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The evolution of decentralized exchanges: A comparative analysis

The cryptocurrency world is undergoing a transformative phase as DEXes consider pivoting from AMM models to the more traditional order book structures.

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The cryptocurrency world is undergoing a transformative phase as DEXes consider pivoting from AMM models to the more traditional order book structures.

Let’s dive into the evolution of DEXes as we explore the shift from automated market makers (AMMs) to the time-tested order book model. We must understand the inherent advantages and challenges of each approach, and discover how UTXO-based blockchains can reshape the trading landscape and bridge the gap between traditional finance and the dynamic world of crypto.

Quick takes

  • DEXes address centralized exchange challenges, but centralized platforms still offer superior trading functionalities not found in Web3.
  • The AMM model revolutionized DeFi but comes with limitations like impermanent loss and slippage.
  • Order book models offer transparent price discovery and are highly compatible with UTXO-based blockchains.
  • The crypto landscape is shifting from AMM-based DEXes to order book structures, bridging centralized and decentralized trading.

The emergence of DEXes: Addressing centralized exchange limitations

Decentralized exchanges (DEXes) have risen as alternatives to the challenges presented by centralized exchanges, which include vulnerabilities to hacks, obligatory KYC verifications, opaque account management and control over private keys. Yet, centralized platforms play an indispensable role, serving as gateways for beginners into the cryptocurrency realm, acting as guides into this new industry. 

Traditional exchanges have often hinged on the order book model to optimize capital use and enable dynamic price discovery. In contrast, many modern DEXes utilize the AMM system, which brings its own set of inefficiencies and challenges to be delved into subsequently.

For DEXes to resonate with and be adopted by mainstream financial entities, they may want to consider integration with an order book architecture, thereby appealing to seasoned traders searching for advanced functionalities currently only found in traditional financial systems.

AMM: A revolutionary shift in the DeFi landscape

The introduction of the AMM model marked a pivotal change in the DeFi ecosystem. The drive to embed the order book system within DEXes led to the evolution of the AMM model, an idea expounded by Ethereum’s co-founder, Vitalik Buterin. This innovative approach addressed the lingering liquidity challenges that had previously hampered the widespread adoption of DEXes on platforms like Ethereum. As a result, the majority of DEXes operating on both Ethereum and BSC have since embraced this model.

Limitations of the AMM model

The primary challenge faced by AMM DEXes is the phenomenon of impermanent loss, where the price fluctuation of tokens inside a pool can sometimes lead to liquidity providers securing less value than if they merely held their assets. Additionally, the model is prone to slippage, especially in low-liquidity pools, resulting in trades that may be executed at less favorable rates. AMMs demand equal values of both tokens in a pair, which isn’t always capital efficient, and the price determination is based on the asset ratio in the pool rather than genuine market dynamics, occasionally causing less accurate price representation.

Furthermore, the AMM design can inadvertently open doors for arbitrage opportunities. While these arbitrageurs help maintain price uniformity across markets, they do extract value from the pool, potentially affecting liquidity providers adversely.

Finally, the absence of diverse order types, like limit or stop orders, restricts strategic trading. 

The order book model

Order book-based exchanges are the prevalent standard in global financial markets. At the core of these exchanges is an order book, a dynamic, continually updated list of buy and sell orders.

This mechanism facilitates transparent price discovery, as traders can directly see the supply and demand at different price levels. Furthermore, it offers traders flexibility in executing different types of orders, such as limit or market orders, ensuring that participants can implement nuanced trading strategies.

The real-time nature of the order book also provides insights into market depth and sentiment, crucial for both institutional and retail traders. The adoption of the order book model across major global exchanges underscores its reliability and effectiveness in maintaining market integrity.

Why UTXO-based blockchains work well with order book systems?

The order book model is especially suitable for UTXO-based blockchains trades can be made peer-to-peer as opposed to aggregated into liquidity pools. Moreover, transactions are processed with high concurrency, enabling faster order matching, while maintaining full transparency into the order book state and trading history.

Furthermore, UTXO systems’ intrinsic capability to process transactions in parallel is highly beneficial for order book mechanisms, which have to process numerous disjoint buy and sell orders simultaneously. Therefore, intricate functionalities of order book operations — from order matching to settlement — can be automated in a computationally efficient manner, while benefiting from the security and reliability of smart contracts. 

