Deep dive: Polkadex Orderbook
Learn more about our core product and how it sets Polkadex apart from existing DEXes and CEXes
Polkadex Orderbook is Polkadex’s core product. In simple terms, it is a fully decentralized Layer 2-based exchange featuring an orderbook built on the Polkadot Network. We have designed Polkadex Orderbook with two types of cryptocurrency traders in mind:
- Users of traditional centralized exchanges who enjoy speedy transactions, advanced trading tools and an easy-to-use interface but have to trust centralized operators and thus give away control of their assets and identity taking on more risk;
- Users of decentralized exchanges who retain control of their assets and thus lower their risk of losing funds, but have to put up with an inferior user experience, limited functionality of the platforms and network-specific issues.
Polkadex has been guided by the principle of combining the benefits of centralized and decentralized exchanges (CEX and DEX, respectively) and tackling the issues of both to address the needs of modern users and build the best product possible.
Centralized exchanges (CEXes)
CEXes tend to have user-friendly interfaces that make buying and storing crypto convenient and easy. They also have a wide functionality and provide their users with tools like limit and stop-loss orders, algorithmic trading, bot integrations and many others. The heavy regulatory landscape and the centralized nature of CEXes forces them to be actively compliant, which in turn favours the presence of institutional investors. The activity of institutional investors is very important as they contribute to increased liquidity which in turn keeps CEXes’ trading volumes high and improves the price efficiency.
As the name suggests, CEXes are centralized, meaning funds are held and operations are run by one central organization. For cryptocurrency exchanges, centralization comes at a cost and brings some serious disadvantages for users. First of all, the burden falls on security. Since centralized exchanges keep custody of the users’ funds, they are constantly targeted by hackers. While hacks to CEXes are not a very frequent occurrence, when they happen they are catastrophic and result in million-dollar losses.
Due to tight regulations around crypto, CEXes are also ticking privacy bombs as they often hold users’ identity documents in a centralized and non-private manner. This opens the possibility of potentially exposing their users’ personally identifiable information (PII) in case of a data leak.
Decentralized exchanges (DEXes)
Decentralized exchanges have changed the way people trade crypto. Users can trade privately and in a transparent, verifiable and trustless manner while retaining full control and custody over their assets. DEXes are exponentially more secure than CEXes as there is no central target to attack and, thus, there is a very low chance for users to lose their funds due to a hack.
However, the advantages of decentralization, so far, come at a price of multiple disadvantages.
Recently, DEXes on Ethereum have become synonymous with high fees as the blockchain gets overloaded and transaction fees skyrocket to over $100 at times of high demand.
Ethereum blockchain can process a limited number of transactions per second (ranging from 7 to 15 on average). Experienced traders know that due to the nature of blockchain they can put their transactions in front of the queue to be processed first simply by adjusting the gas fee. The practice of processing transactions with higher fees for a faster turnaround received the name ‘front-running’. Essentially it means that one trader ‘cuts’ another in the transaction pool by paying a higher fee, so the wealthiest trader wins.
In addition to network issues, the majority of DEXes are based on the automated market maker (AMM) model. It was pioneered by Uniswap and later replicated by other DEXes. Though AMM-based DEXes are easy to build from the development point of view, the model inherently limits functionality compared to traditional centralized exchanges. Users of the popular DEXes can only swap tokens on the platform. Such functions like performing limit and stop-loss orders, margin trading, bot trading and many others are not attainable when you trade on a common DEX. While some DEXes have experimented with orderbooks, they have primarily done so off-chain, thus exposing themselves and their users to single points of attack and losing verifiability.
Another major bottleneck of existing DEXes is liquidity on the platform. Usually, DEXes are limited to currencies on their native blockchain and, hence, to the liquidity available on that particular chain. Liquidity also comes from traders. As DEXes can not show they are compliant, they automatically loose institutional traders who bring large volumes.
Most DEXes cater to professional traders and crypto natives, who can easily navigate the platforms. However, they forget that user experience is crucial for newcomers and retail traders. Clunky and difficult-to-use interface, difference of functions on mobile and desktop along with the need to switch between devices alienate less experienced users.
