# Evolution of DEXes & Impacts on Market Structures - Token Brice | The DeFi Collective

- Channel: [ETH Belgrade Community](https://streameth.org/eth-belgrade-community)
- Date: 2024-10-07
- Duration: 28:17
- Watch: https://streameth.org/watch/yt-IqEfl2T7_QY
- YouTube: https://www.youtube.com/watch?v=IqEfl2T7_QY

## Description

Recording from ETH Belgrade x Ethereum Slovenia Meetup in Ljubljana

## Transcript

welcome is far and liity and today we're going to go on the 20 minute Journey where we revisit four years of onch Dex history so it's going to be quite a right uh so this is roughly the plan before we dive in I want to put some context back on the sex versus what we call sorry the dexes versus what we call Centralized exchange Sexes usually operating under a centralized Central logic or CL sorry for the time that we'll have to go through them but essentially the core of the presentation is more to tell you about the two legs of what makes a decentralized exchange so on one hand the liquidity structures and how they evolve over the last four years and on the other the different model for incentivizing liity providers so how we split the cake and then we can go to example life so for the intro um quick pointers on essentially coin versus Unis swap but you know this is Dex versus Sexes before we go into the specific of liquidity structure and so on let's not forget the basics you know for uh centralized exchange of coinbase or binance you need to KC with them you need to provide proof of f potentially you need to verify your identity and have an address on Unis swap you just need to have a wallet it also has different requirements at the end of the day a centralized exchange can suspend service at any time and we've seen that happen quite a few times recently bance cling some withdraw of assets for few hours uh versus F swap cannot be halted in any way there is no way of swap you sorry I can swap your to you that's kind of the Bas now for the other thing that we're not too used toy is this order book because uh with the pools on Unis swap the pricing model is completely different here actually the the metaphor would be um essentially nft Market they work with a bid and and ask just like a centralized logic a so you know essentially you have buyers you have Sellers and the current market price is uh uh essentially here and you always have a spread between you know what the top Celler is asking and what the top iio is offering um yeah so just for more context on this this is usually seen as the most efficient way to structure liquidity but it comes with a problem is very in the name uh you usually need a centralized entity to maintain the aut book simply because it's it's a high short operation so in terms of market share it looks like this the green one is coin base the blue one is UN so you can see that since two the first two quarter of the year so last two bars are q1 and Q2 2023 you have actually Unis overas in volume of trade processed um so it's it's evolving in the right direction but the full picture is actually this one so this one is with bance and binance is the blue line and as you can see once you add in binance it doesn't really matter the difference between inap and coin base anymore in terms of volume we don't really see them at the bottom of the chart so the full story being the volume on on De is increasing but at the end of the day we still have a vast majority of volume being rooted through um centralized Exchange Finance and all those now for for uh kind of the why of that this is a bit of a comparison between Tex and and a centralized logic aook and I date this as 2018 because this is De comparing against un V1 essentially and what I want to show you with this talk is that the more modern take is actually this one so as you can see quite a few topics evolved over the last five years especially when you comes to like functionalities for instance so doing a limit order wasn't really really possible on CH years ago we have tons of tools to do it through various ways B un3 Co Swap and aggregator and so uh all arguments are like the type of tokens you can support on those Services used to be kind of the sex was seen as better for what you call the Blue Chips Keys Bitcoin against stable coin paers essentially and dexes were offering the chance for those longtail assets I don't have much desire from caliz exchange to be listed to have liquidity but it turns out now we have Solutions all type of assets even on the de and to make this even more blurry we know have projects that are essentially building onchain order books so a decentralized order book if you if you may so this is one of them mro there are a few us looking at the topic but essentially there are ways we can Envision to bring that order book on chain which would enable kind of a best of B type of situation but this is more um Pioneer intake ESS it's not out yet it should be out in the next few months if all goes well for them so let's talk liquidity structure uh this is roughly the the timeline of Evolutions we've seen over four years uh so it start with a very basic one the Unis V1 V2 style essentially you have two assets SP with one another in a PO we at 50/50 and what it means in terms of price distribution is you're assuming a price that goes from Z to plus infinity relative price of the B assets so it has some benefit for instance the liquidity is available at all prices but it has Rob backs because obviously it's not the most efficient way of Distributing liquidity now you have all formula like a stable squat for curve that came a bit later and those are making some assumptions we'll see later but they allow much better pricing over a certain area of the pricing curve so as you would have guessed the peg area balancer is pretty much um Quality of Life Enhancement let's say over the Unis structure so we can kind of skip it what it becomes more interesting is unis V3 because that's the beginning of concentrated liquidity and then marks another big leap in how we shape liquidity on chain finally we have a little favorite of mine Maverick which is the step first after un my perspective both in terms of customiz how much you can express liquidity and also automation layer on top of it and uh yeah it's interesting because it's a bit like the response to your to your talk essentially in the sense that the same pattern here on dexes where you have increased complexity at the base level but that enables to handle situations more gracefully um so this is