Decentralized exchanges (DEXs) have become increasingly popular in recent years due to their ability to offer users a high degree of control over their assets and a more secure trading environment than centralized exchanges.
However, one of the main limitations of DEXs is their inability to support cross-chain and margin trading. There are several decentralized exchange protocols that seek to overcome this limitation by allowing the DEX to support cross-chain trading, margin trading, and other features.
Injective Protocol is a decentralized exchange protocol built on Cosmos, a decentralized and interoperable blockchain ecosystem. Injective Protocol allows DEX to support cross-chain trading and margin trading, allowing users to trade assets from different blockchain networks on the same platform.
AliumSwap is a decentralized exchange that supports multiple blockchain networks. In addition, it has a feature called Hybrid Liquidity, which aims to simplify the trading process by combining it on one platform.
How can DEXs enable cross-chain trading?
One of the key challenges in enabling cross-chain trading on the DEX is the need to reconcile the various ledgers and order books of the various blockchain networks involved. The Injective Protocol solves this problem by using so-called “relays”.
Relays are decentralized nodes responsible for facilitating the trading of assets across chains. They act as intermediaries, holding assets in escrow and facilitating the exchange of assets between traders.
When a user wants to exchange an asset from one blockchain network for an asset on another network, they can place an order on a DEX running on the Injective protocol. The relay will then take the user’s order and send it to the appropriate blockchain network, which will match it with the counterparty.
The relay will also facilitate the transfer of assets between the two parties, allowing the transaction to complete. This process allows users to trade assets from different blockchain networks on the same platform, overcoming one of the main limitations of traditional DEXs.
Eric Chen, co-founder and CEO of Injective, told Cryptooshala: “The future of DeFi is the ability to link across chains. While most of the financial primitives (trading, lending, borrowing, leverage, etc.) have been built into DeFi, when they are separated into separate applications, there is so much better left. What everyone wants is DApps that can build on each other.”
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AliumSwap has initiated the integration of its cross-chain functionality with the Polygon network and plans to integrate with OKChain in the near future. To facilitate the exchange of tokens between the BNB chain and the Polygon network, the user must first select the chain and token to exchange.
Next, they need to select the Polygon network and the desired receiving token. Finally, they need to enter the number of tokens to exchange and initiate the transaction.
The AliumSwap ALM Token works as a transitional asset in the token swap process. In particular, the exchange process includes the transformation of the original token A from its source blockchain into an ALM token and, subsequently, into a new token B in the target blockchain.
Brent Xu, CEO and founder of Umee, a DeFi gateway built on the Cosmos SDK, told Cryptooshala:
“Cross-chain trading is very important, blockchains are now like the early internet. That is, when there was only ARPANET and a bunch of intranets that were not connected. That was before the invention of a protocol called TCP/IP that connected everything together.”
He continued: “Cross-chain trading means that all blockchain protocols can connect and interact with each other. Side chains, tier 2, alternative base layers like Solana, Move-VM chains like Aptos, Cosmos chains, Polkadot chains. When all these things can connect and exchange with each other, we will have an interconnected blockchain, just like we have an interconnected Internet today.”
Margin trading on the DEX
Margin trading is a trading strategy that involves borrowing money from a broker to trade with leverage. This can allow traders to make more profits, but also comes with the risk of larger losses.
Cross-chain DEX can use a decentralized lending and borrowing platform that allows them to support margin trading. Also, since DEXs support a larger number of tokens than centralized platforms, users can leverage more cryptocurrencies.
The Injective Protocol allows the DEX to support margin trading by providing a decentralized lending and borrowing platform. This platform allows users to borrow and lend assets to each other, with Injective Protocol acting as an intermediary.
When users want to trade with leverage on a DEX powered by the Injective protocol, they can borrow the assets they need from the lending and borrowing platform. They can then use these assets to trade on the DEX.
On the ZKEX decentralized exchange, the margin trading function is implemented through the use of smart contracts. These contracts automate the process of borrowing and lending funds, as well as calculating interest and other associated fees. In addition, the platform uses zero-knowledge proofs to verify transactions, which helps maintain security and privacy. This provides a safe environment for margin trading.
This allows traders to open larger positions than they could with just their own funds. Borrowed funds may come from other users or from ZKEX itself, and the trader must pay interest on the amount borrowed.
Margin trading on decentralized exchanges allows traders to profit from tokens that are not listed on centralized exchanges. This process increases the number of participants in the DeFi sector and may improve liquidity as liquidity providers will be interested in adding tokens to pools that support margin trading. Also, as traders use leverage, the demand for liquidity will increase.
However, some experts believe that margin trading can be difficult to implement on decentralized protocols.
“Margin trading in DeFi is important, although very difficult to execute. Leverage is commonly used for protocols such as DeFi futures trading platforms, although leverage is a difficult financial primitive to execute correctly,” Xu told Cryptooshala.
Support for multi-chain decentralized exchange functions
ZKEX implements zero-knowledge proofs to verify the validity of transactions on its platform. On the exchange, this cryptographic method verifies the authenticity of transactions, ensuring their security and integrity, while hiding any personal information, including the identity of participants or the details of transactions.
The inclusion of zero-knowledge proofs increases the security and privacy of the platform and helps build trust and confidence among its users.
Strategy Tokens are another feature of the Injective-based DEX that allows investors to participate in actively managed algorithmic trading strategies developed by leading institutions by owning tokens that represent shares in trading vaults.
The assets contained in these portfolios are then managed by smart contracts that can execute transactions based on pre-defined rules or external factors such as the price of Ether (ETH). For example, smart contracts can execute transactions based on the fact that the value of Ether has increased.
“Bringing active portfolio management and yield optimization strategies to DeFi is no small feat. The ERC-4626 token standard removes a key UX hurdle by allowing sommeliers to [a DeFi platform that issues the token] tokenize “stocks” in strategies as strategic tokens,” Chen told Cryptooshala, continuing:
“Investors can simply buy and hold these liquid strategic tokens on a decentralized exchange to gain access to a given strategy and then sell when they are ready to go. It is active, non-custodial management that is easy to understand and participate in.”
Unlike more traditional ways of investing in funds, all transactions that use these methods can be seen in full detail on the Ethereum blockchain. In addition, users always have full control over their property and assets. For example, they can exit the scheme by selling accumulated strategic tokens.
AliumSwap has a unique liquidity feature known as hybrid liquidity. This system allows the decentralized automated exchange of market makers to provide users with multi-chain capabilities and cross-chain functionality. The hybrid liquidity feature combines liquidity from centralized and decentralized exchanges, accessed through liquidity aggregators.
Liquidity Aggregator is a software tool that allows users to simultaneously access a pool of buy and sell orders from multiple liquidity providers.
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Aggregators provide traders with a close to market average price to buy or sell an asset, tailoring price feeds to suit their needs through computer algorithms.
If the price impact on the selected pair exceeds 5% or there is no such liquidity pool on AliumSwap, another exchange’s liquidity pool is used to provide the trader with the best possible price with minimal slippage.
The decentralized nature of multi-chain DEXs provides users with a more secure and transparent trading environment. Moreover, as decentralized exchanges continue to grow in popularity, multi-chain DEXs are likely to play an important role in allowing other decentralized exchanges to offer users a wider range of features and services.
This article does not contain investment advice or recommendations. Every investment and trading step involves risk, and readers should do their own research when making a decision.
Credit : cointelegraph.com
