Parachains, dApps, and Aggregators: Exploring the Cutting-Edge Approach to DEXes on Polkadot
Imagine you’re a crypto trader, eager to swap your favorite assets on a DEX. You’re tired of centralized exchanges that require you to give up control of your funds and go through tedious KYC processes. But then you discover a DEX built on Polkadot, offering you a trustless and transparent trading experience without compromising your privacy. You’re excited to try it out and explore the advantages of decentralized exchanges on these cutting-edge networks.
But even when you use DEX, you can be affected by inefficiency. Gas fees on Ethereum are high due to network congestion and the increasing popularity of DeFi applications and Ethereum also struggles with ineffectiveness caused by the Miner Extractable Value (MEV), where miners can prioritize transactions in order to extract additional value, negatively affecting the trades.
Let’s dive into Polkadot’s DEX ecosystem and its revolutionary approach to efficiency and MEV protection. Polkadot ecosystem consists of a few different ways how to build a DEX, so let’s get straight to it.
Content
- Advantages of Polkadot and Kusama DEXes
- DEX types on Polkadot
2.1. Application-specific blockchains
2.2. DEXes as dApps on smart contract parachains
2.3. DEX aggregators - DEXes on Polkadot and Kusama
3.1. HydraDX
3.2. Mangata Finance
3.3. Equilibrium
3.4. Basilisk
3.5. StellaSwap
3.6. Solarflare / Solarbeam
3.7. ArthSwap
3.8. Interlay / Kintsugi DE
3.9. Composable/Pablo DEX
3.10. Zenlink - Conclusion
1. Advantages of Polkadot and Kusama DEXes
Polkadot and Kusama DEXes are revolutionizing decentralized exchanges with their application-specific blockchains (parachains), solely dedicated to decentralized exchanges and other DeFi usecases. This leads to optimized blockchains that offer faster transaction speeds, lower fees, and a better user experience.
The use of XCM transfers as a native bridging mechanism adds another layer of security, eliminating the need for centralized bridges that have been a point of failure in past hacks. XCM transfers provide trustless and transparent asset movement, reducing the risk of centralized services.
Additionally, the shared security of all parachains on Polkadot provides an added advantage, as security improvements or upgrades made to one parachain benefit the entire ecosystem. This powerful combination of trustless, decentralized asset movement and shared security benefits makes Polkadot and Kusama DEXes stand out.
2. DEX types on Polkadot
2.1. Application-specific blockchains
One approach to building DEXes on Polkadot and Kusama is to use application-specific blockchains, also known as parachains. These parachains are separate blockchains with just one use case, which is DEX trading and of course, liquidity providing.
Using a dedicated parachain for DEXes offers advantages of better performance, lower fees or novel approaches in DeFi that are only possible thanks to the application-specific blockchain. However, the disadvantage could be a slower pace of development since we are in uncharted territory. Examples of such parachains are HydraDX, Mangata, Equilibrium or Basilisk.
2.2. DEXes as dApps on smart contract parachains
Once you have a parachain that allows the development of a smart contract, you can build your own DEX. Those are types of decentralized applications (dApps) that focus merely on swapping assets, liquidity providing and farming.
Using dApps on smart-contract parachains for DEXes offers greater versatility and interoperability but also comes with limitations in terms of performance and complexity.
Those are StellaSwap and Solarflare on Moonbeam, Solarbeam on Moonriver or ArthSwap on Astar Network.
2.3. DEX aggregators
DEX aggregators simply allow users to access multiple DEXes from a single interface. Zenlink is one such aggregator, that is built both for Polkadot and Kusama at the same time.
It allows users to trade assets across different DEXes, as well as provide access to liquidity pools and other DeFi applications. Zenlink also has its own governance token, which can be used to vote on proposals and earn rewards.
3. DEXes on Polkadot and Kusama
3.1. HydraDX
TVL: 9,7M
Assets: HDX, DOT, WETH, iBTC, WBTC, DAI, USDT, ZTG
Uniqueness: One-sided liquidity for higher trading efficiency
HydraDX is a cross-chain liquidity protocol that allows users to trade assets across different blockchains. It offers fast settlement times and low transaction fees, making it an attractive option for traders.
