Orbs is looking to bring DeFi into the mainstream with its Layer-3 blockchain network that’s designed to enable sophisticated on-chain trading features, such as advanced order types like futures, decentralized derivative markets and aggregated liquidity. Its goal is to deliver a decentralized trading experience that can match the one found on centralized exchange platforms.
The protocol does this by enhancing the capabilities of smart contracts and expanding blockchain interoperability, and it does it without bridging that liquidity across chains, minimizing the risk to users. It can be thought of as a decentralized backend that mirrors the kind of infrastructure that underpins CeFi platforms.
Why do we need decentralized trading?
Decentralized trading has emerged as a key demand for crypto users due to the lack of security and privacy found on CeFi venues. This is perhaps best highlighted by the spectacular collapse of the FTX cryptocurrency exchange, which was once the world’s second-largest crypto trading platform in terms of trade volume.
Despite being the favored platform of millions of users worldwide, facilitating billions of dollars’ worth of trades every day, it collapsed in a matter of hours once its under the table dealings came to light. As it turned out, FTX was taking user’s deposits to prop up its sister platform Alameda, which was engaged in numerous speculative investments and lost millions of dollars.
With CeFi exchanges like FTX, users are required to entrust their funds with the exchange platform, which creates a counterparty risk that’s unacceptable to the majority of crypto users. Decentralized money is not meant to be that way – users are supposed to remain in control of their funds, but CeFi platforms don’t work that way.
Decentralized trading also means greater privacy, enabling users to retain full anonymity around their finances. Things such as the assets they own, the value of those assets, their trading and transaction histories – these are all meant to be entirely anonymous. Yet with CeFi platforms ran by profit-making corporations that control everything, none of this is possible.
The other thing that decentralization provides is resistance to manipulation and censorship. When using a CeFi platform, there’s a distinct lack of transparency that makes it impossible to know if your transactions are being processed fairly. CeFi platforms are also free to block any user they wish, and they restrict access to those who are willing and able to pass KYC checks.
Limitations of decentralized trading
Decentralized trading provides all of the above benefits, but they come at a cost in terms of a lack of advanced functionality, issues in terms of interoperability, fragmented liquidity, higher costs and an inferior user experience. That’s the reason why CeFi continues to dominate the crypto world, despite its failure to give users the freedoms promised by Satoshi Nakamoto.
Perhaps the biggest challenge for decentralized trading is the liquidity fragmentation. DEX platforms facilitate trades by way of user deposits. They incentivize users to deposit funds into liquidity pools, offering them a portion of the trading fees in return for their capital, which is used to complete customer’s orders. The problem is that there isn’t enough liquidity to go around, particularly in the case of large volume orders. That’s because the available liquidity is fragmented, deposited into separate pools on various DEX platforms spread across numerous different blockchains that cannot communicate with each other. The low liquidity is the reason why DEX trades take so long to complete, and why they rarely go through at the user’s desired exchange rate
Another problem for DEX platforms is their inability to support advanced order types, such as futures and limit orders. This stems from the smart contracts used to facilitate orders, which cannot see off-chain data and therefore lack the logic necessary to process them.
How does Orbs enhance decentralized trading?
Orbs’ Layer-3 blockchain provides a supplementary execution layer for decentralized exchanges and dApps. By using its proof-of-stake consensus mechanism, it can facilitate complex logic and scripts that go well beyond what traditional smart contracts can support. This paves the way for Orbs’ innovative protocols for advanced order types, like dTWAP and dLIMIT, as well as its Liquidity Hub and Perpetual Hub, which are key to bringing CeFi experiences to the DeFi world.
In doing this, Orbs is able to optimize decentralized platforms with superior trading functionality, aggregated liquidity and on-chain derivatives.
For instance, the Orbs Liquidity Hub acts as a decentralized optimization layer that enables DEXs to draw on external sources of liquidity so they can provide more competitive rates on swaps. By aggregating liquidity from multiple platforms, it can help any DEX platform to cater to large orders with greater certainty and lower fees.
