We’ll tell you briefly and in lay terms about what DeFi exchanges are, why users like them, how to launch your DeFi exchange, and how much it costs.
DeFi exchange are another rapidly growing trend in the cryptocurrency world, which gained momentum in 2020. Specifically, on only one platform — 1inch — daily transaction volume has grown from averaging $1 million in daily volume in July 2020, to over $40 million a day, in January 2021. Other DeFi aggregators such as Matcha, Zapper.fi, and Zerion.io improved their performance significantly as well. It points to a great interest in such projects, which you can use to launch your own DeFi exchange. Later, we’ll tell you how to do it and how much the development of such software costs.
What is a DeFi exchange?
Decentralized finance or DeFi is financial instruments in the form of services and apps, which are managed not by centralized companies, banks, or regulators, but by decentralized blockchain protocols. In 2020, these projects became the main growth driver of the cryptocurrency market because, unlike traditional financial instruments and services, DeFi has no problem with accessibility, transparency, and data confidentiality assurance.
However, decentralized finance has serious problems with UX / UI: most DeFi services have a complex user interface and many specific terms, which complicates working with them and pushes beginners away. Besides, at this stage, the DeFi applications are fragmented and it is quite difficult for users to keep an eye on the market.
DeFi exchanges are intended to resolve both problems. These services gather information from various DeFi protocols and integrate them into a single interface, which is simple and intuitive. This allows users to monitor the condition of many markets and make smarter decisions due to only one tool.
Besides, exchanges perform other functions such as connecting liquidity pools, reducing transaction costs, earnings on staking, participation in lotteries, buying and selling NFT, the launch of IDO/IFO, and many more.
Here are some examples of DeFi exchanges on the market:
Benefits of DeFi exchanges
- 1inch and DEX.ag. They collect data about the cryptocurrency rates from DEXs and AMMs and enable users to exchange crypto assets at the most favorable rate.
- InstaDApp. It collects information about loan conditions on DAI platforms and allows users to receive loans without leaving the service.
- PlasmaFinance. Collects data from trading platforms, credit markets, and liquidity pools.
Before you start creating DeFi exchanges, you should find out what users and decentralized service providers need them for. So you can understand what features you better implement in your project.
Why do the end-users of DeFi need exchanges?
- More opportunities. People want to buy and sell cryptocurrency in the most effective way possible. This includes the speed of work, rate, fees, various bonuses, passive income, etc. But they are reluctant to monitor the situation on all DeFi services themselves — it's expensive, hard, and inconvenient. Plus, it’s difficult to monitor the emergence of new projects. Exchanges undertake the monitoring of all markets.
- Improved user experience. We have already written that the majority of DeFi protocols have a quite complex user interface, inside of which there are many cryptocurrency terms. Exchanges make DeFi protocols accessible for everyone like Robinhood did for stock markets.
- A wider range of DeFi projects. How many exchanges an ordinary trader can monitor on his own? Five? Twenty? An aggregator makes it possible to monitor several hundred and even thousands of markets in a convenient way. At the same time, the process of search for the best option is usually automated: an exchange monitors all markets and shows the most profitable option to the user.
- More useful information. It refers to both the market (DeFi aggregators provide a much more complete picture of the current market condition than a separate protocol), and providers (aggregators collect information about the protocols they work with and if they see scam or fraudsters, they remove them from the listing and warn the clients).
- Elimination of slippage. It’s when orders are executed at a price that is less favorable than expected. This happens due to small liquidity in liquidity pools, which is the case for DEX. DeFi exchanges help solve this issue as they combine the liquidity from different exchanges in one platform. For instance, 1inch aggregates liquidity from different DEXs and Orion Protocol aggregates liquidity not only on DEX but also on CEX.
- More protection. To some extent, exchanges may be responsible for the settlement of controversial issues between users and supplying companies, acting as an arbitrage. This is a critical moment in the world of decentralized finances, where there are almost no regulations.
Why do decentralized finance providers need exchanges?
- Liquidity. Even the most popular and competitive project is going to suffer from a liquidity shortage at the early stages of development. Exchanges help to avoid it by providing these projects with access to other projects’ liquidity. Due to that, any start-up can raise the necessary capital and provide the clients with a fully functioning service.
