Revolutionizing DeFi User Experience: Past, Present, and the Role of Magpie
Decentralized Finance (DeFi) has transformed the world of finance, offering a permissionless and borderless ecosystem where users can access a wide range of financial services without relying on traditional intermediaries. Even so, there are many areas in which it is lacking, but one of which we will be focusing on: the user-experience (UX). In the beginning of DeFi, it was only for the most tech savvy of users who were willing to put in the time and research just to be able to use it.
According to TradingView, DeFi dominance (share of DeFi market cap in the market) has increased from less than 1% in 2018 to 4% today, peaking at over 7% in 2022. Even now, after years of improvements, DEX daily volume compared to CEX is at around 15%. While it has become easier over time, it still has a long way to go. Its many layered complexities along with its high learning curve in comparison to traditional finance or centralized crypto finance leave it far behind in terms of both actual use and user experience.
Today’s blog will explore the historical journey of DeFi user experience (UX), examining how it has evolved in terms of asset swaps, liquidity, and introduce the role of Magpie in addressing the challenges presented.
Early Days of DeFi UX
Aside from simply sending assets to another person’s wallet, asset swapping within the DeFi space became much more accessible with the creation of decentralized exchanges (DEXs), which were much different from what most people are used to now. A pioneer in the space, EtherDelta launched in 2016, which allowed users to trade Ethereum based assets, but was full of complexities that traditional finance and centralized crypto did not have to deal with at the time.
How did it work?
We’ll try to keep it brief and just give a quick rundown of the process. Users were given an EtherDelta public wallet address and then had to transfer their funds to it. Once transferred, users would then have to deposit any funds they wanted to trade with from this wallet to the EtherDelta smart contract that’s connected to their wallet. Once this was completed, they could now trade.
EtherDelta was an orderbook exchange, this meant that it completely relied on users creating Bids/Buys and Sells/Asks to facilitate trading, meaning that while large tokens could have quite a bit of liquidity at play with a close price spread, smaller or new tokens may have little to nothing available and a large gap in what the bid and asks are. In the below image for the old token STX, there is a 10% price difference in what the lowest seller is asking and the highest bidder is willing to pay. On top of this, when putting in your buy order, if you misplaced a decimal, you’d be buying at 10x the price you wanted to, as the system would not give you the lowest or “market” price by default. In another similar scenario, if you clicked on a Sell order at one of the higher prices and clicked “Buy” you would buy that Sell order at the higher price as well, and it would not default to selling you one of the lower priced orders.
Although a huge leap forward, it was not the easiest or most user-friendly platform, and it wasn’t long before a challenger appeared and took over DeFi:
The Transition to Automated Market Makers (AMMs)
Just a couple of years later, in 2018, a fully decentralized and automated market maker (AMM), Uniswap, replaced the traditional order book model with liquidity pools, where users could swap assets at market rates. It was an enormous game changer, and helped the DeFi ecosystem increase over 10x in terms of total value locked from Jan 2021 to Jan 2022, 100x compared to Jan 2020, and volume increasing by 10x as well over the same period. The ease of use in comparison made it much easier to take part in DeFi.
While we’re sure most of you are familiar with how to use Uniswap and offshoots that are similar such as SushiSwap, we’ll still provide a brief description of how they work for those who may not be.
AMMs, such as Uniswap, allow users to deposit their tokens into smart contract-based liquidity pools to contribute to liquidity so that they may earn fees on the trades while users get access to asset swaps at market rates.
Users can much more easily use Uniswap than something like EtherDelta. The steps were to connect your wallet, choose a token pair you’d like to swap for, type in the quantity you’d like to buy or the amount of money you would like to spend, and click swap. After paying the transaction fee and waiting a minute, the assets are deposited directly into your personal wallet. The result was a massive increase in the usage of DEXs and DeFi in general over the next few years, with daily volume reaching billions of dollars everyday on just Uniswap alone by 2021.
Uniswap and AMMs helped address one of, if not the largest issue in DeFi at the time: liquidity. By doing so, it reduced both the need for centralized exchanges and encouraged users to contribute to the ecosystem. While things were much better, there were still issues to be solved, such as that of…
Liquidity Aggregation
Liquidity aggregation emerged as the glue holding the DeFi ecosystem together. Without liquidity aggregation, users have to pour through hundreds of protocols to find the tokens and liquidity needed to make their swaps. Projects like 1inch and Kyber Network pioneered the aggregation of liquidity across various DEXs, enabling users to access the best possible trading rates with reduced slippage. These platforms automated the process of searching multiple DEXs so users could get better rates and execute trades accordingly. Additionally, they provided users with governance tokens and incentivized liquidity providers, which helps to foster a growing DeFi community.
At the start of many liquidity aggregation services, users were simply given a list of different routes they could choose from and what each route would offer them in terms of price per asset and cost of gas.
Without liquidity aggregation services or protocols, users need to have knowledge of where to go and what to do in DeFi. It is not really a place a new user can just bumble around and figure out easily, especially compared to apps like traditional finance or Centralized exchange offerings. Users need to know which blockchain they want to build their assets on, which DEX has the asset they want, which of those has the most liquidity or best price, what gas fees are, how to figure them out, and what native token is used to pay them.
Once they figure that out, they can finally make a swap or move to another chain, but that comes with the burden of needing to learn and understand the risks of different blockchains and the protocols on them. Which ones can be trusted? Which ones are scams? Which project websites are just phishing? Even in this bear market, according to DeFiLlama, there are currently 754 protocols with over $1m in total value locked to choose from when swapping, borrowing, lending, yield farming, or buying NFTs. That’s a lot to choose from, an overwhelming amount, and shows exactly why aggregating liquidity is necessary for a healthy DeFi ecosystem and good user experience.
While the current process is much better than it was, with an ever increasing need and want to go cross-chain, there is still room for improvement, and we believe that to be…
🐦 Magpie — A better UX for DeFi
For the above issues, we take great pride in our ability to marry the tech with an amazing UX. Using Magpie to swap is as simple as choosing the token you want and clicking ‘Swap.’
In order to provide an amazing user experience, Magpie aggregates liquidity from hundreds of the largest liquidity providers within the DeFi ecosystem and deploys a completely unique aggregation protocol in order to pull liquidity from multiple sources at once in order to get users the best price available. If you compare Magpie to a solution such as EtherDelta or even Uniswap, we’re just much easier and friendlier to use. Take a look at the image below to check out the interface of our upcoming new UX. All you need to do is select your chains and assets you wish to swap, then select ‘Swap Now.’
Magpie will do all of the hard work involved in the aforementioned steps, we will aggregate the liquidity, we will use our unique order aggregator to route the swap through multiple DEXs and protocols to find you the best price available, and we will provide you with the best user experience.
Magpie is easy to learn, easy to use, will get you the best price, and we’re here to help you learn a bit about the ecosystem.
The Future
The journey through DeFi has been marked by significant UX improvements, from the complex days of EtherDelta, to the emergence of user-friendly AMMs like Uniswap, and through liquidity aggregation protocols such as 1inch and Kyberswap. All of the above have played a pivotal role in enhancing the user experience, making DeFi more accessible. With this in mind, Magpie goes to show how innovative solutions can further simplify and make DeFi easier and more user friendly. As the DeFi ecosystem evolves, the focus on user-centric design remains crucial for broader adoption and disruption of the traditional financial system.
