Cryptocurrencies are inherently unintuitive. The first question on many people’s minds is: How do I do it? How do I buy and sell crypto?
Most people turn to an established exchange to purchase Bitcoin with fiat. After getting better acquainted with the topic, this same person might buy, trade, and speculate on the over 3,500 cryptos currently in existence. But exchanges are all different and have their own issues. Unfortunately, these hiccups can act as barriers to attracting a wider audience. Many of these backend issues can be alleviated with the help of Constellations Labs’ Lattice protocol.
Investors/traders like easy to use software. This is why the graphical interfaces replaced command prompts. When we consider all the exchanges in the space, Coinbase is probably the most user-friendly. The colors are well-coordinated, the charts are clear, and the limited number of offerings keeps away analysis paralysis.
Can Lattice improve interface design? Probably not, as Lattice works on a foundational code level and not UI.
In a perfect world, the price of an asset would remain the same for an executed trade. Buying one specific token typically does not change the price, but buying 1,000 tokens may due to diminished liquidity. In short, “slippage” is when a trade executes at a price slightly different than what was specified, causing the price to go up or down. Decentralized exchanges like Uniswap encounter this problem all the time because they depend on users for liquidity. In this case not only do users not get the price they wanted, but they also have to pay high Ethereum fees.
There are a couple ways to address slippage. For simplicity, the most obvious is to increase liquidity. Established exchanges like Coinbase and Binance have enough to handle high demand. This is not so for their smaller competitors.
Injecting liquidity into a financial ecosystem is not a new concept. Banks will lend liquidity (money) overnight to other financial institutions. In the crypto space, there are several liquidity providers offering services to centralized exchanges. Bringing this functionality to a decentralized environment is the issue at hand.
One way Lattice alleviates this problem is by coordinating with other liquidity pools to negotiate an agreeable rate. This liquidity can be utilized during high volume trading times. By doing this, smaller exchanges will be able to function more akin to their brawnier counterparts.
Once we get past consumer-level functionality, exchanges need features that cater to amateur and professional traders. Limit orders, derivatives, margin trades, etc., are commonplace on exchanges like Binance and FTX. These platforms can accommodate more advanced functions because of their centralized nature. But to duplicate these trading tools DEXs need to innovate. As our previous article noted, this requires more computational flexibility than Ethereum can comfortably handle. Luckily Lattice is built with this kind of processing power in mind. The team is building tools to achieve this at scale.
Once this is achieved, developers will have more than enough resources to deploy on Lattice. Borrowing, lending, yield farming, and whatever the newest fad to come along will all perform on the Lattice network.
Fees and Speed
Let us go back to Uniswap for a minute. Uniswap utilizes the Ethereum network, which is limited to approximately 10-20 transactions per second. When there are too many transactions, fees determine which are processed first. This is what accounts for the large costs when trading on Ethereum blockchains.
Since Lattice is built upon Constellation Labs’ Hypergraph Transport Protocol (HGTP), there will be no unwanted slowdowns or high fees. Most transactions will be fractions of a penny. The reason for this is Lattice’s near-infinite scalability and ability to process thousands of transactions per second. In fact, there is enough scalability in the architecture to handle the volume for multiple Uniswap-sized DEXes. As there is no congestion or competition to get a transaction processed, there is no need for fees.
Exchanges have come a long way since Bitcoin began trading. The user experience is better and the underlying technology is in a constant state of improvement. So far centralized exchanges have benefitted the most from these improvements, partially because migrating complicated functions to decentralized platforms is a monumental undertaking. While the world waits in anticipation for Ethereum 2.0, the team at Lattice is looking beyond that to serve a larger audience.
The Daily Chain
*Disclaimer – DAG is our Media Partner, and this content is possible through their support. The above article does not represent financial, investment or trading advice and we do not recommend the purchase of any cryptocurrency or product without consulting a financial aid. The Daily Chain strongly encourages you to do your own research before making any investment decisions.