The Revolutionary Impact of On-Chain Barter from the Perspective of Liquidity

The evolution of DeFi liquidity technology and the transformative impact of on-chain barter are two closely related themes. The development of decentralized exchange (DEX) markets illustrates that the emergence of on-chain barter transactions is no coincidence; it represents an important chapter in the history of Web3 builders. Achieving its functionality requires significant innovation and improvement, not only within the DEX but also at the underlying infrastructure level.

01. The Loss of Control in the Rhythm of the Crypto Industry

Since January 2023, the price of Bitcoin has risen significantly, but most altcoins have performed poorly. Some investors mock true innovation and view the crypto world as a criminal domain. Many veterans feel confused and begin to question the original intentions of entering the industry.

One important reason for this situation is that the self-expansion within the cryptocurrency market is no longer sufficient to provide the necessary Liquidity for the crypto ecosystem. Since 2018, the market share of non-stablecoins has been continuously declining, with the vast majority of trades being provided Liquidity by USD stablecoins. If the market capitalization of USD stablecoins cannot continue to expand, the liquidity pool will be drained as new coins are continuously issued.

Now, cryptocurrencies follow the Wall Street clock. The emergence of stablecoins like Tether and USDC, as well as the launch of Bitcoin futures, has allowed Wall Street to not only physically influence the crypto market but also psychologically impact the liquidity within the market. Stablecoins serve as bait thrown by the U.S. government, replacing the liquidity role of native crypto tokens and undermining the credibility of other tokens, while the dollar gradually dominates the market for universal equivalents.

In this way, we have lost control over the rhythm of the cryptocurrency industry.

02, The Millennium War of Liquidity

Liquidity is always the true demand of the market. High liquidity reduces trading costs by minimizing slippage and increasing trading volume, helping to find more accurate price information. Currency is an innovation aimed at alleviating liquidity issues, a product that addresses market liquidity.

With the emergence of blockchain technology, we are facing new limitations and touching on new opportunities to solve liquidity issues. Contemporary token exchanges are confronted with the trilemma of sufficient liquidity, effective pricing, and decentralization. Decentralized exchanges innovate to address this dilemma and other on-chain trading challenges.

Uniswap's joint curve innovation has ushered in a new era. The subsequent automated market makers (AMM) created liquidity pools and continue to optimize. Curve Protocol developed supply liquidity curves suitable for stablecoin trading. Hashflow established professional market maker pools (PMM) connecting on-chain and off-chain liquidity. Friend.tech and Pump.fun designed curves more suitable for small-scale tokens.

The maximum extractable value ( MEV ) is another race for on-chain liquidity. Projects like Flashbots, Eden Network, and KeeperDAO are trying to solve the MEV problem. Projects like Cow Protocol utilize auctioning interaction rights to keep MEV within the transaction process.

As the liquidity of tokens is dispersed across different blockchains or Layer 2 solutions, DEX aggregators and batch auction mechanisms have emerged to integrate liquidity from these different pools. The batch auction mechanism introduces a new market mechanism to alleviate liquidity constraints.

03. Barter Trade Returns to the Stage

Decentralized Exchange ( DEX ) is commonly referred to as an "exchange" platform, where there is no universally predetermined equivalent role in its trading model. Traders can use any tokens they prefer to swap for other tokens.

Batch auction smart contracts collect trading intentions. If the intentions match, there is no need for stablecoins pegged to the US dollar. This matching of barter demand is based on the global market and stronger information matching capabilities, extending from the traditional culture of cryptocurrency barter.

Barter under bulk auction is an important milestone in the DEX era. It provides an opportunity to regain pricing power, giving us confidence that we can ultimately surpass centralized exchanges (CEX). Bulk auction is a phased achievement of continuous technological iteration of DEX, as important as the invention of liquidity pools.

04. Postscript

DeFi, as well as other fields, is making significant and exciting progress. As long as technology continues to advance and develop without stopping, what do we have to worry about? Dreams will definitely come true.

To all the industry builders forging ahead: "Do not worry about having no friends on the road ahead; who in the world does not know you?"