Hi all. Been catching up on the chat and forum. Some great discussion around getting organic users to the DutchX (both on trader+issuer side), MGN token, ENS moves, etc.
I think this is the most relevant recent thread for me to express a few thoughts.
The one thing I’d like to say is that, imo, through these discussions, we’ve actually effectively answered the question of what will drive users to DutchX. As @anxolin said: “For these projects an open protocol, community owned, audited and tested in mainnet with big volumes, with this level of transparency and front-running resistant should be appealing.”
Specifically, I don’t think users will go to the DutchX just because it’s cool and different (which it is :). To me, the dutch auction mechanism is superior in several cases:
1- As a market mechanism, it lends itself to being truly decentralized. No off-chain components needed. No single operator that is responsible for some function (matching). It can really operate as a DEX, and not as ‘just’ non-custodial. (Both have clear merit in different instances, imo). Given that the mechanism ‘can just run itself’, the governance also needed to ‘just run itself’, or be distributed enough to (hopefully) operate where/how other venues may not be able to. The dxDAO has/will accomplished this. It owns the exchange, so ~no one owns the exchange. (I am no lawyer).
2 - The interfaces are the ‘weakest link’. As we’ve seen, the dxDAO is already on this with ENS+IPFS proposals and discussion.
While the above is awesome for decentralization’s sake, I believe this may be most attractive & valuable for project tokens that are purported to be utility tokens, but perhaps didn’t have the budget/ability to receive a lawyer letter attesting to that - or didn’t have the budget to pay listing fees on centrally-controlled venues. Or maybe they really are some new digitally native quasi-security and just won’t wait for regulation to catchup. And of course, all this is attractive for said token’s community who want to trade it. + Bonus for not having to KYC themselves to trade. [Or… not bonus, if institutions also want to trade it, but need known counterparties…again, both have merit.]
3 - After 1 & 2, I think we must consider why a token - and its traders - would find a home on the DutchX vs other protocols/products that also satisfy 1&2. For the sake of comparison, let’s say only Uniswap satisfies 1&2.
Uniswap has had some nice success thus far due to its simplicity. It’s great to use. Where it lacks, is precisely where DutchX can thrive: A) low liquidity situations, B) front-running, C) unknown price.
[C can be considered a subset of A].
So if a trader wants to trade a large amount of a token (relative to the pool of token+ETH deposited in Uniswap) there will be significant slippage. When that’s the case, maybe they also look to Kyber, which often has tighter spreads (and actually uses Uniswap as a reserve market in backend). For a really large trade, maybe the DutchX is the last/best/only option.
>>So, should DutchX be positioned as home of the large trades, deep volume & whales? Could very well be.
Further, I think a really cool aspect of DutchX is for price discovery. Maybe even ‘thee’ price discovery - as in when a token is first traded on the open market. What is the price? Who the heck knows. Typically need market makers to leave a bunch of orders on both sides of the presumed price, and see what happens. Lots of room for error or malfeasance there. Putting up an initial large block of tokens on the DutchX and discovering price is attractive. Of course, after that first auction, we still want the trading action to persist there. Which it could, once that token community supporters are there in the first place.
>>So, should DutchX be positioned as home of price discovery for (new) tokens? Could very well be.
Finally, the front-running issue. DutchX is really a nice mechanism here, as all winning bids clear at same price. It’s not susceptible to the problems that are quite pernicious on open on-chain DEXs (Uniswap), or that can happen behind closed doors by the order-matcher via non-custodial DEXs.
>>So, should DutchX be positioned as impervious to front-running? Could very well be.
These are just my two cents. I could be off with some of the facts, and some of my reasoning. What’s clear is that an exchange needs organic users - and those organic users will only be there if it is enjoyable to be there (or there is no alternative for that asset). Being the go-to venue because there is no alternative actually seems like a pretty strong position! Especially in account-less systems, if they and their metamask can just hop over to another venue to trade (quicker, cheaper, or with less cognitive load), they will. The things working against DutchX, imo, are slowness and need for education. As we see, slowness could have great benefits… just need the education :).
To end on a semi-actionable note: given the above, seems like a good niche to target for DutchX trading (on the eventual dxDAO-run ENS interface) would be a new project token, not listed elsewhere, with ‘unknown’ price, and with a strong community. No fees to lawyer, centralized exchange, or even market makers. Project team puts up an initial block for their strong supporters to bid on. Like this, both the project and the traders are very motivated to use DutchX. In fact, they kinda need to. After that, DutchX is their preferred spot. dxDAO benefits in earning trading fees henceforth. Curious if others here think this is the initial market to go for?
I find targeting the other above-mentioned audiences that tie into DutchX strengths would be harder to target initially: Whales - how do we reach them. Other big traders/institutions - may need KYC’d counterparties, Professional (very price sensitive) traders not keen to be front ran by miners - can likely go to a ‘reputable’ CEX and just trust them. I could be wrong about this. I think eventually all these can work, just needs time. Would love feedback.