Is a fully on-chain order book DEX a possibility?

For most retail cryptocurrency investors, centralized digital marketplaces like Binance, Coinbase, Kraken and many others have been the preferred gateway into the world of cryptocurrency trading. However, as leaked customer data like the recent Gemini case and misappropriated funds like the FTX debacle continue to plague the space, crypto investors have been looking for alternatives. According to a Delphi Digital analysis following the FTX crash, DEX tokens saw a 24% increase and CEX tokens saw a 2% decline.

The lack of transparency in the way CEX operations are executed has become a major factor in this change in trend. What’s more, many platforms claim complete decentralization when, in fact, there is a centralized element to them. But do DEXs have what it takes to take over the crypto exchange space?

Are DEXs better than CEXs?

The centralized control over customer funds that companies that manage CEXs combine with the lack of transparency of what goes on behind the scenes at these companies is the most worrying aspect of centralized trading at the moment. This centralization, unfortunately, allows customers to divert resources, as was the case with FTX.

The wave of Automated Market Makers (AMMs) was led by Uniswap, showing the cryptocurrency world the potential of DEXs. Order book DEXs such as dYdX, which use zk-rollups to implement off-chain order books, introduced a workaround to replace centralized exchanges. The rise in DEXs is just the beginning.

While offering users more convenience when transferring or exchanging tokens, centralized exchange wallets are decidedly less secure than non-custodial storage solutions. DEXs offer their users flexibility when it comes to storing their crypto tokens and do not rely on their users’ crypto holdings to generate revenue or enter into secondary transactions.

Source: Gridex

DEX deficiencies that need to be addressed

Before concluding that DEXs can challenge the existing order and potentially topple CEXs in the near future, there are a few shortcomings that decentralized exchanges need to address.

In terms of the spot market, AMMs dominate the space. However, AMMs are often criticized by retail investors for being unintuitive and difficult to use. More importantly, these exchanges are unable to meet the diverse needs of users due to impermanent loss, high slippage and lack of flexibility. The AMM model is best suited for less volatile trading pairs, such as swaps between stablecoins.

This threat can be subverted only by moving away from the AMM model and adopting a more advanced order book model that can facilitate easy implementation of an on-chain smart contract system. While some players like dYdX and EtherDelta have achieved this to some extent, they come with associated tradeoffs that need to be eliminated.

Innovation is on the horizon

Gridex Protocol is the first order book trading protocol that runs entirely on-chain. By employing its unique Grid Maker Order Book (GMOB) model and combining that model with its Grid Price Linear Movement (GPLM) algorithm, the Gridex Protocol has eliminated the inadequacies of other DEXs to significantly reduce the resource consumption of running an order book. based system, allowing deployment on the Ethereum blockchain while making the cost of gas comparable to AMMs.

By introducing the “Maker Orders” product, Gridex eliminated the problem of high slippage, lack of flexibility and the risk of impermanent loss. The protocol guarantees security and transparency thanks to its on-chain order matching system. Its GMOB model and GPLM algorithm guarantees unbiased order execution, providing its users with a truly decentralized and equitable trading platform, unlike any CEX or DEX operating today.

Gridex’s order book framework is open source and fully composable – anyone can build on top of the protocol. What’s more, the Gridex Protocol is currently performing the second GDX airdrop so that interested users can go to the official website to learn more.

Why the future of cryptocurrency exchanges points to decentralization

CEXs are far from extinct, with their share of total transaction volume still much higher than DEXs. However, it is becoming increasingly necessary for exchanges to move towards decentralization to protect investors and build a sustainable trading ecosystem. After all, the decentralization of the financial system is what the Bitcoin white paper has been pushing for since the beginning of the crypto space.

DEXs will need to continue to improve, especially in terms of ease of use, to be more widely adopted. Still, new ideas like the Gridex Protocol’s Grid Maker Order Book could pave the way for a more secure crypto space and a better user experience for traders venturing into the DEX space.