The Next Generation of Crypto Exchanges Has One Big Missing Piece

Heralded as a way to put true custody back into the hands of traders, decentralized exchanges have moved out of R&D phase and are enrolling early adopters.

In short, you need liquidity to get adoption, yet in order to get adoption, liquidity must be good, a fact acknowledged by even those who see the potential in more high-tech trading offerings.

These incentives usually come in the form of a rebate or reward that's exchanged for the guarantee a certain amount of what traders call "Order book depth" is maintained at all times.

Some centralized exchanges will even employ temporary strategies to solve the problem, such as market making themselves with their own capital, and will basically replicate order books from other more liquid exchanges to try to attract traders.

There are some practical issues: decentralized exchanges are limited to trade in cryptos only.

"Most investors/traders are already intimidated by bitcoin. So, to have them jump through hoops to trade on a decentralized exchange to trade a token with a tiny market cap causes a lot of people to give up."

The platform replaces the traditional order book with a kind of search engine called an "Indexer," whereby traders can announce their intent to trade, making them discoverable by their peers using smart contracts.

To fortify the open approach, 0x is looking at introducing features like a trade execution coordinator, or an embeddable trade widget for open order books that can allow wallets and other applications to monetize by simply rebroadcasting orders from other relayers.

The trade size is currently capped at SGD 5000 per trade for non-KYC'd users and SGD 10000 SGD for KYC'd users.

Combining the 0x protocol with a closed order book model is Paradex, founded by trading platform veteran Ron Bernstein.