In the traditional commercial market, 20% of products bring 80% of sales and 100% of profits. This is the so-called 2/8 rule, but the long tail theory breaks the traditional 2/8 rule. The long tail effect has given birth to a new long tail market. In the niche market, consumers' personalized needs are met, and new market rules are being established. The number of products is increasing, and users have more choices to choose from, releasing user needs. Long-tail product sales occupy more and more market shares. The value of the long tail market appears.

With the increase in consumer choices at any time and the increase in marketing methods, consumers can also choose products that were previously unavailable. Popular products are not the only choice for consumers. This results in the emergence of a long tail market.

Today, long-tail markets can be seen everywhere in any industry. Whether it is the digital industry market or the physical industry market, long-tail markets have appeared. Users’ choices are no longer just popular products, but also unlimited products. long-tail products.

The real shining point of the DEX discussed in this article is that it provides a long-tail market for digital assets.

From a business perspective, the decentralized exchange model is simple. It only needs to undertake the main tasks of asset custody, transaction matching and asset liquidation. It does not need to bear the non-trading functions that centralized exchanges need to bear, such as account systems, KYC, legal currency exchange, etc. The public key of the user's account on the blockchain is the identity. There is no need to register personal information with the exchange, so there is no personal information security issue and no KYC is required. The biggest difference from centralized exchanges is that all of this is realized through open source smart contracts, and asset custody, transaction matching, and asset liquidation are all placed on the blockchain. Smart contracts solve the internal operational risks, business ethics risks, asset theft and other risks caused by human factors in centralized exchanges that seriously affect the security of user assets. Users' managed assets can be transferred freely without anyone's approval, and security is fully guaranteed. Since users control their account keys in their own hands, the success of hacking attacks depends on personal account security awareness and habits.

Problems solved by choosing the underlying technical framework of Contract Mainland:

1. All assets and trading operations of decentralized exchanges are matched on the blockchain, so both Time is affected by the confirmation speed of the blockchain itself. Currently, transaction confirmation on Ethereum takes about tens of seconds, which is not friendly to the user experience. However, Contract Mainland has optimized the transaction chain. Only financial and derivative products can be deployed on it. Its matching is point-to-point centralized bidding matching using smart contracts on the chain. It is a completely decentralized method. If everyone Read and write data directly and on the chain, and the matching speed is higher than 3000tps. So the experience is completely the same as that of a centralized exchange.

2. Transaction costs will also be affected by the transaction fees of the blockchain itself, so transaction costs will become very high for small transactions. The platform currency of the Contract Mainland decentralized exchange is equivalent to the gas fee of the transaction. Unlike the gas fee of Ethereum, it is a very cheap transaction fuel. Currently, each transaction requires about 0.03 CLC, which is about less than 2 cents. , basically can be ignored.

3. Due to the low transaction processing performance of the blockchain network and the inability to handle large concurrent real-time transactions, the transaction volume and transaction depth are far inferior to those of centralized exchanges, and the liquidity is somewhat affected. limit. In essence, trading is not a technical thing. It includes technical security, financial security, and the overall provision of peripheral derivative services. From my perspective, I think the following points are needed: It is his explosive technique that matches him. Contract Mainland is a core node of these technologies, because it can cross btc, eth, usdt, and solves the problem of core traffic head transaction traffic in the transaction process. Head traffic probably accounts for 80%, or even more than 90%, then the transaction flow of other tokens is actually very, very small. Therefore, because this type of trading technology cannot break the chain, it is actually unprofitable. How to solve the liquidity problem? Contract Mainland is actually a decentralized financial platform, which is DeFi, which is popular this year. It actually solves the mortgage pledge of many multi-chain assets, including some complex financial derivative contracts. need. There is a complete ecosystem of decentralized financial applications. Because it supports multiple chains, it can provide a wider range of options products, OTC market transactions and business transactions. Therefore, Contract Mainland is the first choice for other financial dapps, attracting abundant external traffic and jointly promoting growth in this ecosystem.

4. Of course, there are also real disadvantages. Users themselves need to have sufficient security operation knowledge about the public and private keys of their accounts to ensure sufficient security. Otherwise, account loss and theft will often occur.

This cannot be avoided just through technology and products, but must be avoided through education and training before using the products.

For the convenience of reading, the following nouns will be replaced by English.

DEX: Decentralized Exchange

CEX: Centralized Exchange

One of the most obvious uses of blockchain is that it can conduct permissionless, Non-custodial asset transactions. Generally speaking, the way to achieve this purpose is through "decentralized exchange" or "decentralized exchange".

Although many DEXs are emerging, compared with most CEXs, only a few people use DEXs. (Binance alone can exceed 1,000 times the trading volume of the four major DEXs: Uniswap, Kyber, 0x, and contractland).

If decentralized exchanges are really the future trend, why are the data so ugly? Why does this happen?

The author’s hypothesis is that the DEX market is actually much smaller than people expected. The real shining point of DEX is that it provides a long-tail market for digital assets.

Because at other times, most people prefer to trade on centralized exchanges. (People are more willing to choose convenient and fast services) The so-called long-tail market of digital assets should lie in: tokens or markets that are not supported by centralized exchanges.

Unsupported tokens are either too small, too risky, or extremely competitive exchange tokens.

Too small refers to tokens that are below a certain trading volume threshold, generally referring to those tokens with sluggish trading volume.

