There is a decentralized exchange (DEX) for margin trading that strives to offer the same user experience as a centralized exchange, both in terms of order execution speed, liquidity and spreads.
It is called DMEX and is inspired by BitMEX, to the extent that it seems to have very little difference with its famous competitor. The main difference is that, being decentralized, it is also non-custodial, which means that funds remain in the full and exclusive possession of the users, while on centralized exchanges like BitMEX users must entrust the custody of their funds to the trading platform.
Generally speaking, DEXs offer limited liquidity, and very low execution speeds, but DMEX has been designed with a hybrid model, which provides that the order book and trading engine are managed by a centralized server, while funds and transactions are recorded on the blockchain.
In this way it is possible to execute orders instantly, while leaving users full ownership of the funds. In reality there are also other advantages over a fully decentralized DEX, such as the free cancellation of orders, given that traditional DEXs would require a new transaction with the related gas fees. In contrast, the centralized order book keeps track of order fills so that those already filled but still waiting to be recorded on blockchain are not filled.
To allow users to test these features, DMEX provides a demo version that runs on Ethereum’s Rinkeby testnet, and performs all the operations that the official version performs on the mainnet. Besides these advantages for individual users, there are also others of a more technical nature. For example, on centralized exchanges that allow margin trading it is possible to manipulate the price to liquidate a position in advance.
On DMEX this is not possible, because the reference prices (MARK PRICE) are recorded on the smart contract by a decentralized oracle, which is the only one that can do this. This means that the prices are not manipulable.
The main feature, however, is security, which is also the priority of the developers. First of all, all funds are stored on the public smart contract, so that they can only be managed by the same users who own them, in an exclusive and autonomous way.
Moreover, the same platform has adopted all the necessary security measures to make this DEX potentially unassailable. For example, the website uses a long-term SSL certificate of the domain, requires 2FA authentication for access, which uses front-end restrictions based on the IP address, and is protected by a firewall.
It also integrates MetaMask and Ledger Nano S wallets. No information regarding the funds is saved on the back-end of the platform, but only on the smart contract, and the users are the only ones who have the private keys needed to access their funds. Moreover, all transactions on the funds require the signature of the owner, and the smart contract of the exchanges cannot be altered. The oracle’s smart contract cannot be modified either, precisely to avoid hacking the price feed.
DMEX is based on Ethereum, but also allows bitcoin trading. To do this it uses pBTC, which is an ERC-20 token created by Provable that represents BTC 1:1.
This way users can exchange pBTC on DMEX exactly as if they were BTC, because they have the same value, and are supported 1:1 by bitcoin. In fact, pBTC tokens can also be redeemed at any time by receiving an equal amount of BTC, net of transaction fees, and this makes them perfect counterparts for BTC on Ethereum. When a user wants to deposit BTC on the DMEX smart contract a deposit contract is automatically generated which allows them to deposit BTC and get pBTC, all via browser.
DMEX allows three order types: market, limit and stop-limit. The latter are advanced orders with an additional activation price (stop). Its creators claim that it is the only margin trading DEX to offer market orders. This is done by creating a limit order with a price increased or reduced by 1% compared to the best order book price at that time, and this allows the execution of immediate orders at market price.
Fees & Leverage
Trading fees are at most 0.35%, but vary depending on the volume and type of orders. The minimum fee is 0.05% for limit orders above $50,000, while the maximum fee for limit orders is 0.3% for orders below $500. For market orders, or limit orders executed instantly, the fee ranges from 0.1% to 0.35%. A slightly higher commission is applied to orders that expire, and ranges from 0.2% to 0.7%.
DMEX allows leveraged orders, with four ranges. The first provides leverage of 10x or less, with orders of minimum size of $100. For higher leverage, higher minimums have been set, in fact for orders with leverage up to 25x the minimum must be $125, while for orders with leverage up to 50x a minimum order size of $250 is set.
The maximum leverage is 100x, but requires minimum orders of $500. Financing rates vary from currency to currency, and change depending on the type of order, i.e. perpetual or futures. The minimum rate is 0.011% for futures orders on BTC, ETH, LTC, XRP and BCH, whereas the rate on perpetual orders is 0.033% for these currencies. For other cryptocurrencies, higher rates are applied, i.e. 0.028% on futures orders and 0.083% on perpetual orders.
In the case of bitcoin, a fixed fee of BTC 0.001 is also applied on withdrawals, while deposits are free of charge. For ETH deposits are also free of charge, whereas withdrawals only require gas to be paid for the transaction. The website is already up and running, and orders are already executed almost every second. This suggests that it is liquid enough not to suffer too much from what is one of the main problems with DEXs: low liquidity.
The order book also looks lively, with several updates per second, fulfilling the promises of speed of execution of this hybrid but secure solution.