The DeFi ecosystem has seen significant growth in the recent scenario and while exchanges in the crypto-sphere had been centralized, the idea had been challenged with the emergence and subsequent growth of Decentralized Exchanges (DEX). Polkadex aims to combine the benefits of centralized and decentralized exchanges with their technological innovation and provide users with a smooth trading experience.
It is the first project on the Polkadot ecosystem that features an orderbook based exchange. The platform functions through Snowfork with the Ethereum network and Parachain with the Polkadot network.
In conversation with Gautham J, CEO Polkadex we discuss the platform, the vision behind creating the first orderbook based exchange on Polkadot, IDOs, and NFTs on their platform, and much more.
1. How is Polkadex redefining decentralized exchanges?
We approach many things differently and bring some innovative solutions to the market and users to eliminate the existing bottlenecks.
To begin with, none of the present decentralized exchanges supports a trading engine that is fast enough to run the traditional orderbook. As a consequence, they also lack sufficient liquidity and can not push DeFi forward.
DEXes have copied the success of Uniswap and moved to the AMM-based model. At Polkadex we think that it is not a real solution but only a halfway compromise.
Uniswap and other swap protocols that don’t use an orderbook dramatically limit their functionality and bring to life certain platform-specific issues. The pool creates an arbitrage opportunity when the price of the asset fluctuates. Moreover, front-running is imminent on the AMM- based DEXes, while the orderbook DEXes eliminate the issue.
Polkadex is an orderbook based exchange, but the key difference is that, unlike traditional orderbook exchanges built on multipurpose blockchains, Polkadex is specifically built as a dedicated blockchain that functions as a trading engine.
Current DEX reality is facing a huge technology gap, and we work to fill it using the mix of technologies available through the capabilities of Bitcoin, Ethereum & Polkadot networks.
Another very important point – we want to bring DeFi to the masses by eliminating the entry barriers. If you can make a traditional exchange run in a decentralized way, you bring power back to users by lowering costs and improving security. Right now DEXes lack popularity because non-crypto native users find the UX and navigation on the existing platforms challenging, making the whole experience stressful and frustrating. We felt a need to try and solve that problem via building an easy, straightforward, and fun to use trading platform.
2. What was the vision behind creating the Polkadex Order Book?
Blockchains have revolutionized the way we think about trust. The world is going to be increasingly tokenized in the nearest future and Polkadex aims to prepare the world for it.
Bitcoin showed us to transact in a peer-to-peer way without having an intermediary. However, the idea of transferring different types of Blockchain assets in a decentralized manner is still in a rudimentary phase. There were many attempts to solve this problem but none of them managed to take the solution mainstream because of the inherent drawbacks of a blockchain to settle transactions instantaneously and quickly allowing any sort of real-world application.
Past projects have shown us that running an orderbook-based decentralized exchange on-chain is going to be expensive. Hence, there has been a shift towards creating automated market makers (AMMs) to allow transacting in a decentralized manner. This has given rise to protocols like Uniswap and centrally controlled chains like Binance Smart Chain. However, none of them offer solutions to all the user’s needs.
Our goal is to make decentralized peer-to-peer transactions between different blockchain assets possible in an orderbook environment, at the same time making sure that the assets are always in the custody of the participating peers only. We are happy to say that we have been able to achieve that in Polkadex.
3. Why was the Polkadot ecosystem picked from all other blockchains?
The idea of Polkadex started back in 2018 when Vivek Prasannan, Deepansh Singh, and I (co-founders of Polkadex) worked on a consensus algorithm to scale transaction throughput on a distributed network.
We were looking for a scalable use case and tried to apply the technology to a decentralized exchange. Searching for the best ecosystem, we came across the Polkadot network and Substrate framework that allowed building the final version of Polkadex.
Polkadot stood out among other blockchains because it offered us an opportunity to create a highly scalable and fully decentralized platform for a peer-to-peer and trustless token exchange.
