Statemint Update / Roadmap

That’s the thing here - I’m glad that you brought it up. It is not a commercial move at all. There are so many aspects to this that Parity shouldn’t, wouldn’t, and couldn’t own.

Rather:

or

Very glad to see that 1) there are so many first time posters! (Welcome :clap:) and 2) this discussion remains constructive!

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I’ve done some thinking into what makes a successful defi ecosystem recently. For any defi ecosystem, there has to be the (1) the right infrastructure (custodian multisig wallet, bridges, the DEX itself etc.) (2) liquidity and (3) the end user.

Right now, the vast majority of users who wants to trade on a DEX would prefer to do it in Ethereum itself because they have (1) and (2) fulfilled. Basically any non-Ethereum L1 is losing massively to Ethereum in Defi due to the infrastructure and liquidity already present in Ethereum.

Being an earlier ecosystem, it’s both the job of Parity as well as other builders in the ecosystem to build (1) and attract (2) and (3). Now, Statemint is whether we like it or not going to be the place where assets like USDT/USDC will be minted. When traders want to trade in Polkadot, they basically aren’t going to want to trade with wrapped USDT/wrapped USDC pairs but the native sufficient version which has to come from Statemint; also very few people would want to trade with Wrapped Eth pairs on Polkadot, since Uniswap V3 has native Eth pairs and way more liqiudity. Without a sufficient amount of USD stables, any DeFi eco is basically dead in the water.

As an “assets parachain”, Statemint should not just be able to generate the assets but also make it easy for institutions/end users to use and integrate with. Since Defi and the traditional finance world revolves around the USD, a first priority should be to figure out how to generate the maximum amount of USD stables (and maximize Statemint’s usecase). While I don’t personally think Parity should operate a full uniswap-V2 dex for many of the points previously pointed out, I think it makes alot of sense if there is some sort of mechanism within Statemint to encourage a DOT<->USDT/USDC swap alone.

Practically speaking, this Statemint USDT/C <> DOT pair would probably be quite liquid. Many DEXes in polkadot can draw from its liquidity through XCM and enhance their own DEX’s pairs (these DEXes can also have their own DOT to USDT/USDC pairs too), and Statemint would also be the preferred “one stop route” for CEXes and other institutions to integrate with Polkadot and bolster Polkadot’s overall liquidity significantly, due to Statemint being where the sufficient assets originate from.

Overall this would allow us to see greater liquidity across the Polkadot ecosystem’s many dexes and more end user demand. One end infrastructure goal that such an integration might enable would be a CEX being able to allow users to directly mint USDT/USDC with DOT because they are both working with Tether and have an easy integration with Statemint.

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Currently, the whole ecosystem is quite disconnected, there’s Hydra / Basilisk that is uniting them all etc etc.

I feel the pain and negativity coming from all DEX builders in the ecosystem regarding this proposal.
It’s reasonable and understandable.

I strongly believe that there should be a native StateminE/T DEX. At least for the dark times. There’s no deep liquidity on parachains / dApps at this point.

The first DOT crowdloan results were just horrible. In terms of narrative, Solana / FTX crush is actually one of the best momentum Dotsama had out there.

There needs to be a common good DEX providing basic functionality and, maybe, even gathering liquidity from other parachains.

Like a common-good 1inch for the whole Polkadot ecosystem.

StateminE/T DEX can act as the initial UX problem solution and eventually get terminated via governance vote, right?

What really important is solving the essential UX issue that each and every one of us is aware of.

It might help bring in a lot of new liquidity that will eventually split among dApps and parachains in the search for the best yield.

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strongly support this good idea. there no need have a DEX for many parachains. acctually I think most of the classic basic defi infrastruture which already verified on eth should be implement on common good chain. polkadot’s parachain also can benefit from it through XCM. and should explore other direction that other chain like eth can not do.

