Building the Future Exchange: Prospects and Opportunities of the Transparent Exchange TEX

Author: TSP

Currently, centralized exchanges (CEXs) and decentralized exchanges (DEXs) form the foundation of the entire cryptocurrency exchange landscape. According to the Coingecko Q1 2023 industry report, although DEXs still account for only about 15% of cryptocurrency trading volume, their share is growing.

In the long run, not just exchanges, but the entire financial industry, decentralized finance will gradually replace centralized finance, and this trend is very clear. Centralized exchanges rely entirely on operators, who can only be constrained by ethics, which are inherently unreliable. Therefore, even compliant exchanges like Coinbase have various issues, necessitating strong and strict regulation for all centralized financial institutions.

In contrast, decentralized finance does not require regulation because blockchain technology itself serves as a regulatory mechanism, even more effectively than traditional regulation. However, why does decentralized finance, particularly decentralized exchanges, hold a relatively small market share in the current market? What are the main reasons behind this?

What Makes a Quality Exchange?

What does a trading user need:

• Trust: The custody risk before, during, and after trading should be transparent and minimized as much as possible.
• Convenience and Ease of Use: Ordinary users prefer a trading experience similar to Web2 products, with low barriers to entry, fast exchange speeds, and low trading fees.
• Best Prices: Users want to get the best price at the exchange every time, or at least close enough to the best price, so they don't have to worry about finding better prices elsewhere.
• Transparency of Information: Users want all trading data and activities to be fair and transparent, without others getting better prices or lower fees than themselves.
• Strong Liquidity and Wide Asset Coverage: A rich variety of trading pairs with deep liquidity gives users more confidence in getting good prices at the exchange.

Smart contracts are very suitable for operating exchanges: they commoditize trust, making custody, fees, prices, and settlements equal and transparent for everyone, and allowing anyone to become a market maker.

Although blockchain is an excellent infrastructure for exchanges, there are reasons why trading volume has not fully shifted to blockchain: the user experience for traders is very poor, with high gas fees and fragmented liquidity leading to low depth for traders.

But this does not mean that decentralized exchanges are destined to fail; good solutions do exist and will make DEXs more attractive: a Web2-like trading experience; centralized and automated liquidity; and cheaper block space on L2.

Building a Better On-Chain Trading Experience

Currently, a new type of exchange called Transparent Exchange (TEX) is attempting to address the poor user experience, high gas fees, and liquidity depth issues of DEXs.

The essence of Transparent Exchange (TEX) is a new type of exchange designed to bridge the gap between decentralized exchanges (DEXs) and centralized exchanges (CEXs), combining the advantages of both. TEX strives to provide users with the experience of centralized exchanges while maintaining the transparency and security of decentralized exchanges. By addressing the pain points of DEXs, TEX aims to offer a user-friendly platform that attracts a broader audience.

Compared to decentralized exchanges (DEXs) on the blockchain, Transparent Exchange (TEX) offers a user experience and habits close to those of CEXs.

Here are some core features of Transparent Exchange (TEX):

• Registration and Login: Users can easily and quickly register and log in using their phone number or email, with an experience as smooth as in Web 2.0 applications.
• Trading Experience: TEX provides professional market candlestick charts, a simple and user-friendly trading interface and process. After downloading the app, users can trade anytime and anywhere.
• Trading Depth: TEX aggregates the depth of on-chain DEXs like Uniswap and GMX.
• Account Recovery: To facilitate users in securely recovering their accounts, TEX innovatively employs smart contract accounts (ERC-4337), account abstraction, and social recovery techniques.

Through these innovations, Transparent Exchange (TEX) aims to create a trading platform that combines the advantages of decentralization with the high-quality experience of centralized exchanges.

Competition for TEX

Of course, Transparent Exchange (TEX) still faces strong competition, with major competitors being various centralized and decentralized exchanges (CEXs and DEXs), each playing an important role in this competition, with their own strengths and weaknesses to attract users and gain market share.

