Trading is the absolute core of the crypto world, but there are significant differences in the channels through which transactions are completed, as seen by different practitioners.
In centralized exchanges, the liquidity of the entire industry is almost carried, and the platform achieves high efficiency, good transaction depth, and fast transaction speeds in a centralized mode.
However, for the native world of public chains, decentralized exchanges based on smart contracts are the core of transactions on the entire chain, as well as the liquidity core of on-chain businesses. The token listing and trading rules of decentralized exchanges maintain the characteristic of permissionless transactions, similar to public chains, forming a distinct “threshold” difference from centralized exchanges.
If we look at each public chain individually, there will be a core decentralized exchange for each public chain, revitalizing the business and ecology of the entire chain. We can even see the “token business full chain” built around DEX on Ethereum and Solana.
In this cycle, the TON public chain has gained popularity, but the development of the TON ecosystem is still in its early stages. The DEX applications on the TON public chain are “few and functionally single” overall. Compared to the mature Ethereum and Solana, how should the DEX applications on TON develop?
Undoubtedly, Ethereum and Solana are currently the most mature in terms of DEX development.
Ethereum’s DEX has benefited from the long-standing development of Ethereum DeFi, while Solana’s DEX has benefited from the performance and ecosystem heat of the chain. The trading volume of its DEX has once reached a level comparable to centralized exchanges.
Next, let’s take a look at the development of DEX on these two chains.
The earliest DEX on Ethereum is Uniswap, which pioneered the AMM model. It uses token pools with proportional inputs as liquidity supply for trading pairs. In the iterations of the Uniswap application, V1 is the simplest version of AMM, V2 optimizes transaction matching and LP functions, and V3 introduces the ability to provide liquidity in fixed price ranges, friendly support for professional liquidity providers, and is the current running version. In addition, V4 is also being implemented, which includes features such as limit orders.
From the changes in iterative versions, Uniswap continuously upgrades the asset management functions for LPs while ensuring smooth user transactions. This represents the optimization direction of DEX.
In addition to swap and AMM LP, Uniswap has also achieved excellent results in other DEX business areas.
Firstly, MEV. During the user transaction process, the price of tokens in AMM pools fluctuates with the token ratio in the pool. At this time, MEV exists due to arbitrage opportunities in the transaction matching process of AMM pools, and the token transaction price also affects the reading of prices by other applications on the chain.
Therefore, Uniswap also has a natural advantage in MEV and Oracle.
In terms of MEV, Uniswap maintains a certain level of MEV resistance, guarding against higher transaction slippage due to MEV, sandwich attacks, and impermanent loss.
In terms of Oracle, DEX is almost the fastest source of trading pair prices and the most comprehensive source of trading pair data, which has led many DeFi protocols to choose the direct quoting scheme based on Uniswap’s DEX Oracle instead of external oracles like Chainlink. This allows DEX to provide “oracle” capabilities as one of the output capabilities for other DeFi data modules, such as lending protocols and derivative trading markets.
Uniswap represents DEX, but the fine-grained functions required in DEX business are supplemented by other DEX. There are many types of DEX on Ethereum, such as Balancer, Curve, Sushiswap, which have been developed for many years, as well as aggregator-type DEX like 1inch, MetaMaskswap, and Matcha.
Among them, the appearance of Balancer has made the liquidity center of DEX in on-chain applications more fine-grained. Firstly, Balancer introduces liquidity supply management: liquidity pools with different weights and multiple tokens, boldly changing Uniswap’s proportional liquidity pools to custom ratios and multiple tokens, which is beneficial for project liquidity supply and market value management. Additionally, Balancer has changed the launchpad’s purchase rules to LBP rules that are more favorable for users to obtain reasonable token prices, changing the impact of AMM pool front-running on transaction prices.
The existence of Curve mainly presents the market for on-chain stablecoin trading, providing liquidity for various stablecoins and pTokens. Stablecoins and pTokens are actually intermediaries in the DeFi trading process, and they are essential for on-chain transactions and business implementation. In the token’s economic mechanism, some of them also serve as buffers.
Taking a look at Balancer, Curve, Sushiswap, DODO, etc., besides the exchange of tokens, another important business is providing staking pools for LPs and pTokens to achieve asset compounding. These DEX not only aggregate the LP liquidity of AMM but also play a role as the supply chain for applications such as DeFi.
In summary, we can clearly see that on Ethereum, a mature chain has been developed based on DEX. However, when transaction confirmation speeds are fast enough or on-chain data feedback is fast enough, the corresponding business may evolve into another form. For example, Solana.
The difference between DEX on Solana and Ethereum is that the experience is almost the same as CEX, and if transaction confirmation is fast enough, the role played by DEX and aggregators is consistent. At this time, DEX is more concerned about “where the trading pairs and corresponding LP pools are” rather than “everyone is on my platform.”