One thing that is becoming clear to me is that I have no idea what the scope of the “DEX” we’ve been discussing is. Would it be possible to enumerate the goals (and non-goals) of the DEX? Or clearly state exactly what the capabilities would be? A dex pallet that any parachain could integrate with sounds a lot different than something like Uniswap that is run by a team of product managers, engineers, and bizdev, so maybe we’re just misinterpreting what you are proposing (highly likely).

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I can see that a lot of people will have their opinions on the direction of adding a DEX to Statemint.

Here is my two cents.

I talked about a scenario like this here: How XCM will actually be used with XCMP

As stated in that post, we know for sure that asking users to constantly move funds between parachains will be very inefficient and provide a really bad experience for users. I expect that there will trivial DEX pallets deployed to many chains, even those outside of the DeFi world.

If we agree that statemint will be a hub which contains many different tokens (both fungible and non-fungible), it of course makes sense for there to be some functionality allowing users to trustlessly trade between different assets.

I do not expect that a DEX on statemint would be competitive to any dedicated DEX parachain (in terms of liquidity, UI/UX, or feature set). Nor would I expect there to be any kind of profit mechanism in this DEX, which might have made it a competitor to other parachains. If parachains do feel some single minimal DEX pallet is a competitor, perhaps they should question whether their parachain is bringing enough value to the network.

I also think, if another Parachain can offer a service which completely overshadows the DEX on statemint, then that is great! In some ways, a really base level DEX acts as a floor to our ecosystem, and we should push parachains to provide experiences which incentivize users to trade on their chain, versus keeping assets on statemint.

Finally, I would probably want to point out that thanks to our governance systems, no decisions made now or later has to be permanent. It seems backwards to our philosophy to be afraid to add some feature. Instead we should welcome experimentation (of course prioritizing security and safety), and let users decide how they want to use products.

It seems obvious to me that the upside at this time far outweighs any speculative downside.

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I personnaly strongly support this proposal as to me, swapping two assets is kind of a common good facility. But I don’t think either Uniswap v2 or any existing AMM based model (except aggregation) is the right way to do it.

I think this dex could bring more users to the eco as the dotsama’s store front, but it has to comply with some rules not to compete with existing dexes, such as not using KSM for incentivizing liquidity, acting as an aggregator, using fees to be redistributed via treasury, and focusing on best execution via order books instead of amms (acting as an aggregator for them).

I think the is a clear misunderstanding and fear of parachains/existing dexes potentially competing with this dex and creating a potential conflict of interest with DotSama’s governance and its own community. I think you guys are wrong.

There is a clear confusion by most of you guys about what brings liquidity into a market and what should and how it should be incentivized. As an ecosystem, we need to support each other and stateminE/T was exactly made for solving the free rider problem in any market, acting as a base model for parachains to develop themselves organically upon it.

I think there are few features that dotsama needs to implement in order to integrate with other ecosystems and eventually with regulated exchanges and institutions as well. Because in the end, only « users » will bring liquidity.

  1. EXECUTION

Any exchange needs to tackle execution as a fundamental feature of its architecture. It’s the primitive that brings liquidity to any market. Substrate’s current execution is not a priority as current dexes are too much focused on economic incentives. But someone as to tackle this. Like in a prisoners game, only a common good architecture can focus on this. That was common good parachains are all about imo: solving the free rider problem.

This dex would not compete AT ALL with any parachain if it could bring the best execution to the ecosystem. It could be done via l2s, TEEs, phat contracts or even « off-chain », and we could even build order books on top of these. On the contrary? It could bring more users to the eco, which we definitely lack of. Which leads me to 2)

  1. REGULATION

As an « official » product from dotsama, it will eventually have to be regulated as an exchange and thus look like an exchange: this statemint exchange could be the doorway to onboard new users to dotsama, as well as institutionals looking for a decentralized best executiton exchange (GSR, Jump, or even investment banks and asset managers).

  1. ANTI-TRUST RULES

There are clear rules that this dex should use not to compete with any parachain, such as never using KSM and an extra incentive for liquidity bootstrapping.

As a common good dex, it must serve parachains to bring liquidity to their ecosystem, not the opposite. But meanwhile, as an official product, it also has to remain independent from other dotsama dexes and not collude with any of them. This has to be taken very seriously by DotSama’s governance to protect the exchange and the well being of the ecosystem.

