0x’s RFQ for market makers solves DEX liquidity risks

with the new 0x RFQ, traders save time & money, while professional market makers enable larger DEX trades at competitively better pricing than before with less risks

By · Aug 27, 2020 . 5min read

Ox DeFi

Long time DEX solution platform 0x in addressing risks faced by professional market makers in decentralized exchange platforms releases Request for Quote (RFQ) API. This helps with efficient liquidity provision for medium and large trades as well as sustaining the ongoing DeFi growth.

0x issued a blog post to explain the present risks market makers face even while trying to provide liquidity support for medium and large trades. But with the new 0x RFQ, traders save time & money, while market makers enable larger trades at competitively better pricing than before.

Due to the gap that exists in pricing, DEXs have trouble supporting competitively-priced medium & large trade sizes. As a result, traders either do not trade large amounts at all or have to visit centralized exchanges.

As the post shows, liquidity providers must be willing to risk large amounts of money at one time. And this may be too risky for them, especially if the market price moves significantly in a different direction. At the moment, DEX order books have to run on Ethereum 1.0. This is a low-throughput decentralized back-end, traders suffer slow settlement speeds as well as expensive, non-guaranteed order cancellation. This becomes even riskier when arbitrage bots exploit these gaps to fill the order before it can be cancelled.

With 0x expanding RFQ users, market makers can bring in the needed liquidity from CEX to DEX without many risks.

0x already beta tested its newest RFQ among those calling data from its API. And it claims, RFQ market makers can price better than AMMs from the test results received.

0x RFQ market makers
How RFQ works, source: 0x blog

As the diagram shows, RFQ liquidity is only available to known applications using the 0x API. This ensures applications using the system are conform to set standards. Applications requesting RFQ liquidity provide the address of the smart contract or user who will be consuming the liquidity as well.

0x thinks this is a major game-changer and will spur even more DeFi growth. With results already positive as to how efficient the RFQ solution is, it says

In major pairs like ETH/USDC, 0x RFQ market makers already fill up to 50% of the trade volume requested through the 0x API

So professional market makers seeking to tap into the growing DeFi industry can do this with low risk.

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