Therefore, support for LP will become more fine-grained.
Since Uniwap V3 proposed the concept of fixed price ranges for LPs, all subsequent innovative DEX have added price management based on LPs.
On Solana, the most sophisticatedly designed DEX is Jupiter, and the most refined liquidity pool functionality is Meteora. Compared to Meteora, Jupiter not only has rich LP functionality but also focuses on token issuance, designing for user needs. For example, users can use Dollar-Cost Averaging (DCA) to perform batched token purchases.
In addition to DEX, almost all wallets on the Solana chain have transaction aggregation functions for on-chain trading pairs. With extremely fast transaction confirmation speeds, users no longer need to enter DEX to complete swap operations.
This reflects the design characteristics of DEX applications on high-speed blockchains: when designing the functionality, leave modular openings so that the functionality can be combined in a plug-and-play manner, allowing all user entry points to quickly integrate DEX trading modules and use the liquidity on their own DEX when needed for swaps.
Now let’s take a look at the current state of DEX on TON.
Compared to Uniswap, Balancer, Jupiter, and other DEX, TON has not yet seen (or has not yet launched) projects that can completely supplement all the functionalities required. However, after reviewing the publicly available project design ideas in the entire ecosystem, I discovered that the upcoming DEX middleware LayerPixel has the potential to complete the supplement of DEX functionalities on TON.
LayerPixel, incubated by the TON public chain’s launchpad TonUP, is a DeFi solution designed for Telegram Mini Apps and is officially referred to as Layer 1.5. It can provide wallet and DEX (multiple trading algorithms) services specifically for Telegram Mini Apps. In addition to launching PixelSwap directly for the C-end, it also provides an embedded SDK suite based on Telegram Mini Apps for other applications to develop swap functionalities.
TON needs corresponding roles in the entire asset-related full-chain scenario. This full chain includes asset issuance, asset trading, liquidity supply, oracles, asset pools, wallets, and more.
The IDO function is for token issuance. On Ethereum, there are regular grab-style IDOs and LBP-style auction-based IDOs. During the grab-style IDO, gas fees and token prices can easily be inflated, leading to artificially high prices at the beginning and subsequent sharp drops. The adoption of LBP reduces the competition among traders and allows prices to match expectations before considering buying. In the scene chain provided by LayerPixel, TonUP can provide IDO issuance with LBP rules added to the TON Launchpad.
After the IDO, tokens begin to provide liquidity and composite trading, and this is where DEX comes in.
LayerPixel’s Pixelswap is a DEX based on the weighted pool, similar to Balancer’s functionality. It supports LBP as an asset issuance method. This type of Dutch auction issuance is suitable for small and medium-sized projects with low FDV, which are the most common types of projects in the Telegram ecosystem, such as game/GameFi projects.
The finer the design, the more DEX LPs resemble mature LPs in centralized exchanges, actively ensuring the return on funds and isolating risks.
After token trading on DEX, the next steps are Oracle, Pool, and wallet businesses.
Oracle is the process of providing price feeds to external DeFi, DEX, aggregators, lending platforms, asset bridges, etc., based on real-time prices in AMMs. Based on rich AMMs, DEX naturally possesses this capability. Pool allows users to stake multiple assets for compounding. In a situation with abundant on-chain DeFi, multiple pTokens may exist. For example, many Ethereum DEXs provide exchange and staking services for Lido’s stETH. Finally, wallets provide a user interface outside of all trading platforms and, with the support of high-speed blockchains, offer an entry point for users. Through transaction aggregation, Launchpad combinations, and other parts, wallets can design all functionalities within the wallet and combine them with other applications.
To summarize, IDO, token trading, wallets, oracles, pools, and other parts are all designed within the business chain of LayerPixel, which, after contacting and communicating with their team, I found aims to supplement the design deficiencies of DEX on TON and hopes that the multiple functionalities based on LayerPixel will become TON’s DeFi middleware.
Currently, the news I have obtained is that the code portion of LayerPixel has been developed and submitted to auditing companies for review. For security reasons, the audit is conducted by two auditing companies in a cross-audit manner and will be officially launched on the mainnet after the audit results are completed.
In conclusion, after observing TON’s applications, it is evident that TON relies heavily on Web2. This design is meant to lower the barrier for Telegram users. However, based on the experience of multiple high-speed public chains, the official wallet of Telegram may be used more as a wallet verification tool in the future, assisting users in conducting more direct on-chain transactions to ensure asset security and the correctness of Web3 interactions.
For public chains, DEX is the place where on-chain vitality is released, and the goal of each DEX is to become a mature financial trading platform, providing users with precise and mature asset management capabilities.
TON has been thriving and its ecosystem value is continuously growing. At the peak of TON’s development, the data performance of project value will be concentrated in the trading pairs of DEX. Therefore, the more mature the development of DEX, the higher the chances for investors to seize opportunities.
