DappCon 2023: The Big Split: How Dex Trading And Liquidity Are Separating - Oxytocin

Transcript

thanks everyone for joining oh I already have a mic actually can I see this one yeah thanks everyone for joining me both um people that are here alive and the ones joining me in the live stream I'm going to be talking about the big split so I gave a very friendly title with how Dex trading and liquidity are separating but what I actually meant by that is dexes are breaking apart and you know what that's actually a good thing so before we start I want you all to briefly close your eyes and imagine what is the deex for you you probably all think pretty much the same thing two text boxes one with an input one in an output you choose an asset it calculates something and then it spits something

else out then you connect your wallet you approve it and you do the actual swap um I chose all of these different examples very deliberately because they are all incredibly similar to each other they all have a pretty um identical interface but in each one of them something very different is happening behind the scenes so what actually happens behind the deex um I made a very simple flow so we could all navigate through it together basically we have somebody accessing the trade we this trade has to be communicated somehow to different poers in different assets and there has to be something in the middle that can be

called a connector a router there's a million different names but basically somebody has to say how do I deliver this quotes to the pullers and how do the poers deliver this quote back to the final person that is doing the trading and it looks simple right it looks like a very simple back and forth it looks like a handshake and if you don't do much about dexes you think that's where the story finishes but actually every single time that a trade is going on there is a big tug of work happening there is a fight in every single one of these steps so on on one side you have the Traders you have the people that obviously they want the best traes they want the most bank for the buck they want the low cost there's a very specific um it's a very general

requirement they can be anything from like low m m protection they can be gas it could be a gas L trade it could be gas refunded slippage fees basically they don't want to spend a lot for the trade and they want low latency it kind of connects with the slippage side of things like the longer it takes to calculate the trade the more the market moves the more your rate is going to be changing in and the more you're going to be waiting for your trades on the other hand you have the people that are giving you the liquidity the actual poers and they want something different from the Traders they don't want losses these can mean anything from like impermanent loss they don't want something like security losses they want the maximum return to with fees this can be from Trading fees

they can be incentivization can be gorgeous but basically they want to get more than what they initially put in and the final one people want to do different things with their assets you cannot really make everyone fit into a single box so you need to be able to accommodate different strategies from the single Deion to the big institutional investors that we're hoping are going to be coming back anytime soon but yeah um and in the middle you have this complication how do you reconciliate these two you have the connectors so I went with this analogy of knots because there's a million different knots that you could be using depending on what you actually want to be doing do you want a very thin knot that is going to be handling everything

basically on chain do you want a very thick knot that is going to be calculating everything it's going to be incredibly robust it's going to be planning for every eventuality do you want one that has like unique knots that have like jumps in the middle it's really going to depend on the kind of Traders and the kind of pullers that you're actually using and up until now and this is the part that is going to be mindboggling for the people that are not used to dexas all of these things all of these contradictions they had to fit into a single deex whenever you were building a decentralized exchange you were expected to have a good front end that would be pleasing these um Traders you were supposed to have a good pooling interface to make people actually pull

your assets and you were supposed to have a good connector that was going to be able to navigate through all the pools in a different in a acceptable time but we can see that that's not possible there's so many contradictions happening with another so how do we deal with this how does a single Dex manage to balance all of these interest how do we fix it well I deviced a very scientific diagram now to explain the solution that I want to device for how to move forward with these dexes here's the Dex no more deck so as during my time working at Paras I've I've been noticing that this

actually has been happening more and more um over time but it's kind of been like a silent Revolution we've been seeing the split happening um more and more with different examples and we're going to be now briefly navigating through each one of them to try to pitch to you this idea that maybe dexes becoming like this breaking apart into smaller and smaller examples are going to be much better than these monolithic ideas that we used to have before so the most obvious example which is the one that like parascope is built for is routing so getting the most Bank from your buck instead of having a generic router this ability of Dex being SPL split has led to much better efficiency um I like to believe that

this has also been a response following the recent decrease in liquidity in many different exchanges you have like a limited amount of liquidity people want to be making big trades how do you maximize it and the example that I brought here was something that Paras swap collaborated with quick swap following their new V three integration so being able to have a dedicated router as opposed to a generic one brings two big advantages the first one I already mentioned you get to be a lot more efficient you get to see the steps in between you get to see ways to different to navigate different pools different assets to be able to do everything and of course if somebody's dedicated to this if somebody is able to do all of these computationally

