Thread by @nicky_sap

With all the #SEC drama around #Coinbase, Binance, etc., many people say this is the "big opportunity" for DEXs to become mainstream.

While that is the future I envision, we're still far from that being a viable possibility. 🧵

There are multiple key differences btwn a DEX vs. a CEX:

On CEXs

- Order matching is near-instant
- More robust order types since the exchange can execute trades for you (Limit, Market, Stop-Loss, etc.)
- Perps (futures) are more viable thanks to order-matching engines & speed

- APIs are faster (or exist at all in some cases) and make automated trading way simpler
- Finality and execution speed are near-instant
- Charts are more reliable
- Data is aggregated across multiple centralized order books

Decentralization isn't always simple.

You'll notice that most of these issues are speed-related (real-time), whereas a DEX relies on block time for execution.

Before we dig into possible solutions, let's look at ways a DEX can solve the problems created by CEXs.

DEXs
- Slower, non-instant order matching forces organic price discovery
- Encryption, zkSNARKs, etc. can mitigate front-running
- Order matching can be algorithmic and transparent
- Charts can be audited
- Market manipulation is much harder (encrypted orders, no buy/sell walls)

- Centralized order book aggregation is unnecessary due to the inherently P2P nature of arbitrage data
- Speculating for short-term gains is discouraged since bids and asks happen on the blockchain and may take some time to execute.

So, how do we get the best of both worlds?

My first thought was implementing a non-consensus-based side chain that handles some processing. While this solves some of the problems, many of the speed-related concerns remain.

Currently, the only answer is off-chain processing.

To remain decentralized, we would need to establish lightning channels across all chains, which would only work with liquid on-chain assets.

While this would be a big lift, it would mitigate fraud because all trades would be P2P swaps. No fractional reserve; no wash trades

This is just one idea, and the list of problems/solutions is certainly not exhaustive. The team that solves this problem will be one of the biggest in crypto. I'd love to tackle it, and I hope this thread will spur some discussion around the topic.