With the increase of consumers' choices at any time and the increase of marketing methods, consumers can also choose goods that they could not buy before. Popular goods are not the only choice for consumers. This led to the emergence of the long tail market.
Now the long tail market can be seen everywhere in any industry, whether it is the digital industry market or the physical industry market. Users' choices are no longer just popular products, but also those with infinite long tails.
The real highlight of DEX discussed in this paper is that it provides a long tail market for digital assets.
From the business point of view, the decentralized exchange model is simple, and it only needs to undertake the main asset custody, matching transaction and asset liquidation. There is no need to undertake non-trading functions such as account system, KYC and legal tender exchange that centralized exchanges need to undertake. The public key of the user's account on the blockchain is the identity, and there is no need to register personal information with the exchange, so there is no personal information security problem and there is no need for KYC. The biggest difference from the centralized exchange is that all this is achieved through open source smart contracts, and asset custody, matching transactions and asset liquidation are all placed on the blockchain. Smart contracts solve the internal operation risks, business ethics risks, asset theft and other risks that seriously affect the safety of users' assets caused by human factors in centralized exchanges. User-managed assets can be transferred freely without anyone's approval, and the security is fully guaranteed. Because the user's account key is in his own hands, the success of hacking depends on the security awareness and habits of personal accounts.
Problems to be solved in selecting the underlying technical framework of the contract mainland;
1, all assets and trading operations of the decentralized exchange are matched and traded on the blockchain, so it is affected by the confirmation speed of the blockchain itself. At present, it takes tens of seconds to confirm the transaction on the Ethereum, which is unfriendly to the user experience. However, to optimize the trading chain in the mainland of the contract, financial and derivative products can only be configured on it. His matchmaking is a point-to-point centralized bidding for wallets made by smart contracts on the chain, which is a completely decentralized way. If everyone reads and writes data directly with the chain, the matching speed is higher than 3000tps. So the experience is exactly the same as centralized exchange.
2. The transaction cost will also be affected by the transaction cost of the blockchain itself, so the transaction cost will become very high for small transactions. The platform currency of Chinese mainland's decentralized exchanges is equivalent to the fuel cost of trading. Unlike the gas fee of Ethereum, it is a very cheap trading fuel. At present, the CLC of about 0.03 is less than 2% per transaction, which is basically negligible.
3. Due to the low transaction processing performance of the blockchain network, it cannot handle large concurrent real-time transactions, so it is far less than the centralized exchange in transaction volume and transaction depth, and its liquidity is limited. In essence, transaction is not a technical thing, it includes technical security, capital security and the overall provision of peripheral derivative services. From my point of view, I think meeting these requirements is an explosive technology. Contract continent is the core node of these technologies, because it can solve the core traffic problem in the process of cross-btc, eth and usdt transactions. Head traffic accounts for about 80% or even more than 90%, so the traffic of other securities transactions is actually very, very small. So this trading technology is actually unprofitable, because it can't break the chain. How to solve the liquidity problem, the contract mainland is actually a decentralized financial platform, which is the defi of this year's fire. In fact, it has solved the mortgage pledge of many multi-chain assets, including the commercial needs of some complex financial derivative contracts. There is a perfect decentralized financial application ecology, because it supports multiple chains, so it can provide a wider range of options products, an OTC market transaction and the circulation of this business. Therefore, the contract mainland is the first choice for other financial dapp, which attracts abundant external flows and promotes the growth of this ecology.
Of course, there are real disadvantages. Users themselves need to know enough about the safe operation of the public and private keys of accounts to ensure sufficient security, otherwise account loss and theft will often occur. This is inevitable not only for technology and products, but also for education and training before using products.
For the convenience of reading, the following nouns will be replaced by English.
Dex: Go to the centralized exchange.
CEX: centralized trading
One of the most obvious uses of blockchain is that it can trade without permission and unmanaged assets. Generally speaking, the way to achieve this goal is through "decentralized exchange" or "decentralized exchange".
Although many DEX are emerging, compared with most CEX, only a few people use DEX. (Coin 'an alone can top the trading volume of Uniswap, Kyber, 0x and contractland, which is four main forces 1000 times).
If decentralized communication is really the future trend, why is the data so ugly? Why is this happening?
The author's assumption is that the market of DEX is actually much smaller than people expected. DEX shines by providing a long tail market for digital assets.
Because at other times, most people prefer to trade on centralized exchanges. (People prefer to choose convenient and fast services) And the so-called long tail market of digital assets should lie in: there is no token or market supported by centralized exchanges.
Unsupported tokens are either too small, too risky, or very competitive exchange tokens.
Too small refers to tokens below a certain trading volume threshold, generally referring to those tokens with low trading volume.
High-risk refers to high-risk tokens without high supervision.
Competition refers to tokens issued by different exchanges, and their interests are in conflict.
The token that meets the above three characteristics is LEO issued by Bitfinex.
