It’s been a rollercoaster ride for the entire cryptocurrency world over the past few weeks, as the industry waved goodbye to FTX, one of the largest cryptocurrency exchanges led by Sam Bankman-Fried. Following the recent failures of Voyager and Celsius, the unfortunate implosion of FTX has renewed interest in an on-chain, open and transparent decentralized exchange (DEX) to eventually replace the centralized Exchange (CEX). Despite such calls, DEX is still a long way from replacing centralized trading platforms as the main channel for cryptocurrency trading.
CEX and DEX: Will crypto users finally accept DEX?
One of the key issues limiting the adoption of DEX is the superior infrastructure provided by CEX to date, especially for traders. DEX still does not support common trading strategies, such as limit orders, range trading, and dollar cost averaging (” DCA “), which has prevented many retail and institutional customers from adopting DEX on a large scale. At the same time, one of the key activities supporting DEX – providing liquidity to automated market makers (AMM) – has proved unprofitable for most users due to so-called “” fickle losses” “. In many cases, DeFi yields are even lower than US Treasury yields, resulting in fewer ways for users to effectively participate in the DeFi market. As DEX growth has stalled in recent months, the question remains: Even as the public calls for decentralized and transparent transactions, will crypto users really accept DEX as the primary channel for trading their digital assets?
Carbon DEX is designed to bring CEX capabilities to DeFi
The newly announced decentralized exchange Carbon could help fight the monopolies of centralized exchanges. According to their Twitter announcement, Carbon brings the advantages of CEX to DEX through its “asymmetric liquidity” model. As detailed in Carbon’s “litepaper,” asymmetric liquidity is a new form of on-chain liquidity that allows the creation of personalized trading and active market-making strategies defined by one or more “joint curves” that can be adjusted simultaneously. The union curve is actually the basic math that determines how a given AMM performs an on-chain transaction algorithmically. Unlike the previous AMM model, where traders could only choose one curve and range to place their liquidity, Carbon enables users to provide liquidity for two curves, each trading in one direction. In this design, the buying and selling of assets is controlled by a separate, user-defined curve, giving users more control to express their trading preferences. For example, you can deploy a hyperbolic strategy where one curve buys ETH between 1200 and 1300 USDC and the other curve sells ETH between 1500 and 1600 USDC. When prices enter the range defined in the second curve, ETH accumulated in the first curve is immediately available for sale in exchange for USDC.
Comparison of Carbon and existing DEX models
One of the biggest problems with the current AMM model is the risk of impermanent loss (IL), where a liquidity provider (LP) can only make a profit if the relative price between the tokens offered in the pool remains constant. In Carbon, there is no impermanence loss because the order is not a buy and hold liquid position, but an expression of a particular trading view.