just to show you the pricing curve a bit so you have um the Unis swap in purple stable swap in blue and this red dot line is just a one one price cve to show you um damn microphone okay so what you can see is uhop is very broad you can see that the stable swap is pretty much overlapping the red line especially in that area of 55 here and this is literally making the assumption that when both both assets are priced relatively close to one one one another this is where you have the maximum amount of liquidity but obviously as soon as you uh move from that price range you enter into some um problems you might have seen in for instance dpex table coins orsds that have some premium or or or discount against Ro e uh so this is unis B3 so here it's a bit differently here you have a Unis V2 sty liquidity so zero to Infinity as I was saying uh well Unis V3 allows you to focus on certain range of that price so if we're talking uh e stable coin for instance here here you're Lally providing liquidity from e0 to e trillions of trillions of dollar the same amount of liquidity concentrated on everything as just here you can focus your liquidity so I don't know is is 19900 currently maybe you would we want to be providing liquidity from I don't know 1700 to 2,000 to have a a bit of margin this is um mavick so mavick you go a bit so one of the main thing is um what I call this custom density so on Unis V3 you pick a range your 1800 to 2,000 for instance your liquidity is distributed heavly within that rank with Maverick you can literally grow your ranges as you want and it has some some benefits I'll will show you later for instance it allows you to do some uh walls being buying walls or selling walls that are really useful on stable coins to have them stay at Peg or on r asset to help them keep the p with the underlying asset um the drawback is similar to un3 concentrated liquidity in the sense that it's potentially more work for the lp more risk of imp floss the more you are concentrated uh now the fun thing with SM is they have several modes so the previous mode I presented you static now it has a system to essentially help your concentration fallowing the price so it's a bit tricky but as you can see in this chart essentially it's not rebalancing asset so you see here you start with half of each asset then the price push the asset through orange and then essentially your liquidity just follow and then what what happens with your asset balance depends on on the price Evolution but the interest of this is is essentially that when you have concentrated liquidity the biggest problem is um the more you concentrate the more you are efficient at processing trait but then the smaller the movement you need to be completely out of range and providing zero liquidity because you're out of range so this allows to have a very highly concentrated liquidity distribution that follows the price one way another so it's like more tool more complexity but it refin the strategies that we can do so that's for the liquidity structure but that's something half of the story now we need to look at the incentive mod model and here I have a bit of time I'm going to be a bit quicker so un swap V1 very straightforward V2 it's the same 0 30% fee on each swap 100% of which is given to the liquidity providers of the form Auto compounded directly in the of them straight forward uh the second big iteration on this was theonomics we go into this a bit deeper but here the core concept is the Dex takes some of the fees from the lp and in exchange give them the token and try to make them enter in a whole loop with a token locking and so on so this is pretty much what happened in 2021 the whole ecosystem curve we will see that in side and then um then was UN this3 with a concentrated liquidity so we still on the model where all the fees are given to LPS but because here you have various pool structure you can do you have various chairs of people pool it's a bit different they have a bit more um options essentially how they want to un charge is then you have all the model are probably kind of speed run through them but just to mention them that are trying to iterate on the VCB model and improve further so there those are Dr ship last year and retro ship this year example you can we can discuss so this one is a bit of the the bur you want to to figure out so that's the godfa I call it the VCS um so I don't know how familiar you are with C I'm going to give you a one minute Speed Run just in case uh the base principle is that as I was saying 50% of the fees collected on curve when people are making exchanges are essentially captured at the Dow level and now there is a whole game regarding the Obion of those Fe so the way it works is you have your C token to get involved with the Curve do you need to lock them for up to four years that's how you obtain this vcv and then once you have the vcv you have access to all that I listed on the right so governance for over governance and the g voting for uh you have the lp boost dive into this but essentially bonus on your earning if you're yourself an LPM care with the go shorts come some potential bribes so either you want yourself to direct yeah we get into the go first so the go every week there is C emissions at the de level and the go are here to determine where those emissions are going in terms of Co so for instance you know fr want to support their coin so what they do is they use the CV token to allocate the CV emissions toward fra usdc enable them to attract more liquidity on their pair and grow it and then the last thing and big deal too is the admin fees as they call them so the fees taken onp redistributed as stable coin to v c holders um now there is a bit of downside here which is the Fe are mutualized so it means whatever the pool you are voting on you get the same Fe it's just based on the amount of VC you own we'll see why it's maybe not the best design but so this is SC ecosystem in 2021 rough here at first it was pretty straightforward but you already have three or four Services building on Top This is in 2022 when I'm still keeping track uh I didn't do it for this year but you can of see the pattern here it's like this toonomic is essentially calling for layers and layers and layers of construction on top now you have at least three additional layers on top of what is shown here the latest flavor of the month ler just launched recently Prisma if you want to check it out uh but yeah so that's um is it a limitation or not I