The only CEX that supports LEO is Bitfinex itself, which is the issuer of tokens. When LEO first went online, the transaction volume was very low (only about $5 million a day).
In terms of regulatory policy, LEO does not support American investors to buy (Bitfinex can change the white paper at any time or buy back the proportion of LEO every month, even if this is unlikely, it makes LEO very uncertain).
At the same time, LEO has a competitive relationship with the platform currencies of other exchanges. No CEX wants to put their tokens on other CEX to generate trading pairs, because you can't know whether they use non-existent coins for malicious operations in their centralized system. Therefore, there are only two ways for American investors to get LEO, OTC or DEX.
Unsupported markets are either new trading pairs (such as early ETH) or new trading scenarios (such as games or applications, such as points, game equipment, virtual pets, etc. ).
If you compare these markets with those tokens that CEX is unwilling to support, they may seem insignificant in the early days.
But over time, if these markets can serve or meet the needs of most people, they will become very important. Let's give a realistic example. For example, the original Ethereum did not have much legal tender value, but the real legal tender value broke out in ICO.
DEX provides some unusual services for speculators: richer types of digital assets and more markets.
In principle, they don't need to compete with the mainstream veteran CEX. Those emerging CEX are their competitors. Due to the emerging CEX, it is possible to compete with DEX in more markets, but these CEX may be in a weak position.
Because traders are faced with these high-risk tokens and markets, they prefer to use unmanaged transactions to ensure the security of their digital assets. Therefore, the future success of decentralized exchanges is closely related to the future success of the long tail market of digital assets. The tail of the long tail market needs to be long enough.
If we imagine a future in which bitcoin dominates the market, people will be able to use tokens with rights and functions, and the existence of DEX will become unimportant. According to the previous article, most people prefer to trade mainstream tokens on CEX.
But if you imagine a future with millions of different tokens, many people will use different tokens to get different services and rights. Even if the market for these tokens only exists in the long tail of the market, then going to DEX has been very successful.
And we don't rule out the possibility of DEX becoming mainstream:
1. If the trading depth and liquidity of DEX exceed CEX.
2. Regulatory pressure forced the Central Exchange to turn to DEX (Reference Currency Securities).
3. Innovation beyond DEX has created a huge local encrypted user base.
For example, for applications based on web3, DEX can be used as a convenient exchange interface in games and applications. (In addition to the concept of DEX as decentralized exchange, "DEX" originally means decentralized exchange. Small distributed switching interfaces/plug-ins will replace the existence of distributed platforms. Here it is more like a quick tool to facilitate value exchange than a platform.
As far as I am concerned, some of the most common arguments about DEX are (in order of frequency mentioned by people):
1. For the unmanaged transaction, the user's funds are all in his own hands (reducing the risk of being attacked by hackers, and the project party will run away with the money).
2. Anonymity (providing tools for secret transactions = = > tax avoidance and capital flight).
3. A broader token market.
But I bet that the important factors that determine DEX's future should be reversed.
The vast market is the most important, followed by being used as a tool for capital flight, and finally ensuring the security of transactions is the concern of a few people.
I don't think many people will agree with this view, do you?
About Leo:
In fact, LEO has been launched on mainstream CEX such as OKEX, GATE and ZB. As a generation of stable currency USDT, Bitfinex behind it also introduced trading currencies such as USDC and USDK. So once the king began to decline, or did they form a * * * interest group?
Why CEX can't be a long tail market;
Most project parties are actually unwilling to cooperate with CEX, because they can't fully trust CEX and can't stop them from doing evil. In addition, if CEX has no bottom line, both users and the market will become speculative tools, which will be a series of chain effects.
Decentralized exchange is more suitable as a small interface, such as P3D made by the famous team JUST. Decentralized exchange is more like a plug-in to convert P3D and ETH values. That is one of the author's assumptions about the future of DEX as a component of an application.
Decentralized exchanges, such as 0X and Uniswap, provide users with more depth of money market transactions, not limited to the exchange scene of a single currency. It is more appropriate to describe it as a platform. Whether it is decentralized exchange or decentralized exchange, they can provide financial guarantee for users.
The long tail market is not easy to do:
The difficulty lies in how to connect the long tail market. For example, it involves some markets that need cross-chain interaction, so the labor cost will be high.
If there is a distributed business architecture system or a brand-new transaction matching algorithm, it will completely subvert the existing centralized business model, which is more like a brand-new human social civilization. There are also some DEX that embrace supervision for compliance (such as Whale Exchange, whose users are involved in KYC issues), so it is difficult for this DEX to become a tool for tax evasion and capital flight.
Technology and market are in a parallel state, and the efficiency of centralization greatly exceeds decentralization, while security is always only the demand of a few people, and it is also the easiest point for DEX to achieve. How to design a self-driven DEX to access the long tail market may be a good direction.
References:
/p/ niche market-the most likely driving force