What is the technology behind D5 Exchange?
The Gridex Protocol is the technology that is behind the decentralized exchange: D5 Exchange
Many DEXs such as Uniswap, Sushi Swap, are run by its AMM (Automated Market Maker), this system has no buy or sell orders. Instead, smart contracts exist to act as the maker in an exchange transaction. AMM aims to provide cheaper liquidity through a simple one-time process, with any user able to provide for the liquidity pool.
However, the complex formulas which Uniswap uses may not always find the true market value. Arbitrage traders are needed to determine the real-world value of assets, this difference in price between AMM and arbitrage may lead to impermanent loss. Furthermore, AMM’s types of DEX are also vulnerable to risks and hacks, with some liquidity being stolen due to complex smart contracts.
Whereas though CEX uses an Order book mechanism, this mechanism relies on traders to submit aggregated lists of buy and sell orders on a given pair, allowing traders to buy or sell assets at a specified price, relying on market makers to provide liquidity by placing limit order lists on both sides of the trade, with the market maker receiving a fee rebate as an incentive to provide liquidity.
However, as many CEX have had issues lately and the collapse of FTX has led to many crypto users to wonder whether their crypto is truly safe in the hands of centralized exchanges. During this bear market, once the news broke of how FTX operated, it clearly showed how some of them were operating at a very risky level with little to no accountability, coordination and mitigation of risk. Furthermore, their systems do not run on the blockchain, instead, all liquidity is held within the exchange. This is why more
With these issues in mind, this is where the Gridex Protocol comes in;
Gridex has created an on-chain order book providing a solution to the issues of AMM models. First, Gridex has created the GMOB (Grid Maker Order Book), this model limits maker orders to a narrow price range based on percentage limits, adding them to the system order book instead of executing them immediately. This feature increases liquidity in the entire system
Whilst Gridex has also created the GLPM (Grid Price Linear Movement), which handles transaction execution and settlement, measuring linear proportions between changes in token prices caused by takers within a specific price range and token purchase quantities. Even if all transactions are on-chain, the gas consumption for the Gridex Protocol remains the same as a constant function market maker without imposing a higher cost burden on users. This means the gas fees can be cheaper than decentralized exchanges such as Uniswap.
Overall, the D5 Exchange on which Gridex Protocol is built has created a platform with both the advantages of CEX’s order book and also the self-custody of DEX comes in. As of now, D5 Exchange operates on the Arbitrum One network, however, in the near future, D5 Exchange will also support other networks such as Ethereum, Polygon and Optimism, stay tuned for more updates!
GMOB = Grid Maker Order Book
CLOB = Central Limit Order Book
GPLM = Grid Price Linear Movement
CFMM = Constant Function Market Maker
