Ryoma Martin | August 31 2022
Ryoma Martin | August 31 2022
The Value of Orion’s Virtual Order Books
Throughout the history of trading, order books have been an integral part of Traditional Finance (TradFi). However, the surge of Decentralized Finance (DeFi) gave way to a new peer-to-peer automated trading system with Automated Market Makers (AMMs). As the current proposed systems are rather inefficient and slow, Orion provides an innovative solution in its Virtual Order Books (VOBs).
The need for VOBs came from a growing need to reconstruct TradFi services into the DeFi ecosystem. The current technological features of DeFi are limited by the mechanics of blockchain systems. In fact, considerable players in the market, such as Uniswap and PancakeSwap, only allow for simple operations such as direct buying and selling of tokens, i.e. simple swaps.
When the time comes to make more complex transactions involving multiple simple swaps, emerging Decentralized Exchanges (DEXs) have a hard time providing the same quick and efficient experience TradFi technologies currently deliver. To fully understand the problem VOBs solve and why they are necessary for the DeFi space, a closer look at the current market state is required.
What is a Virtual Order Book?
A Virtual Order Book is the name for Orion’s proprietary technology that displays tradable assets from the order books of all integrated exchanges. This results in compiling an optimized “virtual” order book, pulling the best prices on the market while minimizing spreads and slippage.
A traditional order book, for instance, is a list of buying and selling orders, organized by prices. An order book requires strong computational capabilities as it must store and execute countless amounts of trades while calculating asset prices and displaying them accurately and timely.
Because Centralized Exchanges (CEXs) represent the largest amount of liquidity and activity within the cryptocurrency space, only CEXs could leverage technologies powerful enough to handle and execute all of their orders, until now.
With the way they currently are, DEXs cannot create decentralized order books as efficiently as CEXs. The sheer lack of liquidity and supporting technologies create slow and inefficient order books, with lagging price feeds.
Because Orion can pull CEX liquidity with DeFi technology, the platform democratizes access to optimized order books. VOBs provide the best asset prices available by pooling liquidity pools together, allowing complex swaps and negative spreads for optimal arbitrage opportunities.
What are complex swaps?
Whereas simple swaps are a straightforward exchange of token A for token B, complex swaps allow for potential additional swaps required for optimal asset prices.
When aggregating multiple liquidity sources, new swap “routes” are made available. Trading token A for token C, and trading token C for token B could be cheaper than performing a direct token A to token B swap depending on liquidity pools and asset availability across protocols.
Why aren’t other aggregators doing this?
The reason other aggregators fail to bring forward a competing product to Orion’s VOBs is simple. Functioning DEX order books are a complex technology to roll out. Because Orion’s economic advantage lies in being able to bridge the gap between CEX liquidity and decentralized technologies, Orion is able to capitalize on unique opportunities.
In order to recreate a similar technology to VOBs, one must consider the current state of DeFi technology. With only two years in the books, Decentralized Finance is far from perfect. The same way TradFi evolved from paper order books to powerful computer algorithms, blockchain’s technology requires significant innovation.
Additionally, CEXs and DEXs are very different systems; aggregating both is pragmatically difficult. The competition for aggregator technology is limited. DEX aggregators still run into the same problem of liquidity issues, while CEXs hide behind their proprietary technology. Routing all those systems together to make one virtual order book requires strong integration technologies few besides Orion have uncovered.
Another factor to consider about order books is the lack of liquidity in DEXs compared to CEXs. Without proper liquidity, market participants cannot access optimized asset prices, transaction speed and slippage. Current DEX order books must compete against CEXs; the additional fees used to transact on-chain, and security risks related to smart contracts for off-chain processes can scare away potential users.
Ultimately, a solution that provides CEX-level liquidity while providing the decentralized, peer-to-peer financial services of DeFi is necessary.
What makes VOBs useful? Why are they necessary over the long term?
Virtual Order Books solve an important problem within the DeFi ecosystem: liquidity fragmentation. Because there are so many different protocols and exchanges, the DeFi trading experience is a complex and time-consuming endeavor.
For Orion’s users, VOBs provide smart aggregation technologies that make all integrated markets more efficient. Tapping into the liquidity of CEXs, DEXs and chains, users can access better asset prices, arbitrage opportunities and unique liquidity pools.
While integrating all the different platforms into one, Orion can also bring considerable volume to its platform. Over the long term, Orion’s service will unite the current DeFi market, creating fewer discrepancies in prices and further capturing different revenue opportunities to bring real yield into its ecosystem.
Improving DeFi with Orion’s Virtual Order Books
In order to compete against TradFi, DeFi protocols must bring innovation to their financial services. Orion’s VOBs are one such innovation, compiling CEX order books and liquidity with DEX technology.
Orion is unique in how the protocol poses a solution for aggregating liquidity from both DEXs and CEXs. It makes Orion difficult to replicate, and highlights the Orion aggregator’s value add. By uniting the fragmented markets across CeDeFi, Orion provides unique opportunities for users while building a better DeFi with Virtual Order Books.