The Crypto Explorer podcast: Swapping DEXes
Welcome to the written edition of our latest episode for The Crypto Explorer, a podcast by Sygnum, which takes you into the exciting world of crypto assets and Future Finance with conversations with leading figures in blockchain and finance.
In this episode, host Aliya Das Gupta and guests Mounir Benchemled, Founder of ParaSwap, and Martin Burgherr, Chief Clients Officer at Sygnum Bank, discuss DEXes aggregators and what this infrastructure brings to the crypto world.
Listen to the full podcast episode here.
Aliya Das Gupta: Could we start by explaining what is a DEX?
Mounir Benchemled: A DEX is an exchange, it’s a place where we can buy and sell crypto. Most of the DEXes started on Ethereum, but now we will see more and more blockchains have their own DEXes. The main difference between centralised exchange (e.g.: Binance) and decentralised exchange (e.g.: Uniswap), is that the DEX doesn’t have custody of user funds. For instance, in Binance users must deposit and trust that Binance will secure their crypto, while in DEXes there is a separation between trading and custody. Therefore, the DEX at the end is a software, and all it does is finding or matching the liquidity with the end user.
Martin Burgherr: I agree. I think there is also a slight difference that centralised exchanges are rather similar to order books, or we really see what kind of volume is placed at a certain price. Whereas it's more a dynamic curve, basically which underlines most of the DEXes that I'm familiar with, which really depend on how much liquidity users added to the pool. There is not actually an order book, per se; however, it's more an order book which is calculated based on the liquidity, I think that's also a bit of a difference.
It is very attractive to have this possibility of decentralised exchanges as they don’t have a listing process, but everyone can actually list a token if they are able to provide liquidity, that's also a key advantage. That's one of the key value propositions of Uniswap, the centralised exchange has power in saying: whoever wants to come to our exchange needs to pay a certain amount. With Uniswap it is just everyone who wants can actually use this software piece, provide liquidity, and then there is liquidity in an exchange for a certain token. I think that's a very attractive value proposition of what decentralised exchanges are actually offering.
Aliya Das Gupta: How did you decide to create the DEX aggregator, Mounir?
Mounir Benchemled: 2017 was the year where you couldn't miss crypto. It became an obsession to me, I would spend all my free time on crypto and reading white papers. It all started at the beginning of 2018. Ether Delta was the easiest place where you could sell the ICO tokens we bought if they were not listed on a Binance immediately. Like me, most people were really frustrated with their user experience. I thought, maybe we have a product market fit that users could benefit from: Why not build a better Ether ledger, like a real product that looks like centralised exchanges, but is decentralised. Even more decentralised than in the Ether Delta.
In late 2018 we had three or four DEXes and I thought that instead of adding another DEX and adding more fragmentation, I could do something different. Each DEX had like a million dollars in liquidity, maximum they would process like 100,000 a day. If we have one million for four DEXes, combining the four or five would give us five million that users would have access to. Here is where the idea came: why not build an aggregator that’s going to combine the liquidity of all and give a user a better service than going into every single DEX and not being well served. This idea started at the end of the second quarter of 2019.
I also thought it would be possible to do something even more interesting, make it a retail product. Something that would be compared to Coinbase that everyone can use with just a push of a button. So, I built an MVP and got a lot of excitement, but unfortunately it was not successful. Nobody was using this because the approach was very naive and it got a lot of questions. This gave me the insight that it might be too early for the markets, as there are still a lot of barriers to entry (nowadays might make more sense to have this product).
This led me into building a product for the DeFi niche, at this time DeFi was like 3,000 people on a Telegram group. There were a lot of builders and enthusiasts about decentralisation and decentralised finance. This is where ParaSwap really started - in making trading on chain better and introducing more efficiency. But not for everyone, mostly building an infrastructure for existing builders and early adopters. This is how ParaSwap evolved in a very short period of time.
Listen to the full episode here to learn what Mounir Benchemlad means when he talks about DEXes.
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