Building a convenient Request for Quotation (RFQ) DEX
While DEXs can’t compete on all the aspects of centralized exchanges (yet), Tokenlon’s signed-order request-for-quotation (RFQ) design offers unique comfort unmatched by Uniswap & co
Edit: Since the time of writing, we released more upgrades to the architecture:
We are building Tokenlon to be convenient for our users. Thanks to our unique request-for-quotation model in which quotes are cryptographically signed users trade with 100% price certainty and trades almost never fail (see stats).
Below, we explain how we technically achieve that and what the benefits mean for Tokenlon’s users.
Note that we are always working on improving Tokenlon. So, if you have any questions or suggestions, let us know in the comments below or on Twitter!
Tokenlon uses request for quotation with signature-based pricing
Tokenlon is different from other decentralized exchanges. It is neither an automated market maker (AMM) nor an order book exchange.
Instead, we use an exchange methodology called request for quotation (RFQ). Thanks to the RFQ methodology, trading on Tokenlon looks like trading with an automated OTC desk.
Just like with an traditional OTC desk, the user first asks for a quotation to — for example — sell 100 ETH for USDC. The market maker, on the other side, then quotes (cryptographically signed) let’s say 46,116.69849 USDC. The user can then click ‘trade’ to trade that exact price.
This signed-order request-for-quotation offers real benefits to the user
Sounds complicated? While it’s not easy to build, the design brings real benefits to our users! Let’s take a look into the upsides of using Tokenlon below.
To understand the benefit of Tokenlon’s unique RFQ design, let’s first look at AMMs. Uniswap — for example — offers to quote a price at every time, for every listed token pair and for a fixed fee of 0.3%.
While those features are indeed pretty convenient, the problem with AMMs is that trades often fail (see), get outpaced by bad actors (see) and/or get through with some significant slippage (i.e. a price worse than expected).
Don’t worry, Tokenlon helps. Here is how:
Fixed prices. Requesting “USDC for 100 ETH” on Tokenlon, you actually get a quotation (e.g. 46,116.69849 USDC) that is cryptographically signed as an answer.
Being signed, the price is locked for your trade and doesn’t change (unlike Kyber’s or Airswap’s RFQ designs). Therefore, the price you see in the beginning is already the price you get. Note that the signed order therefore also eliminates outside participants to take advantage. No worse prices because of frontrunning.
And if you don’t like the price offered, you can always simply decide to not trade at that time.
No failed transactions. After you click ‘trade’, the transaction is submitted on-chain. As soon as the trade is submitted on-chain, there are very little failed trades.
In fact, Tokenlon trades go through 99.6% of the time versus AMMs like Uniswap, where less than 80–90% of trades successfully settle (see our dashboard).
Good prices. Tokenlon’s market makers are able to offer prices close to that of centralized exchanges, especially for popular pairs because they are free in how to hedge their risks on centralized exchanges. At the same time, market makers are competing with each other leading to good prices.
Since this blog post should focus on the benefits of our RFQ design in particular, let’s just note that we are also working hard to offer an intuitive interface, one example of which is the feature that lets you approve & swap a token within one trade.
And we offer a dynamic trading fee structure for heavy traders (based on your 30d volume). More on those design decisions in another blog post.
Signed-order RFQ and Tokenlon’s future
Dragonfly’s Haseeb Qureshi recently wrote about the benefits of “Signature-based Pricing” for DEXs: “I expect the majority of DeFi volume will become dominated by professional market makers […].”.
We agree, and think that the Request-For-Quotation model offers unique benefits to our users, when set up correctly. So far, our growing user base seems to like it.
Do check out Tokenlon at https://tokenlon.im/ or in the imToken app (iOS, Android).
If you can’t get enough, check out our latest statistics on Duneanalytics: https://duneanalytics.com/tokenlon
If you want to learn more about Tokenlon’s technical background, read our docs at https://docs.token.im/tokenlon-onboarding/en
Follow our community channels:
- Official website: https://tokenlon.im/
- Discord: https://discord.gg/9pQ6hMW
- Twitter: https://twitter.com/tokenlon