In essence, adopting the order book model on UTXO-based blockchains could help bridge the gap between the centralized and decentralized trading worlds.

Final thoughts

The cryptocurrency world is undergoing a transformative phase as DEXes consider pivoting from AMM models to the more traditional order book structures. While AMMs offer unique advantages, their limitations have paved the way for the adoption of order book models, especially on UTXO-based blockchains.

Such a transition could help address the challenges of AMMs, merging the benefits of centralized trading with decentralized platforms. As DEXes mature, the fusion of traditional financial mechanisms with decentralized architectures holds promise, potentially revolutionizing the trading landscape, enhancing user experiences and promoting more extensive adoption of DeFi platforms.

The future of crypto trading will likely involve features from the intersection of the two — bridging the realms of traditional finance and the burgeoning crypto universe.

CSO at Genius Yield, a next-generation DEX & CEO at gomaestro.org a Web3 infrastructure provider.


This article was published through Cointelegraph Innovation Circle, a vetted organization of senior executives and experts in the blockchain technology industry who are building the future through the power of connections, collaboration and thought leadership. Opinions expressed do not necessarily reflect those of Cointelegraph.

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The Fed’s Big Problem, There Are Two Economies But Only One Interest Rate

The Fed’s Big Problem, There Are Two Economies But Only One Interest Rate

Authored by Mike Shedlock via MishTalk.com,

On average, the economy…

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The Fed's Big Problem, There Are Two Economies But Only One Interest Rate

Authored by Mike Shedlock via MishTalk.com,

On average, the economy looks OK. But averages are misleading. Several large groups of people are struggling. They all have one thing in common.

Case-Shiller home price index, CPI rent index, and the index of hourly earnings for production and nonsupervisory workers.

Who’s Unhappy?

Those looking to buy a home but cannot afford the record high prices, are not faring well in this economy.

The last great time to buy a home was in 2012. Over the next eight years, home prices moved further and further away from wages.

When the Covid pandemic hit in 2020, we had record QE, record fiscal stimulus, mortgage rates hit record lows, and inflation hit the highest levels in 40 years.

In response, home prices soared out of sight. Worse yet, the price of rent rose at least 0.4 percent for 28 straight months.

Rent of Primary Residence vs OER

Data from the BLS, chart by Mish

Rent vs OER Chart Notes

  • OER stands for Owners’ Equivalent Rent. It is the price one would pay to rent their own house, unfurnished without rent.

  • Rent of primary residence is just what one would expect. It is measured price of rent, unfurnished, without utilities.

Mass Confusion Over OER

Contrary to widespread myth, OER is a measured price with very minor imputations that do not matter. OER is designed to track rent prices and it does. It is a measured price.

Much of the confusion comes from a misquoted BLS statement on OER, emphasis mine.

The expenditure weight in the CPI market basket for OER is based on the following question that the Consumer Expenditure Survey asks of consumers who own their primary residence: “If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?

Note that these responses are not used in estimating price change for the shelter categories, only the weight.

People quote that question as if that is how the BLS measures prices. It doesn’t. Prices, except for minor, irrelevant imputations, are based on actual measured rents.

No One Pays OER

The problem with OER is the weight not the measure. No one actually pays OER. Rather, people pay mortgages.

Yet, OER it is the single largest component of the CPI with a weight of 26.769 percent. Rent has a weight of 7.671 percent.

Many people conclude that the CPI is overstated because no one pays OER. The problem with this idea is home prices are at record highs and home prices are not in the CPI at all.

Homes are not in the CPI because economists consider them a capital expense not a personal expense.

But so what? Inflation matters not just consumer inflation. The Fed has made a big mess of things by ignoring obvious housing bubbles.

30-year mortgage Rates

Mortgage rates courtesy of Mortgage News Daily, annotations by Mish

When the Fed slashed interest rates to zero, mortgage rates fell below 3.0% for an extended period allowing everyone to refinance at 3.0 percent or below. Most did.

OER rose from 332 to 403 between January of 2020 and January of 2024. That’s a gain of 21.4 percent.

Rent rose from 338 to 412. That’s a gain of 21.9 percent.

Whereas the renter is struggling, the homeowner refinanced lower putting extra money in his pocket every month.

