Topic: What are the Problems With DEX Development? (Read 206 times)

When altcoins will be big enough and the demand for KYC-less and non-custodial exchanges is there, I suppose a potential 2nd-layer solution will be found for this issue. Until then though, if the biggest DEX that exists today has an unconsiderable volume, without demand no solution will be found or put into a form of reality.

The question is why do we need these decentralized exchanges? Many people say in order to trade and make profits from price fluctuations, but it is a different activity from the nature of Bitcoin, which is to send money between two parties without the need to trust a third party.

The development of DEX means that the Bitcoin protocols must be upgraded in order to be able to talk to other chains which may happen within some altcoins not bitcoin.

But let's keep the rule simple. Bitcoin is the digital gold other altcoins can have tokens/parallel blockchain to trade coins, central platforms for transferring fiat into crypto.

You are talking about an exchange with all the features of Binance except that it shouldn't have a CZ on top of it.

Cross chain transfers are something that are seen as a holy grail. Cosmos and several other claim to have been built from the bottoms-up with an approach to have the ability to "talk" to any blockchain. This means that the protocol is there but specific applications needs to be built which need developers' time and funding for them. This has led to a scenario in alt-coins where funding is made available through sponsors and hackathons to open source developers around the world. They hope to achieve a network effect of enough chains and enough projects.

IMO, they all suffer from the same basic flaw. In the name of transaction speed and inter-operability, they compromise with the basic value proposition of blockchain to act as money. They use various forms of PoS instead of PoW. Expecting Bitcoin millionaires to trust their money freely to a set of "validators" is a little too much to ask. This doesn't mean that people aren't doing it. Lot of Bitcoin moves cross chain through wrapping services. People already use these partly decentralized services for wrapping tokens for use on other chains.

If you are going to compromise with PoW at some level, then why not do it at product level rather than protocol itself? This is why such a proposed DEX can only be an academic curiosity and not really something that traders need or will risk their money with.

In my opinion there are two main reasons why decentralized exchanges aren't as big as they should be.
1. Human nature
People usually don't think about "better" or "safer" solutions until it is too late. For example they change their locks, install security system, etc after their home was robbed not before!
Whenever one of these centralized exchanges gets hacked or scams its users we see an increased interest in DEX but it goes away as soon as another scam CEX comes along and lulls them into a false sense of security. So they are happy as long as they are being lied to about their funds being safe.
What this means is less volume in DEX, less user interaction and bug reports hence less improvements.

2. Lack of incentive for the developers
In a true DEX there is absolutely no centralized authority or middle man. That means there is no one receiving trading fees from traders. In a true DEX the dev makes no money so they may not have enough incentive to spend a lot of time improving the project; and in a semi-DEX or a fake-DEX the dev makes money but it is no longer viewed as a DEX so it remains unpopular.

If you mean using public key as login and sending signature instead of typing password, then why not. There are pages that use PGP for logging in, the same could be done for ECDSA if needed. But it is probably easier without logging in, you simply accept the trade by signing transactions.

Take Bisq for example. It has not succeeded in becoming a very popular exchange yet although it's not as complicated as other alternatives (BlockDX?) are. Why has it not succeeded?

First of all, alts have high volumes usually due to trading activity on exchanges. Besides trading, they are quite useless to say the least. And even when you have high volumes on centralized exchanges, on decentralized ones it's pretty much nonexistent. If a shitcoin barely has a few million USD in volume on all exchanges together... since they're useless, why bother with complicated versions when you have Binance or so?

Had Bisq become a large-volume exchange with decent fees (fees are crap especially when Bitcoin has a bull run, which is exactly when people trade it the most), devs might have worked on improving the UI even more than it has been so far.

Second of all, making cross-chain swaps is more complicated than it sounds. Not necessarily the swapping part but making sure that if the other party withdraws from the swap, you get your money back or vice-versa. Doing this in a fully decentralized manner is a pain in the arse, especially when there isn't an incentive for it.

The missing demand for such exchanges makes it a long run until we get a working product with some results that provide a high level of user satisfaction. It's not an impossible task, but it's useless if there's no need for it. And if shitcoins are barely used through DEXs, imagine how much volume a LN version of them would have...

Keeping in mind that lightning networks for altcoins are either very small or non-existent, a decentralized exchange has to find another way to swap coins that don't share the same format. I'm talking about coins that follow formats like ERC-20 and TRC-20 for which there exist services to swap them with a similar format.

Exchanging pairs like BTC <--> ETH or ETH <--> TRX is going to be a problem because you somehow have to commit both trades to their own blockchain at the same time, and ensure that it hasn't committed only one of them.


Generally speaking, since the buyers act as nodes themselves then the speed is usually limited by their internet connections and also by the networks of the crypto currencies that are being traded. If you construct a routing table that has a map to the fastest nodes, organize everything around that and hand it to all your DEX nodes then you can somewhat ameliorate the internet speed problem.
 

You can, but these are going to be traded at your own defined prices because the market value is different for each exchange anyway. Even google and stock websites source their price info from Coinbase or another exchange.

Yes, for example you can send some LN-BTC if (and only if) someone else will send you some LN-LTC. If swapping LN-BTC with LN-BTC is possible, then swapping LN-BTC with LN-ALT is also possible, as long as both parties agree on the price.

Why not? One HD wallet per user is enough to handle all ECDSA keys for all coins. A lot of coins are very similar to BTC, Lightning Network could be used almost everywhere, as long as 2-of-2 multisig, timelock and similar stuff works.

Can it be used to serve the mission of an exchange? Like - Is it possible to create hundreds of lightning networks over a single platform? Can we only use it to do a swap or this also be used in future trading over DEX?

I did some research and found that COSMOS SDK and Atomic swap will also help somehow in DEX.

If the lightning network can bring all the features I mentioned can you explain a little that how by pointing some points, That should be great and easy to understandable for anyone who will be looking for this kind of information.

Yes, it is possible. If you have two Lightning Network nodes built on top of two networks, then you can swap the coins. So, if you use LN-BTC and LN-LTC, then you can swap between BTC and LTC.

Hello Gentlemens,

Hope you all safe from the Virus and Enjoying the Bull Market. It's Sunday, This Bull run it's the accumulation day.

I have some questions related to Decentralized exchanges.

As we all know that there are a lot of problems with centralized exchanges the major one is this they do not fit the blockchain mission and creating loophole into it. As we all know blockchain is Secured and is not possible to hack with the help of current technology but still lot of money gets stolen because of centralized exchanges {More Info: https://notyourkeys.org }. I personally believe that there is nothing like centralized blockchain people have control over it. I may be wrong here but this is something I believe. Centralized exchanges get frozen on high volume or in simple words they manipulate the market. By not allowing trades to their users when the market dumping to protect their assets. Why I share my personal details with anyone to access all of the features? Why I allow any third party to hold my funds?

So My questions are:

1. Is it not possible to create an Exchange, based on cross-chain Integration { Not between BTC to ETH only but Between top 100 Projects } where a user can buy and sell tokens by directly dealing with the blockchain and trade with all of the buyers and sellers who placing orders on that?

2. Is it not possible to boost the transaction speed of these decentralized exchanges?

3. Is it not possible to bring the future or optional trading to these decentralized exchanges?

4. Is it not possible to trade derivatives on decentralized exchange?

5. Serum is known as the first DEX but they make it a little complicated for normal users, Is it not possible to provide easy access or a simple login feature over decentralized exchanges?

If you Have the answers then Please share that how we can do it and if the answer to any question is No then Please share your views that why this is not possible..  Or If you know there is any project who already doing this please share the names