Hey DEFI TIMES community,
MCDEX uses a combination of an on-chain AMM and an off-chain order book to run its DEX.
That’s quite a cool innovation because it solves a lot of liquidity problems for L2 DEXs.
The author of today’s guest article is Jean Miao, co-founder of MCDEX. She will explain to you in detail, how the protocol works!
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MCDEX’s novel approaches for Decentralized Perpetual Swaps
The derivatives market in DeFi is still quite young, there’s a lot of potential going forward. Recently, many projects have been working on decentralized perpetual swaps - to provide a transparent and noncustodial way of trading perpetuals. Decentralized perpetual contracts enable trading with margin and leverage, by using a funding mechanism which keeps the prices anchored to the index.
MCDEX is one of the few projects in the DeFi space that has launched its mainnet. MCDEX V2 was launched in June 2020, with a novel approach - an on-chain AMM and an off-chain order book hybrid model. This fundamentally differentiates MCDEX from other projects working on perpetual swaps.
We believe AMM is fundamentally vital to decentralized perpetual swaps because an AMM enables a fully decentralized structure. It acts as a brick of the DeFi Lego by providing an on-chain interface.
In V2, MCDEX introduces the off-chain order book, the reason for which is to bootstrap liquidity by introducing traditional market makers. However, we profoundly understand the importance of an on-chain trading interface, which means that anyone can call the interface of the smart contract to trade without relying on any off-chain facilities. AMMs provide the on-chain interface we are talking about. The AMM can be called the kernel of perpetual swaps. It can work without the order book.
The on-chain trading interface is the only way other smart contracts can interact with the decentralized perpetual contract. Not only the end-users but also other smart contracts can call the interface function of the perpetual smart contract to trade, arbitrage, hedge, and fulfill their investment portfolio. Our team believes that perpetual swaps are a high-quality asset on which many other products can be built, take the case of other popular DeFi projects like Uniswap and Compound.
We aim to make MCDEX a brick of the DeFi lego. We expect many other projects to build exciting new products on top of our base protocol. All in all, the introduction of AMM will diversify the use-cases of decentralized perpetual contracts.
The innovation of AMM also fundamentally changes the profit structure in traditional finance by lowering the market-making threshold. In traditional finance, only those who are able to provide complicated strategies can join the game and make money from it. With AMM, normal users can join market-making by simply putting their funds in the AMM. Crowdfunding liquidity is way more powerful than the traditional way.
We do understand that AMM is still in the initial stages of its innovation right now with several drawbacks like low capital efficiency, large slippage, etc. As of now, MCDEX is working relentlessly on its V3 to improve the performance of AMM by designing an upgraded AMM pricing formula. Besides, V3 will be launched on Ethreum L2/ other chains and will have better efficiency. MCDEX V3 is expected to hit the market in December 2020 with some cool mysterious features. Stay tuned for the same and thank you for your interest in MCDEX.
All information presented above is meant for informational purposes only and should not be treated as financial, legal, or tax advice. This article's content solely reflects the opinion of the writer, who is not a financial advisor.
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