Decentralized finance (DeFi) opened a new dimension of open finance for the financial ecosystem participants. In most cases, DeFi users provide liquidity to the DeFi protocol by either staking or lending and in return, they earn liquidity tokens and a part of the exchange fees. The main gateway for DeFi users to such protocols is decentralized exchanges (DEXs) that can be easily built using a cryptocurrency exchange script.
During the DeFi Summer of 2020, a variety of Decentralized exchanges came up with different value propositions. However, out of all, AMMs became very popular. That’s because DEXs were facing liquidity issues and struggled to entice traders to move away from centralized crypto exchanges. AMMs changed the game by enabling the following:
1) Traders no longer trade against one another but with a smart contract.
2) AMMs are designed to support super-fast trades while ensuring minimum latency.
3) As there is no order book, the issues like front running, wash trading, and price manipulation can be addressed using AMM.
4) Price slippage is minimized to fractions of a cent.
It must be noticed that these are the general advantages of the AMMs. However, a cryptocurrency exchange script can be customized to deliver a protocol with standout features. But before that, we need to understand how users decide which AMM is right for their assets:
1) Traders look at the niche in which the protocol falls.
2) Next, they look out at stand out features that make the protocol attractive
3) What Liquidity mining opportunity does the platform provide?
4) Does the engagement with DeFi protocol yield only LP (liquidity provider) token or are there some governance rights too?
A look at these points helps us understand what the actual DeFi users are looking for. Here are some of the features that can help your AMM stand from the rest:
1) Solve the wasted liquidity issue
Uniswap V3 promises to solve this. The actual problem with the existing liquidity pools is that sometimes a trader might trade a significant amount of funds in one pool. As a result, the prices of both the tokens in that pool will have a severe impact on the price. That means there is a chance that only a portion of this pool will be traded ever. Effectively, the liquidity will be wasted.
An innovative approach to solve the wasted liquidity issue with the AMMs will be welcomed by the DeFi users.
2) Offer customizable pools
What is called ranged pools in Uniswap is basically a version of customizable pools. Using these pools, the traders can plan ahead to buy the dips and maximize their profits.
3) Airdrop governance tokens
Uniswap’s UNI, the governance token airdrop was one of the biggest events of the DeFi ecosystem. While UNI price exploded after the airdrops, the holders also received some governance rights along with the price benefits. This means UNI holders will have an influence on the development decisions of Uniswap. These holders can also fund grants, partnerships, liquidity mining pools, and other proposals.
4) Reaching out to smaller projects
A SushiSwap-like cryptocurrency exchange script can be used to build a DEX that helps promote credible small token projects. For staking these particular small tokens, the DeFi users can receive extra rewards.
5) Open the pool of capital
The DEX can be designed to open its pool of capital to other DeFi apps. While this will help smaller DEX to have access to readymade pools, the original DEX where the liquidity is locked will earn more in fees.
6) Liquidity mining program
Beyond the governance powers, the users who stake their Liquidity Tokens should be able to earn more tokens.
7) Robo-adviser for yield farming
Liquidity mining incentivizes liquidity providers. However, by using yield farming techniques, users can keep moving their funds between pools and maximize their returns. Some of the protocols provide their users with a Robo-adviser which guides users to move their funds in a manner by which they can earn more.
8) Switching between pools should be easy
At the design level, the DeFi protocol must handle pools with multiple tokens easily unlike Uniswap or Sushiswap.
Who thought DEXs could achieve so much just like the exchanges that are built using Bitcoin exchange script? Interestingly, there is still a lot to take in and over time DEX development is going to get bigger and complicated. However, using a customizable cryptocurrency exchange script to build a DEX is going to simplify things.
Do you see an opportunity in DEX development? If yes, Antier Solutions can help you capitalize on this opportunity. We are known for our business-oriented and world-class solutions to build centralized and decentralized exchange platforms. In addition to custom exchange development, we specialize in offering a white label exchange solution to accelerate deployment while reducing the development cost.
Schedule a free demo of our white label crypto exchange solution or connect with our subject matter experts to share your needs for a custom exchange built from scratch.