don't know but it makes it harder for projects to navigate this so there are other protocols looking at this tonics and trying to think on how they can get inspired from it but build better one of them is V Dr and they make just a few changes but a really interesting one so uh one of the first thing is they got rid of that LP boost meaning it doesn't matter how many V Val you have blocked you're earning the same year and it's a way of kind of protecting themselves Against The Meta protocol like convex now I guess the biggest change here is instead of taking half of the fees of LPS they take the whole so LPS get none of the fees and then pay it entirely with the V and and now this allows for a better alignment at the voter level because the voter on a given go on a given pool every week they get the fees this pool generate and so there is a feedback loop here so that if you vote for a pool that is not producing so much volume you won't collect that much fees so it's the idea of you know that the voters would progressively direct the votes towards the pools that are the most relevant for the de allowing in to process the most for but it's not exactly like that that it work obviously because you still have bribes and bribes can skew this whole equation but still an improvement in aligning the volts and making sure your owners your token owners are trying to do what's best for the de essentially you have another step on this r model we can go quickly so I have time to walk through through the model but here essentially uh there are like two main changes the first one is um it's using concentrated liquidity from un and they have to distribute those incentives to a model to concentrate liity that's we will see in a minute now on top of that instead of just giving you their token directly the naked retro token they distribute their rewards in an option token or R and now there is a whole additional layer of game of depending of what you want to do with your all rual when you exercise it you get more or less favorable ter so if you just want to lock it for the Max location duration you get an instant one exchange you can exchange one o rro for one be rro for two years but if you want to redeem it liquid it acts like a COR buy option Essen so you have to provide some external Capital to buy a retro and then be able to dump them or use them as liquidity or whatsoever so that's a way of uh creating a flow on the token and um is trying to align LPS over time it has merits but yeah it's also more complex so this one is uh probably one of the most interesting things that came out in terms of incentivization tools that we have this is from angle protocol that does a stable coin and they kind of build this for themselves and then um open it up uh it's essentially a way of Distributing rewards to un with fre liquidity providers but with a high level of customization at the project level um so you can choose to just incentivize like they see on screen you know a very evenly distributed liquidity you pay the same size the same amount or you can go into more directional liquidity which I will walk you in a minute so I'm just going to do a few of these so we can talk about the end the most interesting one but this is just to give you a recap on how everything can together this is a Unis uh essentially what it looks like if you merge incentive model and uh liquidity structure together so for unof it's pretty straightforward you have the literally the top deck about half of the volume uh live on 10 chain and also arguably the most resilient de in terms of how it's built in terms of Market record essentially because they didn't suffer any critical issues since their launch even on on previous version um so it's really like the minimal infrastructure giving back 100% to the lp currently and uh the most bom tested so it has a lot of merits and yet just to finish on this it's also fitting allp of tokens with volatile stable coins derivative there is no like strong specialization on Unis works with more with something like curve you can see the the mass beit different here so it's more gear for projects essentially because it's for incentivization model have project sustain the liquidity over time but it doesn't make it the most accessible for just a retail user um in terms of metric um it's about 10% of the total volume of dexes for roughly half the TBL of Unis to give you some reference in terms of tokens uh you all know it's mostly for stable coins and what I call derivatives so you know those Civic CRV for instance or e e taking derivatives and so on the new kbe on the Block and B uh so this one was launched this year and it's already kind of trading curve in volume SL overtaking curve over some days with uh about 140 150 of the Cur TVM so you can really see the increase efficiency here the liquidity is much more utilized on MAR that it is onve uh and for the benefits I think I kind of work through them and I will show you in in a few slides it's really this idea of it's a new tool with allowing much more exclusivity for the lp and so it opens up more strategies for liquidity provider but also for a project looking to structure the liquidity terms of token distribution I think at the end of the day will be like Unis V3 pretty much fitted for every token but like every shiny new tool we are learning progressively and so far it seem people are learning faster on stable stable coin and and derivative they haven't figured out the best structures for volatile to yet so we right till you get the random let's talk about the interesting stuff so um as you may have known not uh this is a bit like practical case to wrap up the talk and uh yeah it's funny because it talks about governance too so um the aid has a stable con called go and this stable con has been launched mid July and has been having some big issue pretty much since the launch uh so there were several decisions taken by governance to try to address this problem some of them are at the product level they're raising interest rate on go they're trying to provide more utility to go and so on but one of them was more at the liquidity level so the government selected a committee made of seven people set included and gave it a budget of $400,000 over three months to try to do some liquidity related effort that would have improve the pay uh no what happened with that committee is pretty much a story of governance everybody started to run their own way with their good ideas but it wasn't really like a central