HydraDX Omnipool combines the liquidity of multiple pools into one big pool (the Omnipool) to provide a better trading experience and minimize slippage. HydraDX implements a one-sided liquidity solution, where liquidity providers only need to add assets to one side of the pool, reducing the risk of impermanent loss. This innovative approach sets HydraDX apart from other DEXes and makes it a true game-changer in the decentralized trading space.
On top of that, HydraDX still has additional liquidity from the LPB, which is gradually deploying into the Omnipool.
Hydra also launched the first OTC trading desk on Polkadot, enabling swapping bridged cryptocurrencies such as DAI and WBTC for native tokens like USDT and iBTC, as well as other trading pairs.
3.2. Mangata Finance
TVL: 1M
Assets: MGX, KSM, TUR, IMBU, BNC, vKSM, vsKSM, ZLK, USDT, RMRK
Uniqueness: MEV and front-running resistance, gasless swaps
Mangata DEX is designed for experienced traders, offering advanced trading features and a user-friendly interface. With its low fixed fees and the absence of additional network fees, it provides a cost-effective solution for trading a variety of tokens.
Mangata is resistant to front-running and MEV (miner extractable value), ensuring that trades are executed fairly and transparently.
Mangata X on Kusama launched Proof-of-Liquidity, a new game for experienced DeFi collators. This mechanism unlocks staked liquidity by using liquidity pool tokens as staking assets, allowing for deeper liquidity and higher capital efficiency.
3.3. Equilibrium
TVL: 2M (DeFiLlama)
Assets: EQ, EQD, KSM, GENS, BNB, ETH
Uniqueness: Low collateralization requirements, up to 20x leverage trading
Equilibrium and its canary network Genshiro are DeFi 2.0 cross-chain money market protocols. They offer features such as a safe lending platform with collateral basket support, minimum LTV as low as 105%, a stablecoin EQD pegged to the US dollar, and a fully on-chain order book-based decentralized exchange with high leverage up to 20x.
3.4. Basilisk
TVL: 416k
Assets: BSX, KSM, USDT, aUSD, TNKR, XRT
Uniqueness: Liquidity mining, farming, LBPs
Basilisk SNEK DEX was supposed to be a canary network of HydraDX with LPB functionality but became something unexpected. One of the major DEXes in Kusama for easy and profitable farming.
Basilisk DEX is a liquidity protocol offering frictionless liquidity for fungible assets and farming models with rewards varying between 20–80% APR. It enables assets to bootstrap liquidity (LBP) by choosing the most convenient AMM model.
The protocol includes an NFT marketplace that allows for minting, listing, setting royalty fees, and placing offers for non-listed NFTs.
3.5. StellaSwap
TVL: 12,3M
Assets: STELLA, GLMR, DOT, ASTR, ACA, USDC, ETH, iBTC, FRAX,…
Uniqueness: Liquidity mining, farming, concentrated liquidity with Pulsar
StellaSwap is one of the major DEXes on Polkadot. Actually StellaSwap was the first DEX on Moonbeam back in the beginning of 2022. Usecases are similar to other DEXes, be it swapping, liquidity providing or LP farming.
StellaSwap offers bridging various assets from network such as Ethereum or BSC via Wormhole bridge. Besides that, StellaSwap offers 1-click cross-chain swaps, which are super easy solutions for users wanting to swap assets from other chains.
The most efficient farming opportunities are enabled with Pulsar farming. This concentrated liquidity model is inspired by Uniswap V3 AMM, where users can earn more rewards from less used funds by concentring liquidity into a specific range. This feature is for more experienced users.
Something worth mention is very easy-to-use native XCM-transfers, which can be used across various parachains such as Astar, Interlay, Phala, Acala or the Polkadot relay chain.
