What does it take to shift trading volume from centralized platforms to their DeFi counterparts? In nearly every major vertical, including swaps, perps and options, CeFi volume outpaces DeFi significantly. However, there are still certain on-chain leaders that have been able to acquire significant volume. What does it take to become the first major mover in decentralizing a market sector? Why haven’t options seen as much on-chain adoption as perps and swaps?
Let’s look at what makes centralized trading platforms appealing in the first place and what players like Uniswap and dYdX have done to capture sizable chunks of their respective sectors.
Learning from Swaps
Before DeFi Summer started in Q3 2020, there was essentially no on-chain volume for DeFi.
DeFi Summer saw several DEXs emerge as viable CEX alternatives. Uniswap, Curve, and Sushiswap surpassed $1B TVL during this period, causing the first big spike on the chart above. How did they do it?
Deep Liquidity
A key factor in these DEXs’ breakouts was the reasonably deep liquidity they bootstraped through liquidity mining (LM) programs. While LM rewards aren’t the most sustainable way to acquire deep liquidity, they attracted enough LPs for these DEXs to achieve low slippage swaps, comparable with CEXs. Today, Uniswap leads all DEXs with over $3.3B TVL across eight chains.
Deep Liquidity is the first and perhaps most important component we can identify for establishing competitive on-chain trading venues, and applies across all market sectors.
UI/UX
One of the main arguments in favor of CeFi platforms is their typically streamlined onboarding and straightforward interfaces. This includes the well-known crypto onboarding issues of wallet creation and key storage. But for in-app experience, Uniswap’s design is sleek and appealing. The easier it is to jump right in and start using a trading platform, the more likely it is to become a sector leader.
Uniswap, in particular, has benefited from offering a clean, user-friendly interface.
Learning from Perps
Given that perps and options are both derivatives contracts, perps may offer more lessons for DeFi options than DEXs. So, which perp platforms are succeeding, and how are they doing it?
Binance’s centralized perps platform led all platforms with $608B in July perps volume. Looking at decentralized players, dYdX is one of DeFi’s most successful platforms for perps and other derivatives, with over $23B in July volume.
Comparing the two platforms, dYdX has done well to offer traders a comparable set of features to what they’d have access to on Binance and other CeFi platforms, including live price feeds, stop-loss and limit orders and indicator overlays.
Indeed, an essential part of moving trading volume on-chain is replicating the experience that traders are used to. Combine that functionality with the added benefits of decentralization, and adoption will follow.
Pricing is another essential factor in the trading experience. Offering competitive prices on-chain requires frequent updating and robust data sources, which dYdX facilitates by pulling price data from top CEXs via 15 different Chainlink node operators. For perps, this data is necessary to calculate funding rates that converge contract prices with underlying asset prices and accurately assess liquidation conditions.
Takeaways
We’ve seen four vital elements of constructing a competitive on-chain trading venue –
- Deep Liquidity
- Intuitive UI/UX
- Useful Functionality
- Accurate & Up To Date Pricing
Siren Flow’s vision is to bring options volume on-chain like Uniswap has done for swaps, and dYdX has for perps.
Crypto options are a sizable market with billions in volume traded weekly, but primarily on centralized platforms. That’s why Siren Flow has spent months building a new and improved version of its on-chain options platform. The new Siren Flow addresses these elements to create an optimal trading experience to capture a significant share of the options market.
Institutional grade options trading on a decentralized platform coming soon.
Get an early look with private mainnet access by applying here –https://form.typeform.com/to/WN9eRrF5?typeform-source=t.co