coordination and vision so uh two weeks in I kind of Ring the Alarm there and suggested that I would take the leadership of that committee to try to have an action that would go in the right direction so it's been uh it was last week actually so we're just starting under this uh Revis leadership uh and I have a one month's objective to bring it at 0 985 so right now it's about 2 cents below that M so the way we're doing that know that you have the context and that's the most interesting thing that's what we call a directional liquidity and it's essentially the core idea is you know think about Unis V2 so 50/50 po if you put some incentive on such a PO you cannot make any cannot express anything you must pay both s the same way because each token is made 50% of one token 50% of the other token so if you put incentives on the ownership of the lp token stack saying I give as much incentive to my buyer and to my seller because you can't choose the pool is made like that but now with something like b or even with or another layer you can actually discriminate between your buying liquidity and you're selling liquidity and essentially decide to pay more the buying side or the selling side this is really what we're doing here for two different means so on Maverick the project directly can shape the liquidity meaning drawing this liquidity so you see here this is current price here it's the usdc component of the liquidity and here it's the go selling component of the liquidity and essentially what this structure create is a buy Ro as you can see here you have large scks of usdc Reserve to buy to essentially sustain this price of our the PO was launched in this area and you see the bit the launch way already push the price 20 so that's one way to do it on B where you create that structure unbalance with buying more or selling more and then you're providing incentive for people who accept to essentially join that boosted pool meaning provide the liquidity in the exact way you drew on uh on angle it's a bit more subtle the way it works with smer so with smer the cool thing is your liquidity and on Unis V3 so you're paying for incentivization of a Unis v3p but what you can do here that's quite unique is you can customize your distribution formula to essentially Factor different element with a different weight so you have three elements that goes in the formula the proportion of token a the proportion of token B and then the amount of fees collected and you can kind of fune all those parameters so to create a buying liquidity on go I show you the campaign here we started with the first campaign where essentially the reward computations are based 15% on go supply to the PO 80% on the usdc supplied to the PO and 5% on the fees collected on the PO so what it means is to get the most all of those reward you need to do an LP supply that will process volume but is roughly five times overweighted in usdc compared to go so you're providing a large amount of buying liquidity to the P that's how you maximize your rewards but yeah key difference is here you really for people to take that structure as see you're just sking the distribution of reward toward the people that match it best so that's like kind of the pionering stuff on liquidity right now wor the follow uh if you you're interested in stable coin and I just wanted to wrap up with uh another thing that is kind of flying under the radar but that should impact us every next year which is uh Unis swap X so that's not the next version of Unis that's an independent development done by the Unis team and it will potentially change quite a few thing as to swap are down and and and the whole Vision people have interacting with an app so you will uh you might have heard about intent already I'll go back to them in a minute but it's it's really a different way of suing transaction but I guess the most interesting things to begin with is this Coincidence of one that you may be already know if you use for instance coap it's essentially this idea that whatever you want to do on chain be it lending like Mor or being a swap the most efficient pass will always be finding a pier that want to do the opposite of you so if you're looking to sell five East for usdc I don't need to analyze any solution to tell you that the best solution is finding exactly a guy who want the opposite trade so who has usdc and wants to buy e because you would just agree at the market price but you both avoid the gas cost and the fees of the liquidity so your both it's like cutting a dinal with your Airbnb host so that to pay him in cash you know it's a win-win situation so that's a coincidence of one um then there is this idea of aggregation when The Coincidence of ons cannot happen when they don't find the opposite of the trade then it reverts to an aggregation like what you can have on on one and finally The Exchange that goes with the intent it's not on top of just doing uh on the same chain swap you can also Express in your intent a chain so your swap instead of being I have five and I want to sell them for usdc it can be I have five on eum and I want usdc on arbit and now in that formula everything will be computed so that you know look at the different rout to bridge that e to arbitrum is it better to bridge it on arbitrum and then send it here or do the same on maget and then brid the usdc and so on um the core concept here and it's on this the last one is this notion of fer because essentially what you're doing is uh you no longer so when you're doing a swap on a Paras swap right now for instance Paras swap will compute for you what is the best root and then the transaction that you see sign on chain is kind of hardcoding those roots if I so if swap computed for you that the best is to go One S through Unis Swap and two through C what you're sending on chain is hey I want to swap my 10 e and one would go through un two here what you sign of chain onchain is essentially an intent so hey I want to sell my EAS for usdc at the best price and then those fers compete to provide the best resolution of your class ESS so it's a way of structuring it so it starts to be a bit more efficient it has centralization risk too so it's not a freelance but I think it's a really uh interesting U Avenue for growth and it will change the landscape quite a bit potentially even more at the aggregator level than at the deex level itself so yeah that's it for me and thanks for your [Applause] attention thank you very much um now last but not least uh cany