In the aftermath of the FTX meltdown, there have been several calls from experts and investors alike to transition the industry to on-chain, public, and transparent exchanges, i.e. decentralized exchanges (or “DEXs”). However, DEXs still make up only a small fraction of CEXs daily trading volume, with DEX and DeFi growth stalling relative to CEXs.
Why DEXs are still far from overtaking CEXs
DEXs are still a long way from becoming the primary trading channel for many crypto traders. Despite the trust and custodial issues that CEXs have, traders and investors still prefer them to DEXs. One of the key reasons is because DEX infrastructure is still missing key functionality and features needed by retail and institutional traders to participate effectively. For instance, DEXs are still inefficient for setting automated limit orders and range trading strategies, and these types of orders drive a large percentage of volume in modern-day exchanges.
Despite the challenges that DEXs face, the risks associated with CEXs are far greater as you do not hold your private keys. But for DeFi to take over the crypto field and surpass centralized exchanges in daily trading volume, the infrastructure needs to evolve better to serve the needs of customers and traders.
Carbon DEX: Introducing Asymmetric Liquidity
Carbon is a new decentralized exchange based on automated market-makers (“AMMs”) that aims to bring the comforts of centralized exchange trading to DEXs. According to Carbon’s recent announcement, the DEX gives users the ability to create “personalized trading and market-making strategies” using a new form of on-chain liquidity called “Asymmetric Liquidity”. A litepaper was published detailing how Carbon AMMs work, including a code simulator on Github to view and simulate strategies.
Asymmetric Liquidity on Carbon DEX
On Carbon, users will be able to build their own automated trading strategies with zero code, including native on-chain limit orders, “buy low, sell high” range orders, and ‘average-in’ or “DCA” orders.
“Want to trade a crabby market?” the Carbon Twitter announcement says. “Set a strategy that buys ETH between 1200 & 1300 USDC & sells ETH between 1500 & 1600 USDC. ETH accumulated in the first order becomes instantly available to sell for USDC as prices move into the second range. No oracles or keepers required.”
This allows users to take advantage of the volatility in the crypto market, whereby they automatically buy tokens as they dip and sell them when the price is higher or hits their target price, without needing to actively manage the order. As discussed further in the Carbon litepaper, core features of the DEX include:
- Asymmetric and Irreversible: individual user strategies may be composed of independent buy and sell orders which trade in a single direction and are therefore irreversible on execution.
- Concentrated and Adjustable: order conditions are pre-defined using specific concentrated ranges, and may be updated on the fly without closing and recreating the order.
- Composable: multi-order strategies automatically shift liquidity between linked orders as they are filled, reducing the cost of manually creating orders.
- Re-usable: tokens acquired in one order become available for trading in a linked order once markets move into range.
- MEV-Resistant: trading is resistant to sandwich attacks, the most common form of Miner Extractable Value (“MEV”).
With CEXs failing by the day due to poor management and lack of transparency into user deposits, DEXs offer better protection and transparency into user funds, since users can atomically trade on DEXs without giving up control of their crypto, and there is 100% transparency into the staked liquidity supporting user trades. However, DEXs are still missing critical infrastructure that CEXs offer to meet the needs of modern-day traders.
The innovations introduced by Carbon could improve the competitive advantage of DEXs by giving traders, market-makers and token projects access to common market strategies that have, until now, been prohibitively expensive or missing entirely on DEXs. Order on Carbon can be fully customized, executed autonomously and irreversibly, updated minimal gas costs, and are protected from MEV. This gives users greater control to express their trading preferences and hit price targets. You can follow Carbon on Twitter to learn more, or check out the website at carbondefi.xyz.