Gerrit van Sittert | August 17 2022
Gerrit van Sittert | August 17 2022
Aggregation vs Individual Exchanges
Aggregation and individual exchanges: what are the differences, and why does it matter? Exploring Decentralized Finance can take some time. There are many protocols and exchanges with which to trade crypto, and each platform has pros and cons.
While CEXs (centralized exchanges) are a great starting point for purchasing cryptocurrencies, custodial wallets can suffer from third-party fund management risks. DEXs (decentralized exchanges), although starved for liquidity, allow users to take control of their security while tapping into a wide array of assets. Exchanges started as individual entities and were the earliest services to offer public crypto trading.
Aggregators play a unique role in integrating multiple exchanges and offer unique trading opportunities. Orion Protocol is a one-of-a-kind platform combining CEXs and DEXs, utilizing the strengths of both to provide active solutions to mitigate individual exchange risks. Let’s have a look at aggregators and why Orion Protocol performs so well as one.
What is an aggregator?
Aggregators are a blockchain-based service where crypto traders can access a variety of financial platforms and tools through a single gateway. In DeFi, aggregators offer the best features of both CEXs and DEXs.
Orion is a unique CeDeFi (centralized and decentralized finance) aggregator, filling an important gap to deliver the best of CEXs, DEXs, and swap pools. Orion has a unique product that offers the deep liquidity of CeFi while benefiting from the decentralized technologies powering DeFi.
Risks and advantages of individual exchanges
Centralized exchanges are a good starting point for users entering DeFi who may not be ready for self-custody. CEX interfaces provide easy purchase features while taking care of asset and wallet custody. However, the opacity of user fund management and asset control can push users to adopt DEXs.
While the bankruptcy of Celsius highlighted the Traditional Finance’s risks of bank runs within CeFi, Coinbase’s $1 bn loss in Q2 of this year is a reminder that trusting a company with your funds means you do not know how your assets are being used.
DEXs provide a wider variety of assets as they do not operate under heavy regulations. The use of self-custody wallets also provides DeFi users the security of asset ownership and control. DEXs suffer from their own pitfalls. A trader may be required to perform swaps on multiple exchanges and, depending on the underlying blockchain used, gas fees can be exorbitant. DEXs represent a very small portion of total trading liquidity.
Benefits of trading with aggregated liquidity
Aggregators are a relatively new service in the industry that mitigates the downfalls of using individual exchanges. Trading with aggregated liquidity also allows users to tap into deeper and more varied liquidity pools.
Pain in the market remains; even DEX aggregators suffer from a lack of liquidity. A 2021 end-of-year review from The Block reported CEXs constitute 93% of the total market liquidity, compared to the remaining 7% of DEXs. Sufficient liquidity depth can only be truly achieved in a CeDeFi aggregator solution like Orion Protocol.
Orion’s liquidity aggregator
Orion Protocol helps users reach the liquidity they need through its aggregator, a unique technology combining DEXs, CEXs, and swap pools. Leveraging decentralized technologies, Orion’s product suite brings the best out of CeFi and DeFi, offering a complete trading experience to its users.
To achieve this, the protocol uses a variety of technologies; a Delegated Proof of Broker consensus mechanism, the Orion Terminal, Virtual Order Books, and more.
The Delegated Proof of Broker (DPoB) is the underlying technology allowing Orion Protocol to leverage decentralization while accessing both CEXs and DEXs.
Virtual Order Books (VOBs), on the other hand, are Orion’s answer to combining the power of complex swaps with classical order books. By aggregating order books from all the integrated platforms, Orion creates reliable order books for users to find the best trades, at the best prices, with the tightest spreads.
Through the Orion Terminal, users can connect their digital wallet to the protocol, trade on multiple exchanges, and have access to the VOBs, all in one interface. With unique trading dashboards, a competitive quantity of liquidity pools, and cross-chain swap features, the Orion Terminal provides the best trading experience.
Aggregators, the solution to individual exchange risks
As the DeFi space continues to grow and evolve, so too do the solutions that are being offered to users. CEXs and DEXs each have their own advantages and risks regarding fund management and wallet custody. In order to provide an optimized trading experience to users, a holistic solution is required.
Aggregators offer deep liquidity while leveraging decentralized technologies, making them an appealing solution for traders. Orion Protocol is a platform offering a unique approach to aggregation that merges CEX and DEX order books to provide a comprehensive experience for users.