DeFi
DEXs should focus on generating revenue
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“Disintermediation” is a buzzword that has been circulating in the challenge ecosystem for some time. It refers to the art of cutting out intermediaries to allow ordinary traders to connect directly to decentralized financial protocols, thereby providing access to various financial services without relying on traditional intermediaries.
In this space, the user is in control of their digital domain, with their assets secured in their personal wallet, giving them power over their financial journey. Decentralized exchangesor DEX, have emerged as a platform that promises to reshape traditional finance by providing users with the ability to trade without the need for financial institutions, embodying the principles of decentralization, transparency and financial inclusion.
However, despite their potential, DEX developers had to think of unique revenue streams. The decentralized nature of DEXs poses challenges in terms of providing liquidity, which is necessary for the proper functioning of any exchange and allows users to buy and sell assets without significant price slippage. Despite this, attracting liquidity providers to a DEX requires incentives, which can be difficult, especially when it comes to removing centralized mechanisms.
In traditional exchanges, market makers are often incentivized through various means such as rebates, trading incentives, and preferential access to certain trading pairs. Replicating these mechanisms in Defi while simultaneously preserving its principles of decentralization and autonomy presents a significant challenge.
Additionally, the security risk, hacks and smart contract vulnerabilities in the challenge sector have eroded the confidence of some users and investors. Security breaches not only lead to financial losses but also tarnish the reputation of the DEX itself. In challenge, reputation is everything, and restoring trust while mitigating risk is necessary for growth and stability.
The challenge space is also very competitive, with new projects and platforms constantly entering the market. This means that DEX developers must work very hard to differentiate themselves from their competitors while attracting users and liquidity. This is easier said than done, especially considering the learning curve that blocks community development and eventual profit generation. It is difficult for a DEX to make money if it is constantly dependent on outside liquidity.
Simply put, the old DEX model no longer seems to work.
That being said, some DEXs and automated market makers decipher the code by changing orientation. Unlike traditional DEXs which struggle to encourage liquidity provision without relying on centralized mechanisms, Astrovault directly profits from liquidity in an honest and transparent manner. By aligning its business model with the core business of the exchange, Astrovault ensures that its success is closely linked to the liquidity and activity of the platform. When traders engage in trading activities, Astrovault benefits from the liquidity pool, providing a source of income without compromising decentralization.
DEX platforms tend to operate opaquely and prioritize internal profit motives, but a transparent revenue model will ensure that its users can trust their platform and understand how it generates revenue.
A DEX monetizing its own liquidity is a rare feat, but it demonstrates how growing a community can strengthen its sustainability. This relationship fosters a cycle in which the success of the platform translates into tangible benefits for its users and drives further adoption. As Defi continues to mature, a DEX’s ability to monetize its operations will play a role in shaping the future of finance and opportunities within decentralized financial systems.