Innovation is a key competency for any DEX to move forward.
Recently, Uniswap has released an official overview of its V3 release introducing the concepts of aggregated liquidity, range orders and multiple fee tiers. The innovative concept of “range orders” and the role of a “Maker pool” has brought DEXs and their development back into the spotlight.
However, the concept of “range orders” introduced in the Uniswap V3 overlaps with how a HipoSwap “Maker Pool” would operate ~ introduced by Gate.io last September.
What Dex Developments can we expect?
Is Uniswap “innovating” by introducing a HipoSwap Maker Pool duplicate?
The market is filled with DEX products with game-changing potential, and the prevailing AMM model is being constantly redefined.
At the end of 2018, Uniswap V1, as a decentralized exchange, showed the market what an automated market maker is capable of, wowing everyone and jumpstarting the birth of many copycats in the industry.
In the subsequent DeFi boom, Uniswap V2 was innovating in three main directions: flash loans, time-weighted price oracles, and profit calculations. These concepts were also recognized by the community.
With Uniswap V3, the “range order” feature is showcased as a unique concept, and it can be referenced to as an upgraded version of “Limit Order” found in CeFi. Since there is sufficient demand for laddered orders in the DEX market, this “range order” feature solves the problem of capital utilization near the order book.
Many media and industry analysts praised this as “one of the brightest improvements of Uniswap V3”.
However, this so-called “brightest improvement” was already introduced by Gate.io in September last year with the introduction of HipoSwap and its Maker pool, which provided a new solution to the market. The concept of “range orders” from Uniswap is almost identical to HipoSwap’s Maker Pools, except for a slight difference in the details of price settlements. It took 6 months before the “Maker Pool” concept was introduced in the Uniswap V3 overview, which overlaps with the concept from HipoSwap’s release. This signals a continuation of the DEXupgrade trend, but it also shows that DEX innovation is in the eye of the beholder.
Revisiting HipoSwap’s white paper, released last September, the solution is the same, and the official example given by Uniswap shows that this approach introduces the role of the Maker: if the current price of DAI is below 1.001 USDC, then Alice can sell USDC in the range of 1.001-1.002 DAI/USDC; If the USDC is greater than 1.002 DAI, then Alice’s USDC will be completely exchanged for DAI, and if the USDC is less than 1.002 DAI, then the exchange process stops.
In the considerable amount of time that Uniswap has taken to move to V3, the innovation that Uniswap has been most praised for by the market may have been lost. This loss of innovation is not only reflected in the fact that Uniswap introduced “range orders” almost half a year after HipoSwap did; additionally, there have been comments in the press that Uniswap’s innovation is preceded by DODO in the DEX track, although the two are slightly different: Uniswap V3 does not mention whether external oracles will be introduced, but DODO’s PMM model, which refers to quotes from external oracles, aggregates liquidity in LPs around the market price range.
Uniswap has also gradually moved from its initial open source stance to a semi-open platform, putting a protective shield over the code before the V3 release, which has left many community enthusiasts with doubts about its “innovative and open-sourced” attitude.
Since Chinese platforms and projects do not contribute much to industrial sharing and often copy each other from platform to platform, it is obvious that overseas projects do a better job in innovation. For example, Uniswap’s V2 version is a good example igniting a fire within the DEX market that benefited the whole industry. However, it should be noted that Uniswap V3 is open source, and it is unclear whether the innovative aspects of the “Maker Pool” model are protected by them, all whilst the “Maker Pool” idea was first proposed by HipoSwap.
HipoSwap debuts innovative ‘Maker’ model
Innovation is a key competency for any DEX to move forward.
In August last year, GateChain, a high-performance, highly decentralized and secured public chain went live. GateChain-based DeFi platform “HipoDeFi” was also launched showcasing HipoSwap, a protocol for decentralized exchange with low-slippage and high liquidity. The introduction of the “Maker” concept in a DEX, as a mechanism to optimize the AMM concept, was first proposed alongside HipoSwap’s birth.
Compared to the traditional order book model, the AMM mechanism has the advantages of automation, low cost and efficiency, but it presents certain challenges in regards to pricing, impermanent loss, slippage, etc., which have been the issues that DEX builders and their products have been trying to optimize for a while.
At that time, two shortcomings of DEXes represented by Uniswap, which used a CPMM, were:
(1) Impermanent Loss
(2) High Price Slippage Cost
Both the HipoSwap protocol and the recently launched V3 version of Uniswap have been upgraded with a focus on both of these challenges.
HipoSwap, which was launched much earlier, proposes an Automated Market Maker AMM exchange protocol. Based on the CPMM (Constant Product Market Maker), two single-currency market maker pools were introduced to provide a way for makers to place market orders and earn fees, improving liquidity around the market and effectively reducing the price slippage of the Taker. At the time of Uniswap V2, there was no Maker entry, only Taker and LP, which resulted in low liquidity, high slippage for takers and erratic losses for LPs.
According to information publicly available, HipoSwap was unique in its ability to reduce the transaction costs of Makers, regardless of the market’s ups and downs, and was very forward-looking in the DEX landscape at the time. The existence of the Maker allowed the Taker to gain liquidity through CPMM’s Liquidity Pool and to deal directly with the Maker Pool, and in doing so, reducing slippage.
In contrast to Uniswap, you can see that HipoSwap has taken on the style of the next generation DEX. With an identical CPMM LP pool liquidity and HipoSwap’s Maker Pool being fully funded, if the leverage is set to 10, then Taker’s slippage can be reduced to 1/10th of what it would have been if it had simply traded with the CPMM LP pool.
With such design, the main innovation of the HipoSwap protocol lies in：
1) Support engagement of single currency
For users with high trading volume who are not in a hurry to close immediately, they can provide liquidity to the market through Maker access, while effectively reducing slippage for themselves and earning Taker fees in the process.
2) Smoother trading curve
Only a small portion of the assets are traded in the LP pool and the majority of it is traded in the Maker pool, achieving a transaction cost close to the limit (in the HipoSwap protocol, if the leverage is n, then the slippage can be reduced to 1/n of the Uniswap model).
3) Lower Gas Costs
The HipoSwap protocol is simpler and consumes less gas. Also, the protocol can be customized to set the transaction fees for the liquidity pool and the Maker pool, with rates as low as 0.17% or less, much lower than UniSwap.
This is one of the few inventive ideas that GateChain offered for Uniswap V2 when it launched HipoSwap. Coming from a traditional “CeFi” team, HipoSwap has made a breakthrough model in the decentralized space, using the Maker model to solve the Uniswap V2 problem, undoubtedly ahead of DeFi and the rest of the DEXs. This open source and advanced DEX solution was the first to be brought up by a centralized exchange team and solved the problems faced by the industry.
DEX: Innovating as we move forward
From model evolution to data performance, the way the future of DEXs plays out is becoming clearer. Progress never ends.
In a DEX’s development process, there are some mutually exclusive relationships between slippage and impermanent loss. Reducing slippage pursues price stability, reducing impermanent loss pursues price change, and optimizing one side may have consequences for the other. For an AMM-type DEX, impermanent loss and slippage can also be seen as part of the automated market maker, which is constantly being adjusted and improved.
Overall, the ability to innovate may play an increasingly important role in the market. Among the updates and developmental processes in the DEX space, HipoSwap is part of a set of innovations that deserves a considerable attention. The novel introduction of the Maker pool has helped make a substantial difference. As you can see, Gate.io has been at the forefront of product innovation with its native public chain as well as its successful DeFi pursuits.
As the DeFi boom continues, the rise of a new DEX is expected. And in this rise, the AMM narrative is far from over.