First off, why do we need decentralized exchanges? Don’t these centralized exchanges work? They do, if you have the money to list your tokens there. At a price tag anywhere from tens of thousands to a million dollars, listing a cryptocurrency or token on an exchange can be prohibitive.
In order for a token to be trusted and used, it needs to be liquid. To be liquid, exchanges have to list it. But not all ICO’s get the millions of dollars we hear of in the new stories that float to the top of our feeds. If everyone did, a million dollar listing fee would be chump change. I don’t know about you, but I would rather have the blockchain developers spend that million dollars on creating an awesome product.
This causes the markets to be fragmented and illiquid. And this not only hurts ICO’s. It hurts you as an investor, trader or user. Every exchange has Bitcoin and Ether, that’s a given. But what if you want to trade your #101 market cap token with a #150 market cap token. Good luck. First you’ll need to trade to either Bitcoin or Ether. But the token you seek may not be on an exchange that also lists the token you own. If it costs tens of thousands of dollars to list on one exchange, how many exchanges would you list your token on? So , chances are, you are going to have to transfer the Ether you just purchased to another exchange. If you don’t have an account yet, you’re also going to have to go through the signup process.
So you’re racking up fees: the fee to transfer to the first exchange, the fee for the trade, the fee for the transfer to the second exchange, the fee for the final trade and the fee to transfer back to your wallet. And you’re wasting time, especially if you have to sign up at one or both of the exchanges. And in that time, the market can change. Scratch that. The market will change.
All that is why we need decentralized exchanges. To read more about the issues with centralized exchanges, visit Quanta.
Ok, so now I’m going to have answer why, decentralized exchanges, if they are so great, only account for 1% of all cryptocurrency trades. Well, the short answer is because they kind of suck right now.
They are slow. The average block time with current decentralized exchanges or dexes is around 15 seconds. And that is just for the final smart contract transaction. The order book’s matching logic is going to take some time too. And with most current dexes, this order book is off-chain, which means it’s really not decentralized anyway. So these dexes are each segregated to their own island of liquidity and don’t communicate with each other. And they all only handle the tokens of one chain. Etherdelta is great when you want to trade one Ether based token for another Ether based token. But what if you want to trade your Ether based token for a Neo based token. You’re back to jumping between exchanges to complete your trade. For more details on current dexes, see the Quanta whitepaper.
So how will Quanta fix these problems? First, let’s address the speed issue. Quanta claims to be able to do 5M transactions a second with less than a second latency. To do this Quanta uses an on-chain order book, a distributed memory ledger and dual-ledger Byzantine Fault Tolerance Consensus.
The distributed memory ledger makes a fast on-chain order book possible. Nodes in the network will facilitate this fast, scalable data layer for matching orders and when the trading pairs aren’t available, route orders through other pairs to provide the perfect pair match. Yes, you may not find that new token to new token pair match directly, but Quanta will find a way. if it is possible. So that covers the fast part and some of the liquid part.
Another thing that will make for a more liquid dex is that fact that Quanta is using cross-chain architecture. A user deposits native tokens into the cross-chain wallet (Ether, Neo, Eos, Achain, Cardano). For each token deposited, the user will receive a token representing that token in his Quanta wallet. The user is then able to trade his token for any other tokens available on the network.
And there are no hard-coded trading pairs. You define your own. This takes the listing fee issue out of the equation. If you have a token, you can just list it. With these and more features you can read about in the Quanta whitepaper, Quanta is poised to be the cryptocurrency exchange we all have been looking for with low fees, fast transactions and high liquidity.
Disclaimer: Although this post reflects my true view of this technology, it was written as a cryptocurrency bounty. Bounty0x username: eristoddle