difficult tasks to get the best rate possible you're going to be able to receive much more than somebody who does a very simple calculation that is just like sort by orders get this thing and get whatever comes out but the second Advantage which is kind of going to be connecting to the next block is that thanks to these kind of like specific um routing that is able to go through different pools and different versions you allow people to connect different kinds of pooling together so through the old kind of routing if you wanted to go from a V2 to a V3 um I'm sure that all of you ogs are familiar with this you have to like the big migration you have to decide okay we have the Legacy pools

we have this on how are we going to be displaying it in the interface are we going to have a toggle from one to the other your liquidity is going to be split and now with a single streamline interface you get to have all of this happening in a single trade and not a single dollar gets wasted and obviously that benefits dexes but it goes a step further with pulling and in my opinion this is the most EXA exciting development that we've seen over the last year and over the entire be Market I really think that we're seeing a lot more Niche solutions that people really wanted and didn't notice until now um here's a few it's not comprehensive but there's some examples of ways that pooling has become a lot

more specific now we have small Niche dexes that are trying things different from what it used to be done before such as with swap finance and their swap B2 model instead of the usual Unis swap based model which relies on arbit charge to be able to balance all the different pools they've gone with a chain link Oracle to be able to minimize the impermanent loss and be able to maximize the swap phe I am not super technical with how they've been able to do this but what I've known is that the efficiency has been insane with this so looking at this from the side of parasa from what I've been able to see in some months every single trade be below 10K um had at least some parts going through swap like 30% going

through it on the e usdc one and this was with a very brief amount of tvl so thanks to this split we are seeing this rise of new texes with new ideas be it like programmable um orders like we see somebody from mangrove here in the audience we have the Swap this swap solutions that are Min minimizing inment loss which used to be something that in the past was impossible but let's also flip things around um this is a solution for Niche liquidity pooling but what about people that are developing um one very interesting example that I've also been seeing has been with algebra Finance they offer like very concentrated liquidity engines but they've been offering it to a different

variety of dexes all throughout the space so it started with quick swap that they want with Camelot Thea and they're able to provide this concentrated liquidity engine as a service and be able to integrate into this new dexes and this would not have been possible if we had this kind of Monolithic Dex model happening before they are able to build what they know collaborate with other dexes and be able to do this kind of solution thanks to the increased composability of splitting dexes so we've covered the side on the pooling we've covered the side on the software like why they should be benefiting from this but let's go even A Step Above what if you do not want to be profitable from just trading fees alone

what if you want to be going with even more composable and like interesting gge mechanisms so that's where you go with ideas like balancer and curve with their different systems I went with curve because they have their automatic venomics and goes but they go even a step further on the weirdness which is why I really love them they're able to have these balanced assets where if you can decide that you actually want your liquidity pool to be 80% 50% multiple assets you can um build everything however you want it and finally what all of these have in common is that they've all mentioned the same thing that without this kind of split without of this aggregation they would not have been able to thrive imagine you're building

this kind of incredibly Niche products and you also have to worry about getting your own front end making the people swap only through you through your very specific case making sure that people actually stick with it making sure the liquidity shifts it's impossible but by integrating all of these together we're able to see this strategies and these Solutions and defa becomes a lot more exciting for everyone so at least for me it feels like something else is being built thanks to all of this uh composability so I wanted to go with a final um advantage that if we have any designers in the audience they're really going to be enjoying this which is the UI um we are able to finally judge a DEX byes

cover I'm going to show these three again I'm using paraso as an example because that's the one that I know you talk about what you know but all of these are using paraso in a different way with different level of complexity you start with Argent which is a wallet and they have a very simple interface from swapping from one to the other and the amount you get a network fee so that is the level one but what if for example you already know about trading and you want to go even A step above that using the same API using the same interfaces you get to build something like with f combo which lies in that middle of you know enough about trading you know enough about strategies but you're not satisfied with a simple

