I have been studying the mechanism of exchanges these days. CEX is already good enough, so why do we need DEX? How did DEX evolve from AMM to vAMM and then to P2P pool trading mode? I found that there are many similar trading operations, but the underlying principles are completely different.
Common CEX Trades#
1. Flash Swap:
Direct trading based on the best market price (similar to market order)
2. Spot Trading
- Limit Order
- Market Order
- Take Profit and Stop Loss
- Trailing Order: Trigger a limit order when the price reaches the "activation price" and the rebound ratio exceeds the "trailing range"
- OCO (One-Cancels-the-Other): A combination of limit orders and take profit/stop loss orders
3. Margin Trading:
An extension of spot trading, supports a wide range of currencies, supports 1-10x leverage trading, incurs borrowing fees and trading fees
- Cross Margin: All positions share the same margin
- Isolated Margin: Each currency has a separate position
4. Futures Trading:
Futures derivatives market, supports higher leverage, incurs trading fees and funding fees
- USDT-Margined: Settlement is done in USDT for both long and short positions
- Coin-Margined: Settlement is done in the underlying currency
- Perpetual Contract: An extension of spot trading, supports a wide range of currencies, supports 1-10x leverage trading, incurs funding fees and trading fees
- Options: Grant rights rather than obligations, option holders have the right to buy or sell the underlying asset at a predetermined price and date. The premium is the price of the option, and the closer the exercise price is to the asset price, the higher the premium.
5. Order Types:
- Post Only: Only make maker orders
- GTC (Good Till Cancelled): The order will remain valid until it is filled or canceled by you.
- IOC (Immediate or Cancel): Attempt to immediately execute all or part of the order at the available price and quantity, then cancel the remaining unfilled portion of the order. If there is no available quantity at the selected price when you place the order, the order will be immediately canceled. Please note that this order type does not support iceberg orders.
- FOK (Fill or Kill): The order must be completely filled immediately, otherwise it will be canceled. Please note that this order type does not support iceberg orders.
- Iceberg Order: Split large orders into a series of small limit orders to avoid disrupting the market.
Futures Trading#
In the spot market (spot trading, margin trading), the counterparties are the buyers and sellers of the spot market. In the futures market, the counterparties are the long and short parties (including leverage). Common types of exchanges include order book exchanges and LP pool exchanges.
- Order Book Trading:
The long and short parties are counterparties to each other, and the exchange has built-in market makers to provide liquidity, match the trades of the long and short parties, and earn transaction fees from them.
- LP Pool Trading:
In LP pool trading, neither the buyer nor the seller is the actual counterparty. In fact, they both interact directly with smart contracts. When a buyer places a buy order, the smart contract automatically matches it with a sell order from the seller. If there is no matching order, the order will be automatically executed in the LP pool. Similarly, when a seller places a sell order, the smart contract automatically matches it with a buy order from the buyer. If there is no matching order, the order will be automatically executed in the LP pool.
Conclusion#
Looking back at the evolution of De-fi, DeFi Native products should target both LPs and interactive users. The essence is how to design mechanisms that make both traders and LPs happier within the framework of Native. Traders should be able to complete transactions at lower costs, more conveniently, and faster. LPs should be able to participate in secure and compliant projects with lower thresholds and receive their share of profits.
Whether it is AMM, vAMM, or the currently superior P2P pool trading mode, the essence is to evolve step by step towards the goal. Understanding the main line of evolution can determine whether the narrative of a new project is valuable and whether its token will become a leader in the future, thereby judging whether it is worth taking action.
Feel free to like, share, and follow. Let's progress together in the bear market.
References:
Origin of LP Pool: https://abmedia.io/what-is-liquidity-pool-and-how-it-works
Evolution of LP Pool: https://www.odaily.news/post/5185721