- Access to credit. Not all crypto start-ups manage to raise funds with the help of ICO, STO, IEO, IDO, or other forms of a crowdsale. But if you demonstrate the potential of your project to exchanges, it’s possible to obtain a loan under certain conditions. Almost like in a traditional financial sector.
- Competition growing. It’s in exchanges’ interest to maintain healthy competition among the DeFi providers because it enables them to provide their clients with the most profitable options. Besides, healthy competition helps a sector to develop and makes it more effective.
- Promotion. Promotion on your own is difficult, long, and expensive. It’s far easier and more effective to run ads in the place, where your target audience gathers. DeFi exchanges are this place exactly.
DeFi exchange functionality
. At the next stage of the development of your own DeFi exchange, you need to choose what features to implement primarily and what features can be added along the way of the platform development. Here is a list of features, which you should think about above all:
Here are several examples of the opportunities that existing platforms offer:
- Sign up / log in. To get started with an exchange, users usually need to connect their crypto wallets as DeFi projects are usually non-custodial apps. It requires integration with popular Web3 wallets such as MetaMask, TrustWallet, MathWallet, TokenPocket, WalletConnect, Binance Chain Wallet, SafePal Wallet, and Coin98.
- Dashboard. The main task of any exchange is to connect different DeFi protocols in a single user interface. A dashboard is the first screen and the most important part of this interface, which makes it one of the main features of your app. Zapper DeFi exchange is a good example of such a dashboard. It categorizes assets into various categories such as wallet, income positions, liquidity provision, and borrowing. It structures information, which simplifies its analysis and improves the effectiveness of investment decisions. Think about how you want to present data to your users.
- Exchange. This tab allows users to exchange one crypto asset for another quickly and with the greatest benefit. A good example of this feature is the 1inch app, which aggregates liquidity from integrated DeFi protocols and provides the user with the best options for exchange in real time.
- Liquidity pools. These are smart contracts, which keep the liquidity providers' funds for commercial transaction servicing for any given currency pair. Liquidity providers are ordinary users, who provide a pool with their own funds in exchange for its tokens or other tokens. This process is essentially a cryptocurrency staking.
- History and analytics. The effectiveness of trading operations largely depends on the quality of the data about the market condition and market analysis tools. These tools can be both trading indicators and tables, graphs, and dashboards, which help to structure data.
- Yield Farming. This is a revenue model, which implies income generation from the placement of assets on various DeFi platforms for defi-lending. It gained popularity in 2020 after the launch of such projects as Yearn, Sushiswap, and Yam Finance that enable you to earn an income of up to 100% per annum (cryptocurrency deposits can earn you 4-10%).
- Advanced features. In addition to the must-have features, many DeFi exchanges have additional functionality that improves the user experience. It helps an exchange to differentiate from competitors, foster users’ loyalty, and take an advantageous place in the market. In such a way, if you want your exchange to strengthen its chances for success, think about implementing similar features.
- Zerion provides a wide range of tools to customize the user interface. So users can choose a language, theme, color, etc. In its turn, 1inch allows you to customize your defi token portfolio and wallet token lists, which makes it possible to personalize the exchange to your investment portfolio. Think about how you can give your users more freedom to interact with the interface of your DeFi exchange.
- Zapper invites users to try a demo without having to connect a wallet. In such a way, potential users can evaluate the functionality and usability of the platform before starting to fully work with it, i.e. entrust it with their data and money.
- Saver has a Recipe Creator feature that allows you to combine any number of actions from different DeFi protocols into one transaction. Besides, the platform also has many other automation features that optimize a user’s operations.
Aside from implementing these and other advanced features, consider the availability of your DeFi exchange on mobile devices. According to statistics, most users prefer to interact with applications using a smartphone, the younger the user is, the stronger this desire is. By implementing it, you increase the reach and engagement of users.
DeFi exchange development stages
DeFi is sophisticated software with the highest requirements for code quality and security because it’s created based on open source and uses not only its users’ data but also their money. So if you want to launch your own DeFi exchange , you should entrust this task to a technical partner with extensive experience in the development of similar apps such as Merehead development company.