An interesting figure for the decentralized finance world emerges from the statements made by IDEX and Dune Analytics, the use of decentralized exchanges (DEXs) has reached an all-time high: in March, 668 million dollars in volumes.
The report, before mentioning the volumes of DEXs, reveals how it was since 2013 that no Q1 had looked like that of 2020, with the unexpected event of the Coronavirus changing the game.
A few days ago, we were in the middle of a storm and Bitcoin’s correlation with traditional assets frightened the community, which has always boasted of being disconnected from traditional markets due to its alternative nature.
For this reason, the IDEX team, an important decentralized exchange, began its industry report like this:
“The first quarter of 2020 was one of a kind. The COVID-19 outbreak has hit economies far and wide, putting much of the crypto world to the test”.
The reasons for the growth of DEXs
With these premises, highlighted by the report, it would have been unexpected to reach the excellent results achieved by the decentralized exchange sector.
The sector has always struggled to follow the performance of more centralized projects, but some elements are stimulating development.
- Users’ awareness is maturing;
- The DeFi effect;
- New technologies and development models.
Users are becoming increasingly aware of the importance of disintermediation and of the risks involved in the use of centralized systems; without retaining control over private keys, the cryptocurrencies held on exchanges are at risk, both in terms of cybersecurity and regulations, whose involvement could create risks where liquidity and trading are centralized.
The positive circuit created with the DeFi sector has highlighted the potential of a “non-custodial” system for managing exchanges and liquidity, as evidenced by the great success of Kyber Network, Uniswap and Bancor, which add volumes to the most dedicated trading platforms such as Loopring or IDEX.
The technologies that have been tested on some platforms over the last few months are allowing exchanges to overcome some difficulties related to scaling.
Each trade must be signed on the blockchain and activate the contract connected to it.
Certainly, the ZK Rollups are the most advanced, but last year IDEX itself pioneered the O2 Rollups (Optimized Optimistic Rollups) that allow scaling off-chain using a layer2 smart contract for the finalization of transactions.
- As a result of these innovations, it will be possible to have:
- Instant execution of transactions;
- Funds always under the user’s control (non-custodial);
- High scaling possibilities;
- Decreasing Gas costs;
- More advanced trading tools;
- Ability to add synthetic assets.
Yet while growth is impressive, it also highlights the difficulty of accurately monitoring the performance of individual protocols in an increasingly intertwined ecosystem.
Constant liquidity pooling inflates growth statistics and makes it difficult to assess each protocol individually.