From the initial stage of Polkadex’s development, we set high standards as the platform had to answer multiple requirements: provide high-frequency trading, high liquidity, and ultra-fast transaction speed to support DeFi applications, have an easy UX to make DeFi usable for people with any level of technological knowledge.
As you can imagine, finding everything in a single network was a tough task. We went through researching Ethereum, NEO, TomoChain, Cardano, and other solutions, but found the right capabilities only in the Polkadot network.
Transactions on Polkadot are processed in a parallelized way, so the network is considerably faster than rivals. Moreover, Polkadot is interoperable and brings various tokens and blockchains together in a vibrant ecosystem.
We are building Polkadex in Polkadot’s Substrate framework that allows us to add new features, easily develop the platform without hard forks and focus all our attention on optimizing the network to reach unmatched performance.
We also use the Polkadot ecosystem to bring more liquidity to the platform through parachains without compromising on security.
4. How is the Polkadex Orderbook going to be advantageous for the traders?
Simply put, we will gather all the best features of centralized and decentralized exchanges in one platform, so the traders accustomed to both will hugely benefit from Polkadex.
We combine ease of using the platform with the highest level of security, fast feeless transactions, and advanced features for high-frequency trading.
Professional traders know a great difference between trading on an orderbook and an AMM-based exchange. An orderbook gives higher flexibility and more profit-making opportunities for a seasoned trader simply because of the fact that it has more controls and advanced trading possibilities. Even the opportunity to place market orders makes a big difference in the trading experience.
Plus traders have a whole range of tools to trade in a more efficient and professional manner. Many of the advanced trading tools that have been developed over the years were focused on orderbook based exchanges and applied on centralized exchanges only. Therefore, we believe that a decentralized orderbook exchange will be a huge value addition for the trading community in the cryptosphere.
5. What is Decentralized KYC and how would it protect the privacy of users?
Decentralized KYC is an innovative mechanism for verifying the users. Unlike the usual KYC process the user data is stored only in the user’s wallet and Polkadex, as a trading platform, never has access to it, hence there is no possibility of data leaks and security is very high in general. There is no sharing of sensitive user’s information to a third-party application.
We see decentralized KYC as a stepping stone to making DeFi a solid competitor to the traditional financial sector in the next few years due to attracting new players and new money with them.
By decentralizing KYC Polkadex can bring in institutional money to the exchange even though it is decentralized. This is possible because the liquidity available in the orderbook is traced back to an identified user allowing regulated entities to interact with and submit trades with Polkadex blockchain without violating their regulatory requirements.
6. DEXes usually shy away from offering fiat support to their users, how does the Polkadex fiat aim to change this?
This is another, and arguably the biggest, advantage of adding decentralized KYC to the platform – Polkadex can interact with regular banking channels and bridge fiat currencies to the Polkadex orderbook for extra liquidity and convenience for users.
Here we tackle another mission of DeFi in general that is making it easy for newbies. Mainstream users new to the crypto world can trade fiat for crypto as easily as clicking the button.
We are very proud of this particular feature, as it makes Polkadex one of the first decentralized exchanges with fiat support while still keeping custody of assets with the user. We sincerely believe that it is the way to trigger mainstream adoption of decentralized finance.
7. How are retail investors going to benefit from the IDOs launched on the Polkadex platform?
The success of IDOs made them a battlefield where only crypto-native and tech-savvy investors win nowadays. Retail investors are left out because they cannot invest a lot of funds to hold enough of launchpad’s native tokens or simply can not work their way through the manual process of whitelisting and participating in the IDO pool due to tricky UX.
Hence, IDOs are prohibitive to normal users and limit their access to some of the best projects in the crypto space.
Having to stake a large number of tokens to qualify for bidding means that opportunity is only given to a privileged few.
We believe that it is against the ethos of proper decentralization and the vision of open protocols. Polkadex aims to create an IDO platform on Substrate that will give an equal opportunity to participate to all retail traders. Each step of the process will be on the blockchain, thus benefiting…