Another pain point of DEXes in regards to casual traders is crypto-to-crypto trading only. DEXes don’t offer fiat support (fiat on- and off-ramp), so they are still reliant on CEXes to onboard users. This keeps the entry barrier to DeFi high and largely limits the number of traders and liquidity on the platform.
Meet the game changer: Polkadex Orderbook
At Polkadex we believe that all traders, no matter novice, professional or institutional, deserve to experience smooth trading on a superior platform. No thinking of the issues with centralized exchanges or the inefficiencies of decentralized ones, just the focus on making a profit and enjoying the trading process. We also believe that any function of a decentralized exchange that cannot be publicly verified is contrary to the mission of DeFi. Creating a platform that can address all the needs of modern traders is a tall order, so we don’t want to simply patch things up and settle for a mere compromise.
Our goal is to find real solutions to users’ needs and create an ultimate decentralized trading experience.
That is what we are doing with Polkadex Orderbook: bringing advanced trading features to the users of a non-custodial exchange. This makes Polkadex Orderbook an unmatched and unique gateway mechanism allowing users to trust a non-custodial operator capable of executing trades in a Layer-2 environment at a very high speed. Since the operator has no control over users’ funds, transactions on Polkadex are peer-to-peer and fully decentralized.
Polkadex Orderbook= best of CEXes + best of DEXes — any disadvantages of both
Features of Polkadex Orderbook
Broad functionality and advanced trading tools
We want Polkadexers to have a choice of trading options. We are bringing algorithmic trading, high-frequency trading, on-chain trading bots, and more to the masses! Polkadex users will be able to connect to the community’s favourite trading bots like Hummingbot or 3Commas through APIs. To continue the long list of available functionalities, traders will also be able to set limit and stop-loss orders, margin calls and more. All of the above in a decentralized manner.
Convenient and pleasant user experience
We made a bet on multiple devices, so you can choose your way to trade. With beautifully designed desktop, mobile and app versions, Polkadex Orderbook is super easy to use. Whether you are new to the crypto space and have no prior crypto trading experience, are an experienced individual or institutional trader or a crypto native looking for an advanced decentralized trading platform, we tried to create a solution for everyone.
Custody and security of funds
On Polkadex Orderbook, user funds always remain on the native blockchain and are controlled only by the user’s private key. The Layer 2 solution capabilities are limited to placing and executing trades, but never balance transfers. Only a user that has access to the private key can initiate a balance transfer.
Polkadex integrates fiat gateways and markets via fiat on-ramp and off-ramp functions. Essentially it means that you can buy crypto using your credit card and cash out your crypto assets into fiat in one click. This helps newcomers jump right into DeFi and will also allow for an increased institutional investment activities.
Polkadex Orderbook reaches the speed of up to 500,000 transactions per second and has a low latency of 20 milliseconds. Those numbers are currently unmatched in the industry and became available to us due to a technological breakthrough. Our R&D made Polkadex significantly faster than DEXes and even faster than some CEXes.
Zero gas fees
Polkadex Orderbook also keeps fees in check. As we are building on the Polkadot network and its Substrate framework, we eliminate any network fees. Feeless transactions are powered by our Layer 2 scaling solution on SubstraTEE (an abstraction layer for the Substrate framework of the SGX Trusted Execution Environment). All the orders will be executed by a non-custodial operator and sent back to the blockchain through TEE-implemented balance transfers. There are no fees for transfers since all the executions are happening off-chain, verifying and eliminating bad actors in the process.
Feeless transactions also solve another problem that plagues DEXes: front-running. Eliminating the network fee not only takes away the power to control the order of execution from users with deeper pockets but also cancels the economic incentive to engage in front-running in the first place. Thus feeless swaps level the playing field and give equal opportunities for every trader placing a transaction on the orderbook.
Interoperability between blockchains
Thanks to Substrate Polkadex builds an interoperable blockchain without having to worry about block production and consensus. Using parachains, Polkadex will create a single unified ecosystem that connects multiple blockchains and enables smooth cross-chain communication. For users, this translates into more coins available for trade on the platform.
