Redefining DEX and How Vee.Finance does improve user experience？

DEX based on the Automated Market Maker model (AMM) has proven to be one of the most impactful DeFi innovations. It has attracted a growing number of trading users by eliminating middlemen and relying on smart contracts that operate with users in control of their own assets and without KYC and identity concerns. The frontrunner, Uniswap, has reached over $400 million in daily trading volume and has surpassed the old centralized exchange Coinbase.

Despite the initial success, to accommodate the bottleneck in blockchain throughput, AMM reduced the market-making mechanism for crypto assets to two liquidity pools and a naturally adjusted exchange rate based on relative demand. While this model is simple, it does not cater to the liquidity providers and traders that make the ecosystem sustainable in the long term, resulting in several inefficiencies for AMM, including

• Capital inefficiencies. Since most DEXs are currently built on Ethereum, the latter is subject to performance problems, resulting in high transaction fees. Not only do traders have to pay high gas fees, but they also often encounter declining orders and partial transactions. The low level of liquidity is split between multiple incompatible blockchains and protocols, which means that the execution of large traders is very poor.
• Impermanent Loss. Since AMM pools do not automatically adjust the exchange rate and thus require arbitrageurs to buy underpriced assets or sell overpriced assets until the price offered by the AMM matches the external market price, this creates an impermanent loss for the liquidity provider. Thus, the biggest beneficiary is not the trader or liquidity provider, but the arbitrageur who is able to travel between exchanges and acquire cheap assets until the AMM pool is correctly priced. In the case of Uniswap, for example, users are required to provide two tokens (e.g. ETH/USDC) in a certain ratio when providing liquidity. As the ratio of the two tokens varies with market price fluctuations, users tend to suffer relatively large and unpredictable losses.
• Multi-token exposure. AMM is often referred to as ‘lazy liquidity’, which differs from the more flexible and agile approach of traditional market makers due to the fact that the price point offered to traders is uncontrollable. In addition, AMMs often require liquidity providers (LPs) to deposit two or more tokens in order to provide liquidity, thus often forcing them to take on additional asset exposures.

Although AMM DEX did its best to fix these problems, impermanence loss is a feature, not a bug. Therefore, it cannot be completely eliminated. For DEX to solve the chronic problems in development, the decentralized cross-chain lending platform Vee.Finance proposed its own solution.

Redefining DEX

Considering the development dilemma of Ether, Vee team chose to build cross-chain DeFi based on Avalanche protocol (Avalanche) at the beginning of the project. from the performance point of view, Avalanche belongs to high performance public chain, with TPS much higher than Ether, which makes Vee transaction cost much lower; and the confirmation time is significantly shortened, which can help users grasp the market in time.

From the market development point of view, Avalanche has recently gained greater market attention and the ecology is rapidly growing, including multiple tracks of applications such as wallet, DeFi, layer2, cross-chain, storage, NFT, stablecoin, which also provides Vee with rich users and asset classes.

Currently Vee has reached a strategic cooperation with Pangolin to support AVAX-USDT, AVAX-TUSD, AVAX-ETH, AVAX-WBTC, AVAX-LINK and other trading combinations. In the future, it will gradually dock to other projects in the Avalanche ecosystem to provide more liquidity support.

As a cross-chain DeFi, Vee is not only compatible with Ether, but also with various other smart contracts. Avalanche is not its end point, and it will cross-chain into other ecologies in the future to further capture users. More critically, Vee’s transaction model innovation is addressing most of the limitations that current AMMs have.

• Higher capital efficiency

The problem of robocalling on Ethereum is very serious, and the frequent activity of arbitrage bots makes users trade at worse prices, while also making the network more congested and transactions more expensive. The delayed confirmation of trades also prevents users from completing trades at the price they see, and by the time they can confirm a trade, it may fail due to slippage and other issues. Vee makes full use of the market depth and liquidity of different DEXs by integrating external DEXs to meet the volume needs of traders at different levels.

More importantly, Vee supports limit pending orders, which allow users to place orders at a fixed price or quantity, all of which are stored in the order book in the blockchain, and traders have free access to the relevant blockchain records. Vee’s algorithm aggregates and settles trades by traversing the buy and sell orders of its integrated DEX, and enables automatic execution, rather than only relying entirely on the price of AMM, greatly improving capital Utilization rate.

• Reducing Impermanent Loss

In terms of liquidity provision, Vee allows for asymmetric liquidity provision, far exceeding that of traditional DEX, and does not require users to provide pairs of two different currencies to trade on Vee; pledging a single currency, ETH or USDT, is sufficient.

For example, if Bob wants to buy AVAX with ETH, he only needs to deposit a single asset, ETH, into the Vee pool and then buy AVAX by borrowing a stablecoin or other Vee-backed crypto asset (with or without leverage). This not only reduces the user’s exposure to additional assets, but also greatly simplifies the understanding and management of the user and lowers the threshold for the user to become a liquidity provider.

Multi-mining

Through the innovation of the transaction model, Vee has made considerable progress compared with the existing decentralized platforms in the market. What’s more worth mentioning is the innovation of Vee’s incentive mechanism. Unlike other DeFi projects, Vee introduces multiple mining mechanisms, and all actions that contribute to the platform are taken into consideration, including liquidity mining, transaction mining, and invitation mining.

• Liquidity Mining

For depositors, depositing any idle assets into Vee will earn interest in addition to liquidity mining revenue. For borrowers, although they have to pay interest on the borrowed funds, the liquidity mining revenue they get will be enough to cover the cost of borrowing. It is worth mentioning that Vee has launched a stablecoin section, which is more friendly to miners or users who prefer low risk, and they can even use revolving lending to increase leverage (Vee sets a higher collateral rate for stablecoins than other crypto assets) to “pull” the platform’s wool.

• Transaction Mining

In addition to mining through deposits and borrowing, leveraged transactions on Vee can also be used to gain liquidity for mining. This means that by participating in leveraged trading, not only can you profit from the trading strategy, but you will also be rewarded by the platform representatives.

• Invite Mining

The Invite to Mine mechanism is a new feature coming to Vee. This feature incorporates the internet idea of referring new users to receive bonuses, allocating a portion of the pass incentive to invitees who help the community expand their reach, and incorporating this model into the platform’s overall mining mechanism.

Vee has specifically designed the invitation mining incentive model. When users invite their friends to contribute liquidity to the platform, direct invitees, indirect invitations and associated invitations will all receive the corresponding mining rewards. In addition, the invitation income of referrer can be accumulated.

From the infrastructure to the transaction model and incentive model, Vee has built a complete scheme for running crypto assets. In the future, as the transaction volume and liquidity on Vee continue to increase, the platform will gradually enrich each product structure and push DEX to a deeper direction.