Delphi Digital Researcher UniswapX is Changing the Landscape of DEX

Delphi Digital researcher, UniswapX, is revolutionizing the DEX landscape.

Author: Ashwath, Source: Author’s Twitter @ashwathbk; Translation: Huohuo/Baihua Blockchain

UniswapX is a liquidity aggregator that enables on-chain execution using off-chain liquidity sources. As far as current information is concerned, it is the first platform that explicitly considers incorporating liquidity from centralized exchanges (CEX).

I believe UniswapX will change the landscape of decentralized exchanges (DEX), and here are some of the author’s analysis:

In my opinion, UniswapX is a default recognition of leading decentralized exchanges (DEX), indicating that they do not believe on-chain markets can achieve optimal execution.

It is quite commendable for market leaders to come to such a conclusion and actively build products around this assumption.

But this poses an existential question for automated market makers (AMM LPs)…what will their future development look like?

If UniswapX becomes the default front-end for “Uniswap” and successfully becomes the most widely used aggregator, it will inevitably change the landscape of decentralized exchanges (DEX).

Market makers who choose to passively provide liquidity on Uniswap will eventually become a liquidity pool that absorbs a significant amount of liquidity flow that others are unwilling to fill (often referred to as toxic flow).

Logically, this will result in a decrease in market makers’ net income, and people will withdraw liquidity from Uniswap.

Therefore, larger market makers/market makers are better suited to be problem solvers rather than automated market makers (AMM LPs).

They can transfer inventory from Uniswap v3/v4 to centralized exchanges like Binance (BN), where they have full control over how to provide liquidity and can rebalance more efficiently.

Even individual market makers (if they have sufficient capital to make it worthwhile) can become problem solvers with certain technical knowledge and better control liquidity provision.

Therefore, in this case, is the customization of Uniswap v4 irrelevant? To some extent, I would say yes. In my opinion, there seems to be a significant shift in user behavior and interaction in the DEX landscape.

This makes the proposal of DEX with miner value extraction (MEV) very interesting.

Products like DFlowProtocol, which enable token-enabled order flow auctions, suddenly seem not impossible anymore.

From a decentralized perspective, all of this is far from ideal. We are providing better execution for on-chain traders, but at the cost of increased reliance on market makers/problem solvers and other intermediaries.

The only way I can think of to prevent DeFi from relying on liquidity intermediaries is to make significant breakthroughs in AMM design, achieve efficiency similar to order books, and maintain the experience of passive market makers.

These are all my personal opinions, which may not be entirely correct. Feel free to engage in discussions and exchanges.