Econia Thesis: On-chain Orderbook DEX Meets TradFi Scale
A high level thesis of the on-chain orderbook DEX landscape going into 2023
By: Cody Garrison | 2/16/2023
If the anticipation of dYdX Chain and the relaunch of OpenBook aren’t exciting enough, or GMX continuously eating market share with users receiving ‘real yield’ – the OCOBO market is far from its end game, and even further from TradFi scale in my opinion. While DEXs are probably the purest example of product market fit to come out of last cycle and a strong investment opportunity in being revenue generating marketplaces, its widely known that AMMs lack the ability to allow for true price discovery and limit the user experience in many facets. Orderbook DEXs allow users to leverage a more traditional trading experience, capture price discovery, yet TPS limitations ultimately can’t keep up with market makers to refresh quotes, causing wider spread. The Current L1 / L2 / app-chain infra doesn’t have high enough TPS for a high throughput DEX to scale to TradFi / Wall Street levels.
In come Aptos and Sui – two new polarizing L1s that I approach with skepticism. After all, the debate over whether we actually need more block space is a valid one. Yet certain use cases, in particular – unlocking ‘web scale trading experiences’ does call higher throughput infra at the consensus and execution layers – and for that reason I’m looking into primitives being built on Aptos. With 100-200k TPS the on-chain orderbook DEX environment begins to look more interesting. Higher TPS brings a lower latency trading experience with tighter which has the ability to attract wall street grade liquidity and traders outside of crypto-native cap tables in the next expansion cycle.
Econia interests me from an investment standpoint for two reasons 1) it’s the first mover fully-on-chain orderbook DEX on infrastructure that can for the first time support such a marketplace at scale, and 2) they are building an open source engine focused on abstracting their technology to be a pillar of Aptos DeFi settlement.