3.6. Solarflare / Solarbeam
TVL: 6,7M (Solarflare + Solarbeam)
Assets: veFLARE, veSOLAR, GLMR, USDC, BNB, MOVR, xcKSM, stKSM,…
Uniqueness: Liquidity mining, farming, using XC-20 tokens
Solarflare (for Moonbeam) and Solarbeam (for Moonriver) are DEXes that fuel the biggest EVM smart contract platforms on Polkadot and Kusama. Traders can use their XC-20 tokens, which are Moonbeam's representations of ERC-20 token standard.
Similarly to other DEXes, the main usecase is swapping, liquidity providing and LP farming. Both Solarflare and Solarbeam offer Standard AMM for most LPs and Stable AMM for stablecoins and assets with similar price structure such as WBTC/xcKBTC. That means you can farm your BTC without exposing to impermanent loss.
3.7. ArthSwap
TVL: 14M
Assets: ARSW, ASTR, DOT, USDC, USDT, BUSD, iBTC, GLMR, ACA, …
Uniqueness: Dual farming for bootstrap liquidity
ArthSwap is the leading DEX on Astar Network, a multichain hub enabling to build an EVM and WASM smart contracts. Besides basic DEX functions such as swaps or LP farming, ArthSwap offers also so-called Dual Farming. Dual Farming offers bootstrap liquidity in collaboration with a partnered project such as Phala or Bifrost (at this moment). This brings users additional incentives and thus higher APR compared to other farms.
3.8. Interlay / Kintsugi DeFi Hub
TVL: 500k
Assets: KBTC, KSM, KINT, USDT
Uniqueness: Liquidity providing and lending of BTC
Kintsugi, the canary network of Interlay, the most decentralized BTC representation in the crypto world, recently launched a DeFi Hub focusing on using KBTC in DeFi.
It offers lending and borrowing of KBTC, KSM and USDT.
But the major usecase for DeFi users is liquidity providing. To this date, there are 3 LPs, which offer APR varying between 46–166%. You can choose from KSM-KBTC, KSM-KINT and KBTC-USDT LPs.
3.9. Pablo DEX
TVL: 104k
Assets: PICA, KSM, USDT
Uniqueness: Bridging liquidity between Polkadot and Cosmos
Pablo DEX operates on the Picasso parachain, which is a canary network for Composable Finance.
Pablo DEX is a pioneering cross-ecosystem platform that integrates liquidity across DeFi by utilizing IBC and CosmWasm. Its primary objective is to connect Polkadot and Kusama with the Cosmos ecosystem, as well as Ethereum and Near in the future. By leveraging IBC and CosmWasm, Pablo DEX aims to extend the reach of the Inter-Blockchain Communication protocol beyond the Cosmos ecosystem.
3.10. Zenlink
TVL: shared
Supported parachains: Astar, Bifrost, Moonbeam, Moonriver
Uniqueness: Liquidity sharing, limit orders, farming
Zenlink is a cross-chain DEX protocol focused on improving the composability of DEXes on Polkadot. It aims to become the composable hub of Polkadot’s DEX by providing a flexible and adaptable platform for building DEX and achieving liquidity sharing.
Zenlink includes DEX Aggregator and DEX Composable Hub, which connect all DEX DApps on Polkadot and enable developers to build unique DEXs.
The protocol is compatible with EVM and WASM smart contracts and is integrated into the SRML layer. Zenlink SlotVault is a smart pool product designed to support parachain projects bidding slots and non-parachain projects to participate in PLO.
Note: This list of DEXes on Polkadot is not completed, while there exists also some more of them, but whether they lack liquidity or they are similar types to the above-mentioned ones. We might give them some space next time.
Conclusion
The future of trading lies in decentralized exchanges, and Polkadot and Kusama are at the forefront of this revolution with their innovative DEX solutions.
The trustless XCM transfers and growing ecosystem of specific parachain DEXes and DEX aggregators make these platforms the go-to for decentralized trading. However, even with Ethereum DEXes, users can face issues with high gas fees and MEV inefficiency.
The combination of trustless, decentralized asset movement and shared security benefits on Polkadot and Kusama offer a unique solution to these problems. As more developers and users join these platforms, it’s clear that the future of DeFi is in the hands of these innovative and forward-thinking ecosystems.
