronic board showing the prices which is powered by Gridex Protocol. D5 will be able to run on multiple chains later on such as Optimism, Ethereum Main Network, Polygon.
What is the plan of D5? They will add the GDX token pair on this 15th March 2023.
This is what I've learned, first time you can earn fees while swapping your token to another token.
