In 2020, DeFi making Ethereum’s scalability problem more urgent than ever, so scalability solutions and alternative ecosystems are also getting more attention. Among them, Polkadot is emerging as one of the top choices for developers and users.
Why does Polkadot focus on DEX and Lending & Browning?
DeFi is Decentralized Finance or decentralized finance, simply put financial products and services on the On-chain, to do that needs a place to transfer value between parties in the ecosystem – DEX is such a place.
Looking at the image below, investors will see how important Dex is to DeFi on Ethereum.
If Dex is the first step to promote cash flow on Onchain, Lending & Borrowing is the next step to help users spend more money they own (margin Trading, …).
Both of these areas are extremely developed on Ethereum and are the foundation for other DeFi Sectors to develop on it.
Of course, not all ecosystems develop in the same way as Ethereum, this depends on the openness (permissionless) of that ecosystem that they are oriented to develop separately.
At this point, Polkadot is the ecosystem that has the most similarities with Ethereum, a network with a high degree of decentralization, frameworks to support building Protocols and Dapps in open source mode quite a lot. There is also financial support from Polkadot’s development fund. It is because of this that DeFi on Polkadot thrives both horizontally and in length.
DEX on Ethereum has two main types, AMM and Orderbook, due to some technical limitations of Ethereum and On-chain liquidity is still not too large, AMM is becoming the main DEX Model on Ethereum.
But with Polkadot, each Parachain is Customizable to serve certain functions, so it allows the ability to combine Models, the problem of which Model is more widely used is still unfinished because the product is not Live, Below are some outstanding projects in the DEX array in my own opinion.
Zenlink Dex Network
Zenlink Dex Network includes Zenlink DEX Module, Zenlink DEX Aggregator and other DEX Application on parachains.
By integrating the Zenlink DEX Module, Zenlink can enable parachains to quickly acquire DEX capabilities and share liquidity with other parachains, the ultimate destination being Zenlink DEX Aggregator, where users are just one click away. The mouse is able to access liquidity from Parachains and choose the best price of that trading pair (works similar to Dex Aggregators on Ethereum).
The AMM formula applied in Zenlink DEX is X*Y = K.
Developers have two options when starting to build something on Polkadot:
- Building on the Substrate framework to be able to become Parachain from scratch on Polkadot.
- Build Dapp, Protocol on Polkadot’s Parachain.
Polkaswap took the second approach, they built a Dex Aggregator on the Sora Network.
Polkaswap is a Dex AMM capable of establishing multiple liquidity sources according to the liquidity pooling algorithm. When traders invoke the Swapping function, the liquidity pooling algorithm executes the order using the best offers from the liquidity sources.
Of course, since Polkaswap was not built as Parachain from the beginning, if they want to interact with other Blockchains, they will need to interact via the Bridge.
Similar to Polkaswap, Polkaswitch is a Dex Aggregator built on Moonbeam, it was built with the goal of aggregating liquidity between Etherum and the Parachains on Polkadot.
Polkaswitch navigates multiple sources of liquidity per Token pair. Each liquidity source has its own algorithm and Polkaswitch will execute the Order using the best offers received from liquidity sources like Uniswap, Bancor, Sushiswap, Polkaswap, Kyber Network.
Similar to Polkaswap, it was not built as Parachain from the beginning, so if they want to interact with other Blockchains, they will need to interact via Bridge.
Polkadex is a DEX that combines 2 outstanding features of orderbook and AMM (AMMs inside a DEX Orderbook), this same concept is presented by Raydium of Solana ecosystem.
At the core of Polkadex is FSP (Fluid Switch Protocol), an order matching protocol that switches between AMM and Orderbook, which ensures continuous smooth liquidity. The uniquely programmed AMM algorithm ensures that Orderbook liquidity is pre-matched, thus avoiding large slippage and impermanent loss, a common problem in AMM-based DEXs.
Polkadex is built based on Substrate framework to be able to become Parachain from scratch on Polkadot, its Blockchain is also customized to suit additional features such as: combined with fast execution logic, triple block time seconds, custom trading bot support and other unique feature…
Manta Network – Private Swap
Manta Network is a set of zk-SNARK application protocols to provide end-to-end anonymity, built on top of Polkadot’s Substrate Framework.
Manta Network includes a suite of products:
- Payment protocol.
- Decentralized exchange protocol.
- Lending protocol (future).
- Synthetic asset protocol (future).
Simple to imagine, Manta will solve the Private Swap problem by Tokenizing the anonymous assets (Private Tokens) pegged to real assets at a ratio of 1:1.
Then Private Tokens can work in Defi, users can Swapping Private Tokens through Manta Network’s DEXs, further applying them in Payment, Lending, Synthetic Assets.
Also with the feature of Parachain Polkadot, Manta Network can interact with Chain and other Parachains. This is a big ambitious project on Polkadot.
Hydradx – Dynamic Swap
Hydradx’s DEX model is similar to Thorchain’s in that it uses the HDX project’s Native Token as a reserve and measure of value for assets listed on the Hydradx DEX.
By becoming Polkadot parachain, Hydradx can expose more Parachains easily. In addition, Others Chain like Ethereum can also expose and transfer value with Hydradx through Bridge.
Like Manta Network, Hydradx is more of a collection of products than a single product. Its next products will involve Lending and Derivatives.
Decentralized Exchanges (DEX) is one of the platforms of DeFi. Without it, on-chain value cannot be moved. Hopefully through this article, investors will have a clearer view of DEX on Polkadot.
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