CONCLUSION

I think this common dex can only be the fuel to the DeFi ecosystem in DotSama. We already have so many pallets related to this to implement it and we could show the power of our DeFi eco via XCM by displaying them in an unified UI.

Last but not least, I’ll quote the GOAT who recently tweeted about polkadex:

« Finally, an exchange which looks, acts and feels like a CEX, coded on @substrate_io, hosted on @polkadot. @polkadex »

this is what imo is this proposal all about.

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It has been a while since I had my head in the market micro-structure/adverse selection literature, and I’ve just scanned some of the recent lit I’d consider reliable on AMM’s (Uniswap v1, v2, v3)… with that caveat:

I’m not convinced things are as settled as you suggest.

  • front-running (sandwich attacks)
  • price discovery
  • transaction cost volatility (effective spread volatility)
  • adverse selection risk
  • etc.

all seem reasonable metrics, to me at least. I’m far from convinced that, for TVL, “Of course it’s the right metric for a DEX”

Asking the question “Is volume and chain-specific TVL the right metric to judge?” tells me nothing about who should or “…should not be operating a DEX.”

Agreed?

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My premise, and experience, is that “regulated market” is, eventually, a synonym for “crony capitalism”, is that a core Dotsama use case? My initial impression was the opposite.

If the Dotsama DEX becomes regulated in jurisdiction X, do we pre-commit to evict all users from jurisdiction X? Or do we all get dragged into that regulatory regime?

Why?

If you’re aiming to be regulated… I believe you’ll find this statement the subject of evidence arguments that, contrary to the assertions of person A, the real purpose of feature/rule N, was to give effect to the collusive/anti-competitive objective you just articulated.

As I said above. Some people take anti-competition arrangements seriously. My understanding is that these arrangements have always been justified/rationalized as being for ‘the good of the public’.

Is there an implicit objective to have various legislatures pass laws granting Dotsama an exemption from such laws - like some politically popular sports enjoy in some jurisdictions?

Is it an objective of Dotsama to curry that political support?

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This may be the crux of the reason our points of view are diametrically opposed.

To my mind an exchange with objectively superior performance and governance could attract the liquidity of those users who value those metrics and governance features.

Who are those users? Well, first: what are the metrics and governance features?

Some users are sensitive to adverse selection risk. Others prioritize predictable execution costs. Etc.

Does the liquidity you desire reside with the users your exchange appeals to?

Is there a single exchange design that is optimal across all attributes all individuals care about?

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From a normal user’s standpoint, i totally agree with this guy. It’s hard for me to accept the reality when the “forcibly transferred” user’s asset from Acala’s team with the weight of their token to control the governance, what if i just trust Polkadot’s protocol, not parachain’s team, what DEXes (gas station) that i’m able to use to find a storm-shelter for hacks on parachain if not the one on statemine/t?

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I will comment only on the DEX side here.

As a power user of most L1s and someone who is by now absolutely jaded by the “DeFi” meme, I would tentatively support a Statemine-level DEX, with well defined caveats.

It is undeniable that every new DEX fragments liquidity and is by definition a vampire attack on all others, while also usually just introducing another perma-go-down token as a bribe, optimizing for presale whales. This system is a broken race to the bottom, and I think it is long overdue for a serious revamp - a Statemine-run DEX would, I think, force DEX teams to think outside the box, not to mention improve the UX across the board if truly abstracted as presented above.

However, liquidity is a serious problem as pointed out by others. The Statemine DEX cannot serve “as a floor” because if there is no liquidity on it, there is no liquidity. If the liquidity is too low on, say, Zenlink, there is no reason for the LPs that are there to pool together into Statemine DEX, not without incentives.

