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David Lu is partner of 256 Ventures where he deals with partnerships with early-stage blockchain companies and venture capital partners at Virgil Capital, a quantitative cryptocurrency hedge fund. Find David on chirping.
The following is an exclusive contribution for the 2018 year of CoinDesk under consideration.
Ethereum and EOS, the two main platforms on which decentralized applications are built (dapps), have market capitalizations of $ 15 billion and $ 2 billion, respectively. But, unfortunately, the number of users at first simply can not correlate with the market capitalization or the evaluations of these projects, with figures going at best.
While it is impressive to observe how to perform functions in a decentralized manner that once required centralized authorities, we still have many years to see their traditional adoption, putting aside that gambling has seen the highest levels of use to date. .
However, a class of anywhere in which we should all be extremely enthusiastic in the short term are decentralized exchanges.
A decentralized exchange is built on the blockchain and allows the peer-to-peer trading of tokens native to that blockchain. As it works, users simply link their cryptocurrency portfolios to decentralized exchange to begin interacting with the smart contract on it. This process automatically matches, verifies and performs operations without the need of third parties. Traditionally, DEXs have been built on the blockchain ethereum (Kyber, 0x Protocol, Airswap), however, this has recently extended to other blockchains such as EOS or NEO.
Being a standalone, decentralized exchange is an element that facilitates liquidity but, arguably, their function extends beyond. Here because.
Dapps will often require multiple tokens to handle them. You may need token nat dapp, ethereum to send and confirm transactions on the blockchain, a memory token (Sia & Storj) to store data for the first and maybe some other tokens depending on the specific needs of the project.
The project may have these tokens to feed the service on the back-end, but it is unlikely that users of these sites have such a token portfolio (in addition to having the correct reports) to make the application work. The former can integrate with the DEX, which abstracts all the tokens on the back end, providing a "just-in-time" mechanism that creates a seamless user experience.
During this process, the third-party API or account setup is not required. Following are two examples that highlight the cases of use of this.
Liquidity and payments
The integration of Melonport with decentralized exchanges such as 0x, OasisDEX and Kyber Network is an excellent example of the use of liquidity pools provided by DEX. Melonport is looking to develop a decentralized asset management tool with the front end running on IPFS, while the back-end leverages a series of smart ethereum contracts.
In this scenario, DEX functions as a liquidity provider for fund managers to tap directly into these pools when they manage their portfolios. The ability to exchange resources with a click is an incredibly convenient function for fund managers to negotiate or immediately cover their investments.
The integration of Etheremon with Kyber Network, one of the first examples of integration with Kyber's onchain liquidity, illustrates another case of DEX use. As more bits are created, the number of different cryptocurrencies also increases, resulting in a more fragmented token ecosystem. Holders of cryptocurrencies are less likely to simply hold traditional pairs such as BTC or ETH, but numerous other altcoins in their portfolios.
In the meantime, most of the dapps usually only accept ETH and perhaps the native token of games. The implication is that players must exchange tokens that hold for ether or game tokens whenever they want to play, which can negatively affect the user's experience when playing such a game.
In this scenario, DEX functions as an exchange service that allows its players to pay with any ERC-20 token supported, such as Basic Attention (BAT), OmiseGo (OMG) or Zilliqa (ZIL). The simplification of the one-step payment process will allow users to enjoy the game without interruption and in general, favoring the adoption of the entire ecosystem everywhere.
What are the prospects for DEX?
The DEX will undoubtedly play a key role in the adoption of cryptocurrencies. But at the moment, they are very much in their infancy – the DEXs are used by a niche audience and the technology behind them is still relatively nascent.
However, the interest and merit of DEX can not be ignored. Radar Relay completed a $ 10 million Series A round of financing in August. Airswap recently performed the first safety token transfer to the world on a public blockchain with SPiCE VC and Securitize partners. The transfer of a P2P-compliant title offers significant innovation to the way traditional securities markets operate, cluttered with intermediaries.
Finally, centralized exchanges such as Binance are taking into account their DEXs despite their position as one of the main trading markets. That said, it is important that DEXs consider relevant compliance measures such as platforms such as EtherDelta, which are self-proclaimed as "DEX", and have recently been subjected to attacks by the SEC to operate an unlicensed exchange.
There is no doubt that the blockchain will play a significant role in our technological DNA going forward. But rather than seeing blockchain as a thing on the Internet and as an instrument to decentralize it, the question we should really focus on is "What can we do with this technology that we could not do before?"
Decentralized exchanges capture this feeling very well: for the first time in history, users are able to have full control of their funds using unattended portfolios that allow them to spend and exchange their currency in a peer-to-peer fashion. .
Image of Ethereum through Shutterstock
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