Home owners also benefitted from rising wages, rising value of their home and a stable, not rising mortgage payment.

Winners and Losers

  • The homeowners are generally doing OK. The home ownership rate is 65.7 percent.

  • The 34.3 percent who rent are generally not doing OK.

The study did not break things down by home owners vs renters, but I suspect most of the use is by renters.

According to the latest CPI report, rent was up at least 0.4 percent for the 29th straight month. Shelter, a broader category, rose 0.6 percent. Food rose 0.4 percent.

CPI data from the BLS, chart by Mish

Whereas home owners have a fixed payment, likely refinanced lower than their initial mortgage, renters faces huge increases, not every month, but once a year, big bang.

For discussion please see Another Hotter Than Expected CPI Led by Shelter, Up Another 0.6 Percent

The stress is easy to spot by demographics.

Credit Card and Auto Delinquencies Soar

Credit card debt surged to a record high in the fourth quarter. Even more troubling is a steep climb in 90 day or longer delinquencies.

Record High Credit Card Debt

Credit card debt rose to a new record high of $1.13 trillion, up $50 billion in the quarter. Even more troubling is the surge in serious delinquencies, defined as 90 days or more past due.

For nearly all age groups, serious delinquencies are the highest since 2011 at best.

Auto Loan Delinquencies

Serious delinquencies on auto loans have jumped from under 3 percent in mid-2021 to to 5 percent at the end of 2023 for age group 18-29.

Age group 30-39 is also troubling. Serious delinquencies for age groups 18-29 and 30-39 are at the highest levels since 2010.

For further discussion please see Credit Card and Auto Delinquencies Soar, Especially Age Group 18 to 39

Generational Homeownership Rates

Home ownership rates courtesy of Apartment List

The above chart is from the Apartment List’s 2023 Millennial Homeownership Report

Those struggling with rent are more likely to Millennials and Zoomers than Generation X, Baby Boomers, or members of the Silent Generation.

The same age groups struggling with credit card and auto delinquencies.

On Average Everything is Great

Average it up as Fed and all the clueless economic and political writers do, and things look great.

This is why we have seen countless stories attempting to explain why people should be happy.

Krugman Blames Partisanship

OK, there is a fair amount of partisanship in the polls.

However, Biden isn’t struggling from partisanship alone. If that was the reason, Biden would not be polling so miserably with Democrats in general, blacks, and younger voters.

In addition to Biden’s Age and Senility, this allegedly booming economy left behind the renters and everyone under the age of 40 struggling to make ends meet.

Powell Pleads Patience

In Jerome Powell’s Interview with 60 Minutes, the Fed Chairman Tells 60 Minutes US Fiscal Path is Unsustainable

Powell: When high inflation really threatens to become persistent, we use our tools to bring down inflation. It’s very important for that young couple — and particularly for younger couples starting out who may not have great financial means, that we succeed in this effort.

60 Minutes: You’re asking the American people for patience?

Powell: Yes. And I think people have been patient and have been through a pretty difficult time. And I think now we’re coming through that time and starting to feel a little bit better about things.

Powell, Krugman, and most of the economic writers, even at the Wall Street Journal have not managed to figure out over a third of the nation is struggling.

Many Are Addicted to “Buy Now, Pay Later” Plans

Buy Now Pay Later, BNPL, plans are increasingly popular. It’s another sign of consumer credit stress.

For discussion, please see Many Are Addicted to “Buy Now, Pay Later” Plans, It’s a Big Trap

The study did not break things down by home owners vs renters, but I strongly suspect most of the BNPL use is by renters.

What About Jobs?

Jobs Soar but Full Time Employment Is Barely Changed Since May 2022

Nonfarm payrolls and employment levels from the BLS, chart by Mish.

But hey, that’s OK because on average, the economy is great. Or do we really mean, on average the stock market is great, and the average homeowner is fine?

Hello Mr. Powell

There are two economies (the homeowners/asset holders and everyone else). However, there is only one interest rate. Patience please says Powell.

Lowering rates risks risks fueling the housing bubble and the most expensive stock market in history.

Hello Mr. Powell, it’s your move.