swapping a to swapping B you want to have more in between steps but you still don't know how to program so here's another level that you're building on top um the biggest example that's why I use the screenshot is that you able to access stuff like a flash loans um directly through dragging and dropping different cubes and me I'm not a Dev guy I am a complete smooth brain that up until now flash loans were completely scary for me and introducing this kind of interface suddenly I opened this world of possibilities to me but let's say that a miracle happens and I start programming you can abstract all of this away and be able to go directly through the API and then you can build whatever you want you can build um maybe something that doesn't have an interface

it's an automatic bot that does some conditions or you can have a simple command line if you're the kind of person that absolutely loves having a Unix interface and running everything through through the SSH there you have an API so these are just three examples but I hope you can see what I mean now with even though we're presenting the same thing which is basically all of these um Dex agation gone through a single entry point we finally have this ability of giving one for every single user which I know that with the current market sentiment we keep thinking like what are we building here that is different from web 2 what is different now from what we were doing before and think of this in previous ecosystems in

permissioned ecosystems um every single design every single UI was thinking how do we make something that satisfies everyone and it's not possible but they had to be able to fit everything maybe through a simple interface and advanced one and here you can build everything finally for every person's dreams so yeah that goes to where do we go from here there's always the meme that's been happening from the beginning of defi about money Legos the idea that every single part is composable you have the different blocks and you build them from each other this um yeah it was true before it was happening for a while since defi summer or even before but I really believe that the Cambrian

explosion is happening now so I come from a biological background for those that do not know the Cambrian explosion was a point in evolution where we went from like basically very simple life to everything development developing all sorts of weirdness everything was being tried everything is being able to be exploded thanks to the sheer amount of choic and the sheer amount of things that were happening this never-ending wheel and I really think that by breaking down dexes and having this amount of immense composability we really entering this stage we finally get to have a use case for every single kind of you user think of it instead of having to be like okay I'm going to be building an interface that I personally like are are we going

to have enough people that are going to be using this interface you don't have to worry about it anymore if you have a small group of weirdos that like having this kind of weirdo Trading you can build for them if you want to have an extremely accessible trading interface that doesn't even notice that it's a defi you can build that one and you can utilize all of them with all the steps in between that you want thanks to this amazing level of composability and finally and this I think is the most exciting one even for me you get to build on the shoulders of giants you do not have to reinvent the whe every single time you want to develop a new product so I think you're all familiar with this is part of learning and experience is trying to build something is there's something

that you actually really care about something that you're really excited about but on the way there's all of these small pesky things that you have to learn to be able to make it go live so for example you have this brand new liquidity idea for poers to be able to have everything working um without having to worry about it and you're a genius of it you've studied about this University you've seen other examples you want to program that you make it you make it go live and then you wonder okay how do I make the Traders arrive Now where's the volume and by having this level of composability you can borrow from one you can borrow from the other you can have all of these being built and not only do you have to skip all of those parts you can build from everyone

else but also they benefit from it we end up having this amazing ecosystem where we have this incredibly Niche products built from each other and to finish I'm going to have a personal tangent because I mean we've already gone through two days of crypto talk and I want to show an example of why this is so awesome from another hobby that I've been doing in a free time this is table diffusion a self-hosted AI model okay can you guess how this UI is called they call it comfy UI supposedly this is a comfortable way of approaching things um it's very similar to blender nodes it's very similar to this kind of like programming like interface but as somebody doesn't know programming as somebody that is not

able to do these kind of things it felt incredibly overwhelming for me and in a way um we started seeing these communities that were in a similar position they were like okay I do not know how to handle this how can I make it more accessible and then people started making their own pre-made nodes this own pre-made ways of showing all of this while abstracting away the complexity so for example now I'm using a very specific kind of node that all of this spaghetti is completely out of the picture all you do is put the text you put the image you want to be putting in you put the seeds and then it automatically outputs the image and from there if I can make it that I do not understand diffusion models I do not

understand Python Programming I do not understand any of this I just understand that I want to make a pretty parot if I can make a pretty parot with this comy UI we can get something similar going in the world of defi in my opinion even if you're not a programmer just get the nodes and get everything going I wonder if that bus was for me well anyway thank you so much for attending this talk I hope you got something out of it I have a pup if you want to scan it afterwards and yeah if you have any questions we have even a couple more minutes thank you very much oxytocin