What are the problems of decentralized exchanges and how can they be solved?

The rise of Decentralized Exchanges (DEX) changed many common assumptions in the cryptocurrency space and helped users better control their assets. At the same time, decentralized exchanges also face special problems such as lack of liquidity and high fees and confusing user experience.

The economic value of these exchanges is undeniable. Report Binance indicates that the transaction volume of decentralized exchanges was equal to 1 trillion dollars in 2021 alone. However, some problems of decentralized exchanges hinder the growth Financial affairs are decentralized. The need to process orders through smart contracts causes delays in processing transactions, and price slippage due to lack of liquidity along with high transaction fees are all important obstacles to the wider acceptance of these exchanges.

Meanwhile, some platforms such as Arox (Aurox) try to achieve an efficient combination of centralized and decentralized platform elements. In this article, relying on an article Written from Decrypt’s website, we first mention problems such as inter-chain bridging, lack of liquidity, high fees and cumbersome user experience on decentralized platforms. Then, we explain the solution that Arox terminal offers to avoid these problems. We suggest you stay with us until the end of this article.

What is interchain bridging?

Although some decentralized exchanges have provided solutions to reduce the entry barriers for small investors, the process of democratizing and universalizing access to the economy based on digital currencies has also put another serious issue in the way of decentralized exchanges: inter-chain bridging.

Interchain bridging is the transfer of assets from blockchain to another blockchain. Interchain bridges can increase the usability of tokens by improving interchain liquidity. In addition to improving liquidity, the efficiency of many DeFi protocols also requires the smooth transfer of digital currencies between different chains. Currently, this transition does not come with a pleasant user experience and can be costly.

Read more: What is Liquid Asset and Liquidity?

Giorgi Khazaradze is the CEO and co-founder of Arox trading platform. This platform is a combination of a centralized exchange with a decentralized lending platform. Khazaradze says:

Sometimes the user has to spend between 200 and 500 dollars just to transfer assets from one chain to another, and this is before paying the main transaction fee. It’s like transferring my money to another bank and then having to spend hundreds of dollars to get it back.

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Decentralized exchanges and decentralized finance in general are struggling with numerous problems, and it is no wonder that these platforms have so far failed to achieve mainstream market acceptance. One of the problems of decentralized exchanges is high and highly variable fees along with confusing and ambiguous user experience.

Khazaradze says:

Organizations probably with a look [به پلتفرم‌های معاملاتی]They see them as strange and complicated and prefer not to approach them. This also applies to small users, who probably won’t spend their time messing with this new technology.

Imagine this scenario: trading assets run out on the Polygon network. This user buys some Ethereum on the Coinbase platform to bring it to Polygon. To do so, the trader must go through a multi-step process and pay a bridging fee. In such a situation, it is possible that the user will give up his decision altogether.

Read more: 3 threats you should know about taking a loan from DiFi

Khazaradze says about this:

This huge problem weakens user interaction by creating a barrier between different chains. If the user experience is better, the cross-chain problems will be less.

Justin Wu, CEO and founder of DeFi Summit, says:

Addressing the problem of cross-chain bridging is the “next important step” in building a digital currency community. The ability to conduct transactions in different chains and their interactivity is ideal and the goal of all of us; But we are still far from it. With an increasing number of chains adapting to the Ethereum Virtual Machine (EVM), it’s easier to transfer assets these days. [بین بلاک چین‌های مختلف] Transferred. However, when it comes to other Tier 1 and Tier 2 blockchains that are not based on other ecosystems, [انتقال دارایی‌ها] It becomes a big problem.

Aroux; A combination of centralized and decentralized platforms

Arux is one of the platforms that tries to solve the problems related to inter-chain bridging and allows its users to exchange and trade and invest different tokens between chains without having to pay the initial bridging fee.

Usability problems, including variable exchange fees, are among the primary obstacles to traditional investors’ acceptance of decentralized exchanges. Khazaradze points out the importance of a simple and uniform user experience in all trading platforms and states:

The appearance of trading platforms should be similar and familiar to users and not confuse them.

The purpose of Arox trading terminal, which is fueled by URUS native token, is to become a digital currency trading platform that can cover all services in this field and help users make their transactions and investments easier by creating an interface between different chains.

Justin Wu says with a similar idea:

If we want to achieve mainstream adoption, we need to focus on more usability.

Arox centralized trading system provides users with a single platform that they can use to trade different types of assets. In addition, Arox’s decentralized lending protocol also helps traders borrow digital assets or use them as leverage for their trades. This lending protocol is powered by the DeFi lending pool with guaranteed prices for high volume orders.

Traders can make a profit by lending out their unused assets. In other words, in this platform, intermediaries do not have a chance to profit from arbitrage in digital currency lending. According to Khazaradze, this feature can improve the interest rate in Arox; Because users can execute their orders directly through the platform.

Read more: What is arbitrage in digital currencies?

In general, liquidity in decentralized exchanges is usually very small and token trading volume is not very high except for the top currencies. Meanwhile, the volume of transactions in centralized exchanges is very high and most of the trading currency pairs have the advantage of significant liquidity.

Referring to the characteristics of both types of platforms, Khazaradze considers the best conditions to be a “combination of these two worlds”, centralized and decentralized. In such situations, he explains, lenders can keep their money safe with a decentralized lending pool. At the same time, traders also have the opportunity to trade in a market with considerable liquidity.

The URUS token also works with the goal of realizing the same idea. Users receive a discount for paying their margin and trading fees with URUS. Also, traders pay lower interest rates and lenders can receive their income and profits in the form of URUS tokens, which come with a higher interest percentage. It is not bad to mention that the users of the platform can also benefit from the option of depositing and earning profit by investing the URUS token in their wallet.

Khazaradze summarizes his views as follows:

Our main goal is to facilitate trading for our users; Therefore, the next step is to focus on the decentralized aspect [پلتفرم آروکس] Is; Because people should be able to transact in decentralized exchanges in an interchain manner and with small fees.

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Decentralized finance is still in its infancy; Therefore, it is facing many serious problems. Various functions of DeFi, from trading to lending and other services offered in this space, all struggle with problems such as lack of sufficient liquidity and variable fees and complex user interface. Meanwhile, some platforms such as Arox try to combine the best advantages of centralized and decentralized platforms.

The founders of Arox see the secret of improving the efficiency and performance of decentralized finance for traders in combining elements such as the significant liquidity of centralized platforms with the accessibility of decentralized platforms. In this context, Arox strives to create a special trading terminal that meets all the trading needs of users by improving the user experience of people and increasing accessibility to centralized and decentralized platforms.

However, what determines the efficiency of terminals like Arox in practice is the rate of growth of the user base, the acceptance of trading and lending services, the achievement of broader agreements and cooperation, and finally, the provision of a favorable user experience, which can be used to evaluate the current and future status of this Check out the platforms.