The dTWAP protocol paves the way for an algorithmic trading strategy known as “Time-Weighted Average Price” or TWAP, where large orders are divided into a series of smaller trades, executed at regular intervals over a predetermined period of time. The limitations of traditional smart contracts meant DEXs were unable to support TWAP orders, which is used to reduce the price impact of large trades. TWAP all but eliminates the price impact by spreading out larger trades over a period of several minutes, giving arbitrageurs the time they need to close price discrepancies and return the asset to its fair market price.
Meanwhile, the Orbs dLIMIT protocol enables the price-efficient and reliable execution of limit orders on DEX platforms, which cannot easily be implemented using classic smart contracts. While some DEXs do support limit orders, they often do so poorly, executing user’s trades at much higher prices than intended, or fail to execute part of the order at all. With Orbs’ dLIMIT smart contracts, DEXs have a way to ensure limit orders are executed at the user’s optimal price point with lower fees, and do so in a decentralized way.
Finally, the Orbs Perpetual Hub is a suite of services designed to enable on-chain perpetual futures. It has three components, including a “hedger” or market maker, which provides the liquidity to fill user’s orders, acting as a counterparty to trades. It can do this by leveraging external sources of liquidity, including centralized exchange platforms such as Binance, to ensure trade execution.
There’s also a “liquidator” that’s necessary to support leveraged trading. It’s a neutral third-party that’s tasked with liquidating user’s positions should their collateral value dip below the maintenance margin threshold. Finally, the Perpetual Hub provides a decentralized price oracle to bridge off-chain data to the blockchain.
Maintaining decentralization
Orbs maintains decentralization through its novel proof-of-stake consensus mechanism and the use of “Guardians”.
The Guardians play a critical role in the Orbs PoS model, enforcing the security of the network and supporting the protocol’s long-term vision, actively working with the community to make that vision a reality. One of their core responsibilities is to review the performance of the validators on the Orbs network, monitoring their operations and ensuring the network runs properly and securely. They do this by approving validators that abide by the protocol’s rules.
As such, the Guardians are representatives of the Orbs community. They maintain the network’s security by running validator nodes and ensuring that all transactions are processed as they should. Meanwhile, the Guardians themselves are kept in check by Orbs delegators, who assign their voting weight, or ORBS stake, to a Guardian of their choice, empowering them to maintain security and uphold the network’s greater vision.
How does all of this benefit DeFi traders?
Orbs improves the decentralized trading experience in a number of ways. For one thing, they enable DEX platforms and dApps to offer more advanced trading products and services to their users, including LIMIT orders and TWAP trading strategies, which could previously only be found on CEX platforms. As a result, DEX and DeFi users can execute more strategic traders while retaining full control over their digital assets.
A second advantage is that DEXs become much more competitive in terms of swap prices and transaction fees. The Orbs Liquidity Hub ensures that traders can execute their orders at prices similar to those found on CEX platforms, and those orders will be completed almost instantaneously, at once, without being broken down into multiple trades. The net result is that users get better prices with reduced fees compared to traditional DEX platforms.
The Perpetual Hub adds to these benefits, facilitating more capital-efficient perpetual trading experiences, resulting in superior pricing and lower costs.
The best thing of all is that DEX traders get all of these benefits without having to give up control of their funds. Because Orbs maintains full decentralization, users can enjoy a CEX-like trading experience with full privacy, anonymity and the highest level of security. No longer do advanced traders have to accept counterparty risk.
How will Orbs advance DeFi?
It’s not at all unrealistic to think that the wider DeFi industry stands to benefit immensely from the unique capabilities provided by Orbs. For too long, DEX platforms and DeFi applications have been held back by their limited functionality, a lack of liquidity and a poor user experience.
By providing DEXs with the same features and functionality as the most advanced CEX platforms, DeFi finally eliminates all of the key advantages that CeFi held over it. As more people come to realize the importance of decentralization – namely, retaining control over their funds, privacy and anonymity, the adoption of DeFi protocols looks sure to increase, bringing the industry closer to its goal of mainstream adoption.