High risk refers to tokens that are not highly regulated and have high risks.

Competitiveness refers to tokens issued by different exchanges, and their interests are conflicting.

To give a token that satisfies the above three characteristics, it is LEO issued by Bitfinex.

The only CEX that supports LEO is Bitfinex themselves, and they themselves are the issuers of the tokens. When LEO was first launched, the trading volume was very sluggish (the daily trading volume was only about US$5 million).

In terms of regulatory policies, LEO does not support the purchase of U.S. investors (Bitfinex can change the white paper or the monthly repurchase ratio of LEO at any time. Even if this is unlikely, this also makes LEO have high degree of uncertainty).

At the same time, LEO is in a competitive relationship with the platform coins of other exchanges. No CEX is willing to put its own tokens on other CEXs to generate a trading pair, because you have no way of knowing what they are doing on their own. In the centralized system, whether non-existent coins are used to conduct malicious operations. Therefore, if American investors want to obtain LEO, there are only two ways, OTC or DEX.

Unsupported markets are either new trading pairs (such as early ETH) or in a new trading scenario (such as games or applications, such as points, game equipment, virtual pets, etc. ).

If you compare these markets with those tokens that CEX is unwilling to support in terms of value, they may appear insignificant in the early stage.

But over time, these markets will become important if they can serve or meet the needs of the majority of people. (Let’s give a real example. For example, in the early days of Ethereum, there was not much value in legal currency. The real explosion point in the value of legal currency was in ICO).

DEX provides speculators with some distinctive services: a richer variety of digital assets and more markets.

Logically speaking, they do not need to compete with the mainstream and established CEX. Those emerging CEX are their competitors. Because emerging CEX may compete with DEX in more (currency) markets, but these CEX may be at a disadvantage.

Because when traders face these highly risky tokens and markets, they want to use non-custodial transactions to ensure the safety of their digital assets. Therefore, the future success of decentralized exchanges is closely related to the future success of the digital asset long-tail market. (The tail of the long-tail market needs to be long enough).

If you imagine a future where Bitcoin dominates the market, then there will be very few tokens with rights and functions that people can use, and the existence of DEX will become insignificant. important. (According to the previous article, most people prefer to trade mainstream tokens on CEX)

But if you imagine a future with millions of different tokens, many people will Use different tokens to obtain different services and benefits. Even if the market for these tokens only exists in the long tail of the market, then going to DEX is already very successful.

And we cannot rule out the possibility of DEX becoming mainstream:

1. If the trading depth and liquidity of DEX exceed that of CEX.

2. Regulatory pressure forces centralized exchanges to migrate to DEX (see Binance).

3. Innovation outside of DEX to create a huge local encryption user base.

For example, for web3-based applications, DEX can be used as a convenient exchange interface for games and applications. (Excluding DEX as a concept of decentralized exchange, the original meaning of "DEX" is decentralized exchange. Small decentralized exchange interface/plug-in will replace the existence of decentralized platform. Here it is more like a convenient value exchange

Some of the most common arguments I hear about DEX are (in order of frequency people mention them):

1 .Non-custodial transactions, users’ funds are in their own hands (reduces the risk of being attacked by hackers, and the project side loses money and runs away)

2. Anonymous (providing tools for secret transactions==). >Tax avoidance and capital flight).

3. A broader token market

But I bet that the above three points should be discussed in reverse as the important factors that determine the future of DEX. .

The broad market is the most important, followed by being used as a tool for capital flight, and finally ensuring the safety of transactions is something that only a few people care about.

I think many people. You don’t agree with this view, what do you think?

About LEO:

In fact, LEO has been launched on mainstream CEXs such as OKEX, GATE, and ZB. As a powerful stable currency, USDT. Bitfinex behind it has also launched USDC, USDK and other trading currencies. So is the former king beginning to decline, or have they formed a community of interests?

Why can’t CEX be the one doing the long-tail market?

Most project parties are actually unwilling to cooperate with CEX because they cannot fully trust CEX and cannot prevent them from doing evil. In addition, if CEX’s currency listing has increasingly no bottom line, both users and the market will suffer. , will become a tool for speculation, which will have a series of chain effects.

Decentralized exchange is more suitable as a small interface, such as P3D made by the famous team JUST. Decentralized exchange is more like a conversion P3D. and ETH value plug-ins. This is one of the author’s assumptions about the future of DEX, as a component of the application. 0X and Uniswap, however, provide users with more decentralized exchanges. The trading depth of the currency market is not limited to the exchange scenario of a single currency. It is more appropriate to describe it as a platform, whether it is a decentralized exchange or a decentralized exchange, they can provide users with financial security.

The difficulty is how to connect the long-tail market. For example, if it involves some markets that require cross-chain interaction, the labor cost will be very high.

If a distributed business architecture system or a new type of transaction matching algorithm emerges, it will completely subvert the existing centralized business model, and it will be more like a new human society. civilization. There are also some DEXs that embrace regulation for the sake of compliance (for example, Whale Exchange, whose users are involved in KYC issues), then it is difficult for this kind of DEX to become a tool for tax evasion and capital flight.

Technology and the market are in a parallel state, and the efficiency of centralization greatly exceeds that of decentralization, and security is always only the need of a few people, and it is also the easiest point to realize DEX. How to design a self-driven DEX to access the long-tail market may be a good direction.

Reference: /p/niche-markets-most-likely-driver