Current DEXes can’t scale.

Mass market adoption of DeFi has been obstructed by the inability of DeFi to meet the expectations established by the tools of traditional finance. Slippage and front-running create inefficiencies for large traders, and high gas/platform fees make them less accessible for smaller traders. Platforms lack composability, requiring bridges that are susceptible to hacking. Decentralized exchanges cannot compete with centralized and traditional trading without addressing predation, friction, risk, and fragmentation all together.

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Table of Contents

    • Price Not Representative of Market Conditions

      DEXes offer prices based on local microeconomic conditions which often do not align with the broader market. This places undue financial risk on traders, the only answer for which has been to expend additional effort to research fair market prices or place all their trust in aggregators. This is a ludicrous inefficiency. A trader in TradFi would not consider price shopping between brokers when purchasing a stock.

      Attempts to solve this problem via oracles have introduced additional attack vectors, putting the assets of LPs at risk. We have seen that the first domino in the downfall of numerous tokens has started with relatively easy manipulation of pricing on DEXes.

      OUR SOLUTION

      Deepwaters price discovery is managed by a decentralized oracle which samples prices off-chain from centralized exchanges. This ensures you receive a true mid-market price that is protected against manipulation.

    • Poor Execution

      Invariant-based automated market makers rely on their internal liquidity for pricing. Fragmentation of liquidity across pools and chains limits the liquidity available for trading of any particular asset. This leads to high slippage and poor execution.

      OUR SOLUTION

      Deepwaters’ pricing oracle samples CEXes to ensure traders receive a fair, mid-market price. Single-sided liquidity is deployed across the entire platform, freeing it to be used wherever it is most needed and thereby increasing liquidity depth for any purpose. Native cross-chain transactions eliminate bridging, unshackling assets from only being useful within a particular chain, thereby eliminating another cause of liquidity fragmentation. Deeper liquidity, fair pricing, and protection from predation means superior execution.

    • Orders Subject to Predation

      Invariant-based automated market makers rely on their internal liquidity for pricing. Fragmentation of liquidity across pools and chains limits the liquidity available for trading of any particular asset. This leads to high slippage and poor execution.

      OUR SOLUTION

      Deepwaters’ pricing oracle samples CEXes to ensure traders receive a fair, mid-market price. Single-sided liquidity is deployed across the entire platform, freeing it to be used wherever it is most needed and thereby increasing liquidity depth for any purpose. Native cross-chain transactions eliminate bridging, unshackling assets from only being useful within a particular chain, thereby eliminating another cause of liquidity fragmentation. Deeper liquidity, fair pricing, and protection from predation means superior execution.

    • High Fees

      Gas and trading fees limit the viability of small transactions, discouraging participation from smaller-volume traders.

      OUR SOLUTION

      Orders in Deepwaters are efficiently processed off-chain, while still being settled on-chain for complete auditability. Whereas most DEXes compensate LPs through trading fees, Deepwaters compensates liquidity providers from its internal arbitraging profits. This reduces, or even eliminates, the fees that traders pay.

    • Lack of Composability

      Cross-chain transfers are difficult, expensive, and unfriendly to the users. Bridges have proven to be points of vulnerability in the DeFi ecosystem, offering large, attractive targets for hackers. Current L0 solutions only address the difficulty; they are still expensive and slow to settle.

      OUR SOLUTION

      Deepwaters uses the fast and inexpensive Avalanche blockchain to maintain state while interoperating with other chains directly for rapid settlement without bridging.

    • Fragmentation of Liquidity

      Protocols trap liquidity in specific chains and pools, limiting the availability and utility of that liquidity. This lack of liquidity depth limits DeFi’s scalability and is the primary driver of high slippage.

      OUR SOLUTION

      Liquidity in Deepwaters is truly liquid, free to flow to wherever it is most needed at any point. Pools are single-sided, which maximizes capital efficiency. Native cross-chain composability prevents the need for liquidity of any particular asset to be split across multiple chains.

    • Liquidity Treated as Sacrificial

      Legacy decentralized exchanges treat the liquidity they are given as sacrificial. LPs assume risk based on the volatility of the market, but are compensated based on volume. The result is impermanent loss which is often greater than the yields generated.

      OUR SOLUTION

      Liquidity providers play a different role in Deepwaters. LPs liquidity is treated as liquidity of last resort rather than sacrificial liquidity. While merely underwriting the ecosystem, they still benefit fully from transaction fees, regardless of whether their assets are ever used. This results in capital preservation and improved risk-adjusted compensation.

    • Inability to Scale

      The first phase of DeFi was an attempt to translate traditional finance, using blockchain technology exclusively. The resulting designs deliver inferior performance to traditional products. If we were to take the volume of TradFi and apply it to DeFi architecture, the system would fail - immediately and dramatically.

      OUR SOLUTION

      The path to that future can only be constructed with building blocks that are equal to or superior to the existing traditional finance offerings, regardless of blockchain idiosyncrasies. By solving the aforementioned problems, and sustaining four key design principles, we can achieve the final phase of DeFi: creating technology that is capable of broad adoption of blockchain technology by traditional finance. These four principles are:

      1. Unification of value for trading and collateral.

      2. Fair price and execution.

      3. Low economic friction

      4. Fair compensation to Liquidity Providers

dw manifesto

Deepwaters Manifesto

Decentralized finance promised to return the rewards of financial systems to the masses; this is not what it has delivered. Deepwaters intends to fulfill that original promise.

To bring this technology – and its ethos – to a broader audience, we must remove the barriers to entry and trade. There are several major obstacles that current generation DEX’s produce: slippage and front-running create inefficiencies for large traders, and high gas/platform fees make them less accessible to small traders. Liquidity becomes fragmented into pools, limiting its usefulness and increasing risk for those providing it.

There are a number of projects trying to solve one or two of these problems, but no platform solves them all - which will be necessary for DeFi to truly scale. Deepwaters is building a DEX that takes inspiration from some of the most innovative technologies in the industry, with a wholly unique foundation built on the principle of reinvesting profit back to the user, instead of extracting it from them. This will unequivocally be the most efficient decentralized exchange with the lowest platform risk, providing the basis to outcompete not only other DEX’s, but centralized exchanges and ultimately TradFi as well.

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