An unfortunate truth in our decentralized & permissionless world is that Centralised Exchanges (CEXs) are still the most dominant platforms for trading by a country mile. The limitations of a blockchain do not burden them which is why they can offer a significantly better user experience on an easy-to-use UI resulting in them absolutely dominating volume in the industry.
Centralised exchanges offer their own benefits (easy on/off-ramps with fiat, one-stop solution for all trading needs, sophisticated trading experience with complex order types). But they defy the very ethos of a permissionless ecosystem. However, a permissionless ethos is not enough to bring the masses on-chain. The fact of the matter is that DEX’s get dwarfed by their centralised counterparts - with the largest DEX (Uniswap V3) having just 5% of the 24-hour volume of the largest CEX (Binance).
But all of this doesn’t mean that there are no attempts by DEXes to offer the same sophistication and UX that traders need. They may be underdogs, but they sure as hell are putting up a great fight against the Goliaths of CEXes. And one of the most powerful David giving ‘em hell is…
Unstoppable Finance is a decentralised exchange that offers self-custody, decentralisation, and an efficient and seamless UI. It also offers sophisticated order types such as Limit, Stop Loss, and Take Profit Orders. The David of DEXes, Unstoppable - right from the beginning - offers margin trading products. It also allows one-sided LPing (Liquidity Providing) and helps cut out losses to Impermanent Loss.
Now, I have already written complete guides on Unstoppable Finance here and here. In this piece, we’ll go over the finer details of how Unstoppable is achieving its own mission of making centralised exchanges obsolete.
To facilitate margin trades on the platform, Unstoppable allows LPs to deposit their assets to single-sided liquidity pools (which means they can just deposit ETH and/or USDC). This is possible because all leveraged positions on the Unstoppable:DEX are backed 1:1 by the underlying asset. When someone wants to long $ETH, for example, they borrow $USDC from these LPs to buy it. And when someone wants to short $ETH, they borrow $ETH from these LPs and swap it for $USDC.
This ensures two things:
The Unstoppable protocol doesn’t need to step in and manage the funds provided by the LPs and the loans borrowed by traders.
LPs are neither exposed nor need to pay out traders’ profits.
The only risk that LPs are exposed to is that of liquidation i.e., if traders’ positions aren’t liquidated if the margin provided falls below a certain threshold. To avoid these situations, however, Unstoppable has a multi-layer liquidation monitoring system in place which we will discuss in detail in a future article.
The yields that LPs accrue from liquidity provisioning are a factor of the activity on the liquidity pool i.e., the greater the number of margin positions being opened and assets being borrowed, the higher their chances of accruing higher yield.
The single-sided liquidity provisioning allows for better returns even on RWAs.
A good indicator of any protocol/sector’s maturation in DeFi is its ability to provide sophisticated financial features that centralised exchanges offer. One of the reasons why the DEX market often gets dwarfed in front of the CEX market is that it is highly limited in terms of the features it offers. None of the biggest decentralised exchanges currently offer freedom to users when it comes to creating Limit Orders, setting stop loss and/or more. While protocols like SushiSwap and 1Inch do offer limit order functionality, they are limited in terms of offering other order types such as the Trailing Stop Loss and Dollar-Cost Average (DCA) orders.
Understandably, such freedom is very limited for low-liquidity and high-volatility assets, which further exposes traders to risks of slippage and - sometimes even - no execution of their orders.
The Unstoppable:DEX provides all the sophisticated order types that are usually provided by other centralised exchanges but are not offered by even the biggest DEX today.
Buy and Sell Limit Orders: These are orders where traders can decide the limit at which their orders should be executed. Thus, when that limit is reached the orders are executed. These limit orders are fully non-custodial and have zero fees!
Trailing Stop Loss: A trailing stop order helps protect an investor’s assets when its price is moving against their favourable direction. On the Unstoppable:DEX, traders can set the stop price below the market price with a “trailing amount”. This amount rises as the price of the asset rises. However, if it falls below a certain limit, then the stop loss is hit and the position is closed.
DCA (Dollar-Cost-Average): These orders allow traders to trade their assets at specified intervals without taking into account the market price of the asset. These orders continue to run until the trader’s wallet runs out of funds.
The Unstoppable team successfully created the various order types (Spot Limit and DCA orders) during April itself, and several users have been using them since then seamlessly. This helps save traders circumvent two of the many challenges that they currently face:
Missed opportunities: Imagine missing out on trading a highly volatile asset just because of the inevitable delay when it comes to connecting your wallet at the right time and at the right price!
No need for constant monitoring: Now, users needn’t open hundreds of tabs on various DEXes to see which one is providing the price at which they’d like to get in. Moreover, they also needn’t worry about losing their money overnight - thanks to the Trailing Stop Loss!
