Launch of DefiPlaza on Radix
In the last few months, we have laid the foundation for DefiPlaza to branch out to the Radix chain. Building stuff on Radix is one of the most exciting things you could be doing in crypto at the moment. Scrypto and the Radix engine are absolutely revolutionary, and the user experience that was presented at RadFi2022 will make for a step-change in Web3 usability. We are really enthusiastic about the potential of the Radix public network and happy to be a part of this journey. Our own Radix journey started with introducing our DFP2 token on Radix and deploying the first-ever community-owned Ethereum-to-Radix bridge. We followed up on this with another first on Radix, implementing community voting, where the voting power is based on Radix native token holdings!
As we are starting a new year, it’s time to lift the veil on what you can expect from us on the Radix network going forward! We are proud to announce that today, as the year just started, we have hit two more significant milestones! Find out more near the end of this article!
The path to a decentralized exchange on Radix
We are committed to deploying a decentralized exchange on the Radix public network as soon as the Babylon upgrade (which allows the implementation of smart contracts) goes live. The Radix team has announced Babylon is on track for a release in Q2 2023. That gives us a few months to design, build and test top-notch DEX infrastructure.
Designing a DEX on Radix is a bit like building a flying car. The Radix Engine allows developers to think outside of the box, and easily build complex smart contracts that are inherently safe from many vulnerabilities that Ethereum suffers from such as access controls mishaps and reentrancy challenges. Moreover, the transaction cost is expected to play a much smaller role on Radix than it does currently on Ethereum.
On Ethereum the DefiPlaza USP is pretty clear — we are the most efficient DEX on the entire network. On Radix, everyone starts from scratch and we don’t have many details about the exact fee model yet. It should be cheap for everyone forever is the commitment by RDX Works, but I’m sure that’s what they also thought when they deployed Ethereum.. :)
On Radix the design focus for DefiPlaza will be on sustainable Defi. That is to say, DefiPlaza aims to provide the service of swapping tokens in a way that can be sustained over the long term by the income it generates. There is much the industry needs to improve in this regard. A recent analysis of the current market leader UniswapV3 has shown performance regarding LP gains is abysmal. For just the WETH/USDC pool alone the combined losses by LPs have totaled 115M$ to date (end of 2022) as compared to them just holding the same WETH/USDC tokens. Yes, that’s after including LP income from fees!
Even more recently, another study showed that the situation for WETH/WBTC is much more hopeful. Roughly 80% of LPs made a profit compared to just holding the same WETH & WBTC as long as they would provide liquidity for at least 6 months. The much better performance here is due to the price movement over time between ETH and BTC having positively correlated historically, which was one of the motivators for DefiPlaza to use a multi-token pool on Ethereum in the first place.
Key features of our DEX on Radix
For the design of DefiPlaza on Radix, we will use the insights from our exchange on Ethereum, combined with the insights from the recent studies on LP provision in general. Without going into specifics, we’ll be building on the shoulders of giants, borrowing concepts from Bancor, Dodo, and Curve combined with some new ideas of our own. The below represents an overview of features that we are working to include in the exchange, but as development is an ongoing process there may be changes between now and the final Babylon deployment.
Multi-token trading
In our Ethereum DEX, we have 16 tokens listed, which means you can trade between 120 unique token pairs without requiring hops from pool to pool as you would need on Uniswap where liquidity is held in pairs.
On Radix, DefiPlaza will preserve the ability for users to swap between any two tokens and only pay trading fees once. Adding tokens to DefiPlaza may be done trustlessly by any user once the smart contract implementation is deployed. Users may swap between all the popular Radix tokens directly, paying the same single transaction fee.
Single sided liquidity
In our Ethereum DEX, you can already supply and withdraw liquidity single-sided. Effectively you trade against LP tokens when you add/withdraw liquidity. However, while providing liquidity you own the LP token which represents a basket of tokens and thus is exposed to price movement for all tokens in that basket.
For DefiPlaza on Radix, we’ll isolate the liquidity token by token. Internally, each token will be paired against DFP2. Thus, the liquidity providers will only be exposed to the price movements of the token provided and the price movement of DFP2. This means that DFP2 gains utility as it is used as the internal grease that keeps the exchange running. Demand for DFP2 will be directly coupled with the success of the exchange.
Concentrated liquidity
Achieving high capital efficiency is the key to running an efficient exchange. The UniswapV2 algorithm was sustainably profitable originally, but couldn’t compete against the high volumes that were drawn to UniswapV3 and others offering concentrated liquidity. However, getting the degree of liquidity concentration correct is very difficult, as discussed above with the LP performance for the UniswapV3 WETH/USDC pool.
Concentrated liquidity improves capital efficiency, but equally increases the risk of Impermanent Loss. DefiPlaza on Radix will automate liquidity concentration and apply it to a degree that is deemed optimal based on available data and market conditions.
Dynamic fees
The question of what fee to charge to swapping customers is critical to ensuring long-term sustainability. Set it too low and fees may not outweigh Impermanent Loss. LP income consists of fee times volume. Maximizing this product means using a low fee when the markets are tranquil and a high fee when there is significant volatility. This is exactly what the DefiPlaza smart contracts will implement.
Integrated token launch platform
Finally, a key feature of the Radix DEX will be an integrated token launch platform. This will allow third-party projects to raise funds by launching a new token through an auction mechanism. Successful completion of the auction will result in an immediate listing of the token on DefiPlaza.
As mentioned above, under the hood listings are represented as pairs with DFP2. This means that a certain amount of DFP2 needs to be supplied when a token is listed to facilitate bidirectional trading.
cDEX and reverse bridge launch
The above is a summary of what we plan to implement once the Babylon upgrade becomes available. We want to maximize the time that we have until then for development, testing, and data gathering. Thus, the DefiPlaza team aims to deploy a centralized version of the DEX hosted on our servers.
Hosting a centralized version will allow us to build the user interface upgrades required and of course to gain valuable experience with the parameters for liquidity concentration as well as others. The centralized version of the exchange will start private, such that we don’t take custody of user funds. For now, our users are invited to test the features of the exchange, but will not be able to add their own liquidity at this time.
Initially, we will focus on those tokens which are traded the most on other exchanges (XRD, DFP2, OCI, FLOOP and ASTRL), with fairly low liquidity so we can experiment aggressively with pool settings with limited risk. At Babylon anyone can add liquidity and tokens to the exchange.
Radix ← → Ethereum bridge
With the deployment of the DFP2 token to Radix a bridge was built to allow users to move their tokens from Ethereum to Radix. The entire supply of DFP2 was released on Ethereum over the last year. There is no more inflation. When a token is bridged to Radix, it is locked on Ethereum so the total supply remains constant.
Until now the bridge has been uni-directional, only allowing DFP2 tokens to flow from Ethereum to Radix. As the Radix integration is being put into place for the Radix-based exchange, the groundwork for the reverse direction of the bridge is now also available. We are happy to announce that Radix → Ethereum bridging of DFP2 will be available shortly as well!
Interested to learn more? Welcome!
* Website: https://radix.defiplaza.net
* Telegram: https://t.me/defiplaza
* Twitter: https://twitter.com/defiplaza