DeFi is rife with great ideas capable of rebalancing financial power dynamics. However, so far, these ideas have proven hard to implement in sustainable and convenient ways.
Take the DEX, or decentralized exchange — this is a cornerstone of DeFi and a place where users are able to trade with each other without sacrificing control over their funds or having to pay exorbitant fees. On paper, it sounds ideal. But when you look at the major DEXes, they are not convenient. DEXes have become synonymous with high transaction fees, long wait times, low network interoperability and manipulation issues.
Enter Polkadex. Polkadex is launching the Polkadex Orderbook aiming to give users the best of both DEXes and CEXes, or centralized exchanges. The premise is relatively simple: Orderbook users can enjoy the speed, security and convenience of a CEX without having to hand over control of their assets. But, as with all solutions to complex problems, the creation of the Polkadex Orderbook was not simple. We talked with Polkadex CEO Gautham J to get the inside scoop on the nascent platform and how it is poised to elevate the entire DeFi industry.
When did you realize that you needed to launch the Orderbook?
For a while, we have known that both CEXes and DEXes in their current state are imperfect solutions. CEXes have always had the upper hand when it comes to trading. However, they hold custody over their own user’s funds. Centralized control over funds exposes users’ assets to risk due to potential security threats or even defaults.
While DEXes solved the custody issue, they created a whole new set of problems for crypto traders with lower functionality, ridiculous network fees, significant manipulation issues like front-running, and limited liquidity and access to tokens.
The recent FTX fiasco and the risks it revealed to both retail and institutional traders further solidifies the need for a non-custodial orderbook DEX.
What problems does this platform solve?
We’ve solved the problem of centralized exchange operators needing to hold custody of funds. To do so, we’ve built a non-custodial exchange that looks, performs, and feels like a CEX.
In other words, we like to think of Polkadex as combining the best of CEXes and DEXes while eliminating the issues of both. The result is an interoperable, easy-to-use, order book-based DEX capable of scaling to high-frequency trading.
One of the aspects that you have stressed is the platform’s interoperability. Why is that such an issue among other DEXes and what will be the full scope of Polkadex’s interoperability?
As of right now, DEXes are basically siloed. They are more or less bound by the networks they run on. For example, Ethereum-based DEXes are limited to trading Ethereum tokens.
CEXes, on the other hand, can support a wide range of networks and tokens due to their centralized, off-chain nature.
To ensure high liquidity and cross-chain interoperability, we have invested in developing our own in-house solution: the THEA protocol. THEA is a cutting-edge interoperability solution that will allow Polkadex to support token trades across separate blockchain networks, starting with Ethereum.
The THEA bridge will combine with the Polkadex parachain. to support tokens from the Polkadot network and its parachains and access ecosystems like Polygon and Ripple. This makes Polkadex Orderbook the first non-custodial, cross-chain, order-book based trading platform.
Rather than taking the AMM (automated market maker) approach popularized by DEXes, you have built your exchange on its own dedicated blockchain. Why and what pushed you to use Polkadot?
Automated market makers were a compromise and not a solution. Developers couldn’t figure out how to implement Orderbook-based DEXes in a limited environment such as the blockchain.
If you look at the core of this problem, it is the fact that centralized operators hold custody of user assets, and we just need to solve that. If we can build an exchange that works like a CEX in all aspects but the operator doesn’t have custody, bingo! That’s the solution and we did that with Polkadex.
As to why, Polkadot’s parachain-based architecture allows Polkadex to tap into liquidity from across the whole ecosystem. Moreover, the Substrate framework, thanks to its highly customizable nature and its forkless upgrades, is the only blockchain framework that makes Polkadex Orderbook possible as it allows us to tailor the parameters of the Polkadex network to the Layer 2 TEE.
What kind of KYC requirements will users of your exchange have?
As of right now, there are no KYC requirements to use the Polkadex Orderbook. Once we introduce fiat support, users will need to be verified to use certain Orderbook features like fiat deposits and withdrawals. We are also working with decentralized identity management blockchains to develop a solution that is not centralized for traceability and tracking.
What, in your opinion, are the greatest challenges currently facing the DeFi industry as a whole?
There are a lot of projects in DeFi that are merely Research and Development teams, they are not focusing on solving real problems with good business use cases. The DeFi industry will move forward in a more efficient way if projects start focusing on real solutions and stop creating clones of existing tech.
Material is provided in partnership with Polkadex
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