Cross-chain liquidity support
Polkadex trustlessly taps into liquidity from other blockchains through the Polkadot Relay Chain network. Built for the future, Polkadex can also integrate with other liquidity providers via forkless upgrades.
With AMMs directly connected to Polkadex’s trading engine as on-chain market making bots, when a trade is not matched against the order book, the Polkadex Engine will check if the on-chain trading bots can make an order that will match. If they provide a better price, the trade will be executed. If not, the trade will be submitted as a market-making order in the order book. This ensures there is no slippage for traders.
Privacy and diversity of the ecosystem
Decentralized KYC keeps full privacy of the users’ personal data, but cuts off the possible harmful effect of anonymity on the exchange’s ecosystem. Adding this process Polkadex can offer fiat support, address the lack of institutional money that comes with no KYC on DEXes and make sure there are no illegal activities on the platform. All in all — continue to create a ‘best of both worlds’ decentralized exchange. Polkadex Orderbook users will be able to verify their identity while keeping their personal data and documents private. This means that Polkadex (or any other decentralized application you choose for proof of authentication) never has access to your personal details as they always remain stored in your wallet. It also means that you only go through the KYC process once and then can just use your wallet for automatic verification on multiple Web3 platforms that also use KILT Protocol. Easy, fast and secure.
How Polkadex makes it all possible
Spoiler: it’s not magic, but pure technology in play.
All of Polkadex’s game-changing features are made possible thanks to our sophisticated tech stack. Polkadex Orderbook’s architecture is unique in its combination of multiple technologies like blockchain, parachains, TEE, IPFS and other state-of-the-art technologies available in today’s blockchain industry.
We took single technologies, both recent and created some time ago, and cleverly packaged them into one well-oiled machine to suit all the requests of modern traders. Of course, we get some questions from sceptics every now and then asking how come no one else did it before us. However, this is the essence of innovation — everything is trial, effort and personal experience. At Polkadex we pay great attention to Research&Development, so we can not only release a unique product once but also keep the innovation flowing and constantly add new exciting features. We also try to question everything and have a different perspective.
Interesting fact: Polkadex is not only the first project to use the Substrate Abstraction Layer for SGX technology to build a decentralized exchange, but it is also one of the first use cases of this technology in general.
Polkadex Orderbook consists of four core parts: Polkadex Network, Trusted Execution Environment, Orderbook Engine and IPFS
- Polkadex Network is the native blockchain that contains the Polkapool (Polkadex’s liquidity pool-powered swap platform) and secures the actions of Polkadex Orderbook.
- Trusted Execution Environment (TEE) is a technology invented by Intel that allows modern CPUs to have an isolated section independent of the Operating System, BIOS and other core components of a computer. Its main advantage is that the computation executed in TEE is verified by the blockchain and any tampering in the logic will result in the blockchain rejecting the TEE. TEE handles the balance state management of users in the Orderbook. It prevents theft of funds, verifies the matched trades provided by the Orderbook Engine, settles trades and enables traders to reserve and unreserve assets on the native blockchain.
- Orderbook Engine maintains a high-performance Orderbook, matches trades and provides them with TEE for verification and settlement.
- IPFS or Interplanetary File System maintains a snapshot of the latest state of balance transfers. In case the hardware is corrupted or the network access is lost or if the operator itself is compromised or turns into a bad actor, the blockchain rejects all future transfers from the orderbook and returns the funds to its users within 12 seconds, the fastest recovery mechanisms available in the market today. This acts like an insurance policy for the entire exchange.
How does it all work together?
This diagram shows how Polkadex Orderbook technology stack works in sync to execute trades:
We hope this article has helped you see how, as a Polkadexer, you will enjoy the best of CEX and DEX worlds in a ground-breaking and easy-to-use non-custodial exchange. We are working non-stop and aiming to launch Polkadex Orderbook later this fall, so you can level up your trading game and focus on the most important aspect of your crypto experience, namely making profitable trades.
A sneak peak into what is to come
We are getting ready to show you a demo of Polkadex Orderbook interface already this Friday!
Any questions about Polkadex Orderbook left? Register for the event and ask our co-founders, Gautham and Vivek. See you on Crowdcast this Friday, July 9th, at 2 pm UTC.