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Examples of Decentralized ExchangeBy Abhishek Singh | June 12, 2018, 8:01 a.m. GMT
This blog is a continuation of Introduction to Decentralized Exchange, earlier we discussed its pros, and cons and today we will see examples of Decentralized Exchanges.
0x Protocol is a decentralized exchange on Ethereum Blockchain. It was founded in October 2016 by Amir Bandeali and Will Warren, who are strong believers and advocates of Blockchain’s disruptive power.
0x Protocol lets you buy or sell ERC20 tokens. While the trade largely occurs on-chain, the order books and other activities are done off-chain. When an order is requested, it is stored off-chain initially and then moved as trade, for storage on Blockchain in smart contract, when a counterparty accepts the order. This was done to reduce the gas requirement and make the process more efficient.
Most of the decentralized exchange keeps the centralized order books. Thus, all the orders, when not filled, are centralized. Centralized order books are a potential point of failure. A decentralized exchange with centralized order books looks like this:
The 0x Protocol is made up of order broadcast protocols called “Relayers.” The job of the relayers is to store a local order book and broadcast orders to the network. Once the order is broadcast, it will get fulfilled and the trade will be stored on Blockchain. The relayer gets fees in ZRX token. Point-to-point orders which are targeted at specifics taker is also supported.
This is how trades are executed in the Ox protocol:
- Maker creates an order and relays it to the relayer.
Here, the maker can choose one of the multiple available relayers.
- Takers will check relayer order books to find a trade and when they see a favorable trade, they will send the address, fee, and the exchange funds to the Ethereum smart contract while the contract automatically executes the transaction along with the fee payments
Kyber Network was founded in 2017 with LoiLuu at the helm as the CEO. Kyber Network is a decentralized exchange that provides on-chain exchanges of cryptocurrencies. It is quite similar to the 0x protocol but is completely on-chain and has no order books. Kyber has done this to counter the costs of maintaining the order books and to solve the low trade volume issue of the decentralized exchange. More than exchange, the Kyber network works as a medium to transfer cryptocurrency from one person to another.
For example, Bob owes Alice 1 ETH but Bob has OMG that he can transfer to Alice. Here’s where the Kyber Network comes into the picture; Bob gets the exchange rate of OMG to ETH on Kyber. Then he sends OMG worth 1ETH to Alice. Here, the Kyber contract confirms that Bob has sent enough OMG in contract conversion. On approval, it will be sent to Alice’s address. To Alice, it would look like the asset has come from Bob’s address, not from Kyber’s.
Kyber entities and their roles:
Users are the one who sends or receives coins to/from the network.
- Reserve Entities
The job of the reserve entities is to bring liquidity to the platform. They are either internal or hosted by a registered third-party. They can be public or private depending on whether the public is contributing to their reserves.
- Reserve Contributors
The job of the reserve contributors is to provide funds to the reserve entities. They’re only associated with public reserve entities and share the profits from the reserve.
- Reserve Manager
The job of the reserve manager is to maintain the reserve, calculate exchange rates, and enter them into the network for the users.
- Network Operator
The job of the Kyber network operator is to add or remove reserve entities, as well as controlling the listed tokens. Initially, the Kyber team will play this role but this will eventually be handled over to a proper decentralized governance.