0/ Some thoughts on the upcoming evolution of liquidity in the DEX market

TLDR - the DEX space is going to look and feel a lot more like the CEX space (deposit, trade, withdraw), but it will retain DEX& #39;s native non custodial and censorship resistance
1/ There are two core problems at hand: gas fees (which is a function of throughput), and latency

Gas fees are high now (partly because of some ponzis), but mostly because DeFi is growing!
2/ The other challenge is latency: FutureSwap ended their alpha because of a lot of trades were just arbs, and the same is true with Synthetix and other DeFi trading platforms

Basically, they can& #39;t update their prices fast enough, so arbitrageurs wreck the liquidity providers
3/ Synthetix has done a public demo with Optimism, and most of the major DeFi trading venues are all considering some sort of layer 2 solution such as @SkaleNetwork
4/ Most of the layer 2s have instant deposits, but not all of them have instant withdrawals. In fact, the ones based on ORU have 1-week withdrawals!
5/ Will the various defi protocols converge on a single layer 2 protocol and instantiation?

Very unlikely, because each of the layer 2s comes with different trade offs, and so each DeFi protocol team is optimizing for different things
6/ This has other interesting side effects:

For example, this reduces the efficacy of liquidity aggregators like 1inch and http://dex.ag"> http://dex.ag  because l2 trades become non-atomic
7/ Since all of these layer 2s by definition require 100% collateralization - and it& #39;s very unlikely any of them will support cross collateralization - liquidity is going to fragment and become *worse*
8/ How do you solve this problem? Not clear. Even eth 2 doesn& #39;t really solve this problem, as sharding creates the same basic problems as well

Feel free to weigh in with thoughts!

{fin}
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