In the realm of centralized exchanges (CEXs), exchanges like Coinbase, Binance, and OKEX have ample liquidity, a Web2 trading user experience, and a rich array of product services, attracting users who are less familiar with decentralized processes or prefer traditional financial institutions.

On the other hand, decentralized projects like DYDX, GMX, Vela, and GNS provide higher transparency, more security, and credibility through decentralized design and the execution of smart contracts, attracting users who are already familiar with decentralized processes or prefer secure and transparent options.

Currently, whether it is these centralized exchanges or decentralized exchanges, they have already occupied a certain market share. For Transparent Exchange (TEX) to stand out in the fierce competition, the road ahead remains challenging. However, competition also brings opportunities; in the exchange field, new rounds of reshuffling occur every few years, which presents both challenges and new opportunities for Transparent Exchange (TEX). As time goes on and the market develops, new projects and innovative solutions will continue to emerge, reshaping the competitive landscape.

Future Outlook for TEX

In the future, how Transparent Exchange (TEX) can gain market share in this competitive landscape, how to achieve a Web2 user experience while ensuring security and transparency, are all worth exploring in depth.

To achieve the long-term healthy development of Transparent Exchange (TEX), it is essential first to design a simpler and more convenient registration, login, and trading process to lower the barriers to user participation and enhance user experience. Simple operations that do not require repeated private key signatures will provide a smooth Web2-like experience, attracting more participants to join the Transparent Exchange (TEX) market. At the same time, ensuring security and transparency is also crucial. For example, on-chain verifiable trading data, self-custody of assets, and mechanisms like 4337 account recovery can effectively prevent malicious behavior and opaque operations, providing users with a sense of trust and enhancing the platform's stability and reliability.

Additionally, sufficient liquidity is key to achieving the long-term healthy development of Transparent Exchange (TEX). Building its decentralized contract trading application (APP) based on infrastructures like GMX/GNS/Vela/Uniswap (including liquidity) and directly calling third-party liquidity will provide users with a smooth trading experience without worrying about liquidity issues.

Based on the above understanding, I believe that the future competition for Transparent Exchange (TEX) will focus on two important opportunities: Web2.0 experience and security transparency. By combining these two aspects, we can create a more convenient, secure, transparent, and liquid trading platform.

First, to address the Web2.0 experience, we propose allowing users to register and log in using their email or phone, along with EIP-4337 "Account Abstraction (AA)", so that user wallets do not require mnemonic phrases. Even users who have never used a wallet before can easily use it. This solution not only provides users with a secure and convenient trading experience but also addresses the issue of users losing their keys and being unable to recover them. If a user loses their key for some reason, they can enable social recovery by simply asking their friends and family to help restore their account. (For specific details, refer to the EIP-4337 protocol proposed by Vitalik Buterin).

Secondly, we will meet users' needs for security transparency and low gas fees through smart contracts and on-chain (Layer-2) trading. By introducing DeFi smart contracts, users can view various data in real-time, self-custody their funds, and truly achieve transparency and security, eliminating risks similar to the FTX collapse. Deploying on Layer-2 chains significantly reduces gas fees. Furthermore, we will explore more ways to increase transparency, such as creating highly transparent DAO organizations. These designs will continuously expand the market scale of Transparent Exchange (TEX) and provide more incremental possibilities.

In summary, as an important component of the exchange field, the future development of Transparent Exchange (TEX) needs to achieve long-term healthy growth by simplifying registration, login, and trading processes, introducing EIP-4337 "Account Abstraction (AA)", enhancing security transparency, and ensuring sufficient liquidity.

As one of the important roles in the blockchain industry, centralized exchanges (CEXs) and decentralized exchanges (DEXs) showcase their competitive advantages in the market. Transparent Exchange (TEX) offers a rich variety of solutions and functions, providing users with more choices and better experiences. As time goes on and the market evolves, Transparent Exchange (TEX) will continue to change, bringing new competitive landscapes and opportunities.