Efficient Margin Trading
Most DEXes don’t easily allow the listing of long-tail assets because of the low liquidity and high risk that those assets have. This renders these assets exposed to opportunity costs for their holders. This problem would get aggravated as even decentralised protocols would find it hard to list these assets - thanks to their decentralised governance structures. To avoid the risks that arise from long-tail assets, most decentralised protocols find other ways to list them. In the case of perpetual DEXes, the problems associated with long-tail assets are aggravated. This is because these DEXes offer margin trading in two ways.
- The perpetual contract tracks the price of the underlying asset, but to ensure that it correctly tracks that they often use funding rates (which further entices market makers and traders).
- The exchange pays out for traders’ wins; this requires healthy management of funds by the exchange itself (regardless of whether it is centralised or decentralised).
Unstoppable:DEX does not rely on these perpetual contracts to offer their trading products. This approach allows Unstoppable to offer trades that are 1:1 backed by the underlying assets hence providing under-collateralized borrowing for traders. This helps avoid the need to keep Open Interest balanced.
The $UND Flywheel Effect
As I have written before, UND is the native token of the DEX and is based on a dual-token model. These tokens are only distributed via public sales. Exactly 70% of the $UND supply i.e., 70M tokens start as $eUND. This $eUND token is an earned token that is received by those who provide value to the ecosystem. This creates an anti-whale and anti-dump-on-retail effect as no community members (and even advisors) can farm this token, drive its value up, and then dump it in the market. For those who wish to extract profitability from their $eUND, they need to sell it via OTC deals and user-generated markets.
$eUND tokens can be vested over a 12-month period to get $UND. This creates an effective moat around the Unstoppable protocol as users are more likely to stick around to the protocol and provide value. When they do, this creates a positive effect on the protocol (either via marketing i.e., bringing in new users, or by aiding in product development i.e., finding bugs and/or suggesting new products/features), which further brings more people in, thereby increasing the overall fees that the protocol generates - which further gets accrued in the $UND token.
After the fair sale of their token, the treasury has ballooned to 2,068 ETH which by the end of Q2 has 1,668 ETH; the rest of which has been utilised for various expenses such as providing liquidity to the UND/WETH pair, marketing, salaries, and other expenses. Here is a link to their Q2 transparency report.
The Unstoppable team has been building a monthly trading competition with a public leaderboard. These competitions will be sponsored by the protocol itself, they are slated to become self-sustainable utilising a portion of the trading fees generated by the protocol. This plan will also allow ambassadors/influencers to host trading competitions using their own referral codes.
Bringing RWAs on-chain
Unstoppable Finance has been focused on setting up bridges to port over RWAs to enable the seamless trading of those assets on-chain, enabling the trading of real-world assets on-chain (such as fiat currencies via FX swaps). Thanks to their single-sided LPing, the combination of on-chain yield from RWAs and LPing can be combined into a holistic offering of products to their users. Moreover, Unstoppable:DEX has a much greater likelihood of onboarding RWAs thanks to its decentralised infrastructure. Given the increasing regulatory scrutiny that centralised exchanges already face. While in the United States, crypto exchanges are indeed regulated by the Federal Trade Commission and Consumer Financial Protection Bureau’s authorities, these regulations can sometimes be confusing as they clash with each other in different states.
This creates a visibly ambiguous regulatory landscape for exchanges, leaving them at the hands of a slow process to effect regulations. While I do not say that it creates things easy for decentralised exchanges, it definitely opens up opportunities for more pertinent discussions around them without compromising on the permissionless architecture of DEXes.
Referral System and Ambassador Program
The Unstoppable team is also working on building a community-based marketing incentive, in which community members can apply to become “ambassadors”. In turn, they will have the possibility to participate in marketing bounties or generate their own content for Unstoppable and earn rewards.
In an attempt to revive the Arbitrum ecosystem and their previously launched Odyssey initiative, Unstoppable is launching a similar initiative known as Odyssey 2.0. Similar to its predecessor, this initiative aims to boost user engagement and help fellow DeFi explorers navigate through the thriving Arbitrum ecosystem. They have partnered with Tide to launch the initiative and it oversees a journey across various protocols such as SpartaDEX, GMX, Swell, and even Pendle.
The adventure ends with Unstoppable’s own redefined decentralised trading experience. Unstoppable aims to reward users for their active participation across these various protocols. To participate in the journey, register your interest here.
A good project in Web3 is measured by its focus on building a resilient permissionless architecture. I think Unstoppable crosses all the T’s and dots all the I’s to show that it plans to stay devoted to that. Unstoppable is not just a replacement for a crypto native’s trading needs but also provides the infrastructure, including spot swaps and single-sided LPing, for simplified savings and investment products accessible to everyone through the platform. This is comparable to a fully functioning large centralised exchange. One of the biggest hurdles when bringing over users from CEXes over to DEXes is the lack of a unified user experience. This is especially true in the case of perpetual exchanges. Unstoppable’s resilient attitude towards building a refined UX is a testament to their commitment to the growth of the DEX market. This will soon help bridge the gap between the DEX and the CEX market!
Keep your eyes peeled, for may we be seeing the beginning of the end of CEX supremacy.