Tyler Durden Wed, 02/21/2024 - 07:20

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Dozens Of Major Companies Say 2024 Will Be The Year Of Cost Cutting

Dozens Of Major Companies Say 2024 Will Be The Year Of Cost Cutting

We already know that the Biden administration and the BLS are ignoring…

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Dozens Of Major Companies Say 2024 Will Be The Year Of Cost Cutting

We already know that the Biden administration and the BLS are ignoring the massive layoffs happening across corporate America in favor of pushing some asinine narrative that 'Bidenomics', whatever that even means, is somehow creating jobs other than 2nd and 3rd jobs for senior citizens driving Uber when they should be retired. 

Now, it's becoming clear that 2024 could be the year when corporations continue 'cost cutting', which could mean a number of strategies, almost all of which result in less employees and less pay instead of more. 

Executives from various industries, including toy, cosmetics, and technology sectors, are cutting costs and jobs, even in profitable companies such as Mattel, PayPal, Cisco, Nike, Estée Lauder, and Levi Strauss, CNBC wrote this week.

Macy's plans to shut five stores and cut over 2,300 jobs, while airlines like JetBlue and Spirit offer buyouts, and United reduces in-flight services. This trend is driven by consumer caution and investor pressure for companies to adapt to changing demand and higher expenses, the report says.

Significant labor contracts in sectors like airlines and UPS have raised costs, challenging businesses accustomed to passing these on to consumers. Remember those celebrations people were having about UPS drivers winning their new contracts just months ago? UPS is already laying off drivers as a result.

Walmart is expanding its store network, contrasting with the broader cost-cutting movement. Major banks have already reduced their workforce significantly, anticipating economic shifts. U.S. companies announced significant job cuts in January, indicating a focus on profit optimization amid steady earnings reports without relying on substantial price or sales increases.

A full list of major companies that have laid off workers or implemented strategies to cut costs include:

  • Mattel
  • PayPal
  • Cisco
  • Nike
  • Estée Lauder
  • Levi Strauss
  • Macy’s
  • JetBlue Airways
  • Spirit Airlines
  • United Airlines
  • UPS
  • Meta (parent of Facebook and Instagram)
  • Amazon
  • Alphabet (parent of Google)
  • Microsoft
  • Warner Bros. Discovery
  • Disney
  • Paramount Global
  • Comcast (parent company of NBCUniversal)
  • Delta Air Lines
  • General Motors
  • Ford Motor
  • Stellantis
  • Chipotle
  • Wells Fargo
  • Goldman Sachs
  • Walmart
  • Target
  • Home Depot

Meta's restructuring in 2023 set a precedent for tech giants like Amazon, Alphabet, Microsoft, and Cisco to reduce their workforces. But the trend extends beyond tech, with UPS cutting 12,000 jobs and others in retail and entertainment also announcing layoffs.

Significant cost savings have been announced by major corporations, including Warner Bros. Discovery and Disney, with the latter aiming for $7.5 billion in savings.

Paramount Global and NBCUniversal have also trimmed their staffs. Cost-cutting measures have reached various sectors, including airlines adjusting services and deferring expenses, and automakers scaling back investments due to challenges in demand and EV adoption.

“You’re seeing a rebalancing happening in the labor markets, in the capital markets. And that rebalancing is still going to play out and gradually lead to a more sustainable environment of lower inflation and lower interest rates, and perhaps a little bit slower growth, said Gregory Daco, chief economist for EY.

He continued, telling CNBC: “You are in an environment where cost fatigue is very much part of the equation for consumers and business leaders. The cost of most everything is much higher than it was before the pandemic, whether it’s goods, inputs, equipment, labor, even interest rates.”

Even Chipotle is experimenting with robots to boost efficiency. These adjustments reflect a broader recalibration after the pandemic's disruptions, with companies aiming for a sustainable balance in a potentially slower economic growth environment.

Tyler Durden Wed, 02/21/2024 - 05:45

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Walmart Hits Record High After Earnings Beat, Despite Soft Guidance, Warning About “Choiceful” Consumers Spending Less

Walmart Hits Record High After Earnings Beat, Despite Soft Guidance, Warning About "Choiceful" Consumers Spending Less

Walmart shares hit…

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Walmart Hits Record High After Earnings Beat, Despite Soft Guidance, Warning About "Choiceful" Consumers Spending Less

Walmart shares hit a new all-time high after the largest bricks and mortar retailer reported earnings that beat expectations despite providing guidance that was marginally softer, as choosy shoppers nevertheless kept buying in its stores.

