The DEX Workshop

Our first workshop focused on decentralized exchanges (DEXs). We think supporting the growth of decentralized exchanges is critically important at this time. We’ve seen a massive influx of interest in cryptocurrency in the past year, and have seen the stress it has put on centralized exchanges. Until recently, centralized exchanges have typically provided better user experiences — from UX design to order book fulfillment to centralized 24/7 customer support.

Michael Oved of AirSwap presents at the Web3 DEX Meetup in Berlin

With technology and cryptocurrency adoption progressing — we’ve also seen the promise of DEXs to deliver on a similar user experience. Now is the time to ensure that a fully decentralized trading ecosystem becomes a reality.

We invited a number of technical teams to join us in our Berlin offices on January 23rd for a full day workshop around the following topics:

front running prevention

order book unlinkability

throughput

dark pools

cross chain exchanges.

Joining us were devs working on: 0x, Airswap, Augur, Gnosis, Herdius, Kyber, Melonport, OmiseGo, and Radar Relay as well as a number of other devs working on specs and DEX support initiatives.

On the following day we organised a community meetup, where a few of the teams were able to speak about decentralized exchanges in general and their projects, you can see the Meetup video here.

In order to make it easier to understand other projects and make the discussion more structured the participants proposed a number of different categories that each project should cover:

1. Order Book: On or off chain? Is there even a single order book?

2. Provably Fair Matching: Is it necessary to trust a third party to match the orders fairly?

3. Order placement: Does the way orders are placed make front running easy?

4. Throughput: How many orders can it process? How much volume can it process?

5. Latency: How long does it take to settle trades?

6. Cost: How much does it cost to conduct an exchange?

7. Privacy: Do the participant identities get revealed? Are orders linkable?

8. Legal: What legal considerations have you taken? Do you perform KYC on the users?

9. Target users: What set of users is your exchange targeting? Is it aimed at low liquidity niche tokens or high liquidity popular markets?

10. Assets: What is the universe of assets tradable on the exchange?

11. Worst case failure: Given a failure of security assumptions, what is the worst that can happen?

12. Development stage: Is the project live? When will it be deployed and usable?

13. Greatest challenges: Which element of working on the exchange has been the most challenging?

We then followed on to discussing each of the projects and trying to understand how they fit together. We hope that this common understanding of how these projects relate to each other will help them realise ways to collaborate or find their market niche. You can see the summary of our analysis in the breakdown spreadsheet.

From the overview of the projects it is clear that exchanges can decentralize two aspects of their operation: custody and matching. Maintaining custody of the assets while trading is a great mitigation strategy for many exchange related risks and costs. Trust-free matching can have the same effect. Some exchanges attempt to do both, while others only one, avoiding many pitfalls of decentralised matching. Maintaining custody while still matching on chain may be also beneficial, avoiding any DEX implementation issues.

After looking at the particular projects we identified the main issues that would be worth discussing: front running, scaling, ongoing vs batch auction, privacy, liquidity and legal. Below are the general outcomes of different discussions.