Here is what the company report for the final quarter of 2023:

  • Adjusted EPS $1.80 (excluding impact, net of tax, from a net gain of $0.23 on equity and other investments) vs. $1.71 y/y, beating estimate of $1.65
  • Revenue $173.39 billion, +5.7% y/y, beating estimate $170.66 billion
    • Total US comparable sales ex-gas +3.9%, estimate +3.2%
    • Walmart-only US stores comparable sales ex-gas +4%, estimate +3.12%
    • Sam's Club US comparable sales ex-gas +3.1%, estimate +2.99%
  • Change in US E-Commerce sales +17%, beating estimate +15.5%
  • Adjusted operating income $7.25 billion, beating estimate $6.79 billion

Of the metrics reported, however, the most important one is that Walmart’s same-store sales (ex fuel), rose 4% YoY for US stores (of which net sales was 3.% and eCommerce added 17%). Wall Street was expecting 3.1% so the number was clearly a beat and was driven by "strength in grocery, health and wellness, offset by softness in general merchandise", and was the result of higher transactions (+4.3%) offsetting average ticket prices, which dropped 0.3% YoY. Still, the number is a far cry from the 8.3% comp sales a year ago.

In keeping with the noted softness in general merchandise, the world’s largest retailer delivered softer guidance for the current fiscal year, as it expects consumers to be selective in their spending:

  • For full-year 2025, WMT sees
    • Net sales +3% to +4%, slower than growth from the prior year, and adjusted EPS $6.70 to $7.12, slightly disappointing vs the median consensus estimate of $7.09
    • Capital expenditures approximately 3.0% to 3.5% of net sales
  • For Q1, 2025, WMT sees sees adjusted EPS $1.48 to $1.56.

Discussing the quarter, CEO Doug McMillan said that "we crossed $100 billion in eCommerce sales and drove share gains as our customer experience metrics improved, evenduring our highest volume days leading up to the holidays"

Commenting on customer "selectivity", CFO John Rainey said that “they are being choiceful" as consumers continue to spend less per trip but have been shopping frequently, adding that the company expects some resilience to continue for the rest of the year.

There was more good news: Walmart is gaining share in nearly every category, according to Rainey, with e-commerce among the factors driving growth as the company trims losses associated with handling online orders. Furthermore, while deflation is still a possibility, the company expects it to be less likely based on what it observed during the latest quarter.

That said, while grabbing more spending with low-priced groceries and other basics, Walmart has been cautious in recent months about the health of the consumer amid persistent inflation and higher interest rates. As noted above, US consumers have been buying cheaper products and seeking value, as they pull back from discretionary products like general merchandise. That has resulted in softer sales for some retailers, including Target Corp. and Home Depot Inc. Other big-box retailers are set to report their quarterly earnings in the coming weeks.

As Bloomberg notes, the recent moderation in inflation is another challenge for Walmart and other retail operators that have passed down price increases to consumers over the past few years. This has contributed to higher dollar sales for companies, followed by an uptick in revenue during the pandemic when people bought more groceries and home goods. Such increases are slowing overall, though inflation remains stubborn in some areas like groceries and shelter.

Similar to all of its major competitors, Walmart has been beefing up automation in warehouses and stores in recent years, while remodeling locations to make them more modern. Pickup and delivery businesses continue to expand, driving share gains among upper-income households and fueling growth of the Walmart+ membership program.

Separately, Walmart said it agreed to buy smart-TV maker Vizio Holding Corp. for about $2.3 billion. The deal would accelerate the retailer’s advertising business, called Walmart Connect, and help Walmart and its advertisers engage more with customers. Walmart has been expanding Walmart Connect and other nonretail businesses that have faster growth and better margins. The deal announcement confirmed a Wall Street Journal report from last week. Vizio shares soared 15% in Tuesday premarket trading.

As for WMT, the Bentonville, after the stock gained 16% over the past year, it jumped another 5.7% on Tuesday rising to a new all time high as investors were clearly satisfied with what they saw.

Full investor presentation below (pdf link)

Tyler Durden Tue, 02/20/2024 - 10:17

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