As such, I think the only way that DEX could be viable, apart from the Treasury itself LPing, is:

  • introduce an LP reward in DOT which should, in theory for DOT pairs, be around the staking profit % so that people have a reason to LP and risk IL
  • the DOT reward is funded by treasury, instead of a burn, redirect 0.2% to the DEX, like Kusama currently pays kappa sigma mu instead of burning KSM.
  • regular governance proposals can change this % as needed, as more pairs show up
  • introduce pool balancing such that a user-submitted setting proposal can change these, and use DOT governance to vote on this, so that if, say, USDT/DOT becomes unbalanced vs RMRK/DOT, it can be rebalanced with rewards (like Curve gauges)
  • automatically create a DOT/X pool for every X token which is voted in as sufficient, or is bridged from Kusama as already having been sufficient there, and automatically redistribute gauges on a weekly basis to include it in order to trigger a rebalancing, and attract LP and DOT holder attention, so that a manual rebalance can be considered
  • allow secondary reward pools on top of every pair, which can be funded by anyone at any time with any sufficient Asset. This will incentivize teams to add more LP rewards into every pool.

By doing something like this we force innovation, concentrate simple-DEX liquidity into an actually usable pool of volume, help CEXes integrate these volumes properly, and generally possibly do a lot of good for teams that want to build creative UIs and/or aggregators, or maybe even incentive models for their dapps which behind the scenes use this DEX.

I understand this is an existential threat to some DEX teams, just as the NFT side of things is for us, but sometimes stuff like this needs to happen so we can stop kicking the can down the road and dreaming of “if we build it they will come”. So I am cautiously optimistic about this direction.

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Look in any CEX at any L1 (or L2) and tell me what the highest volume pairs are for that asset: it’s the L1 (or L2 asset):USD stables pair, because that’s what institutional traders trade on and that’s what exchanges integrate with.

The only major advantage Statemint has as a DEX is because it’s a home for sufficient assets, which means its usage as a DEX would mainly involve users (primarily institutional) trying to enter the ecosystem through stables. and that’s why the only DEX solution that makes sense for both trading and integration is one with only a few pairs between DOT and sufficient assets. For a pair like DOT/RMRK, Statemint confers no advantage here over other DEXes, and other DEXes can simply do the same job but way better. In addition, limiting pairs allows people to focus resources on supporting that pair as much as possible and any funding from the Polkadot treasury in DOT to be spent on the things that matter most.

Therefore we should still do a DEX but limit it to only a few important pairs that empower other DEXes to innovate and draw from Statemint’s resources.

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Generally, I agree. However, that does not mean Statemint has to stand still.

I’m skeptical there is one DEX to rule them all, or even “most” of the users.
I could be persuaded there is one UI/UX and routing algorithm to rule “most” of them.

What preferences should that UI/UX reveal (in the sense of ‘allow Statemint to use’, rather than ‘expose a secret’)? DEX have incentives to help here as well as police each others behavior.

Asking users is hard, but each existing DEX should be obsessing on: what do our users want.
So ask them: what metrics (quantitative: minimum avg/median spread, minimum spread volatility, etc ) or characteristics (qualitative: KYCounterparty, etc.) are you targeting.

Then offer users a dream experience. DEX and user should be happy.

As a CGP the DEX’s can inspect the code and be confident Statemint doesn’t play favorites or misbehave.

Statemint could attract users and DEX (i.e. make both happy) if we can come up with ways to:

  • Preserve pathways for new DEX entrants (or different phases of maturity/development).
  • Provide new/refined UI/UX pathways for new user categories.
  • Provide opportunities for users to insure against any known risks (rather than exclude a DEX).
  • Allocate between DEX’s when two or more DEX have indistinguishable metrics/characteristics.
  • Preserve competition when the metrics of one fully/partially dominates another (related to 1, but could be a long-term feature/characteristic).
  • Allow under-performing DEX to fail (related to 1.).
  • Verify the performance metrics a DEX claims (part of the price of admission, but see 1).
  • Validate DEX qualitative claims (as above).

That is Statemint should be DEX agnostic. In fact it should be ignorant of the fact I’m running an off-chain LOB - as long as I don’t claim I’m running an on-chain AMM.

If all existing DEX refuse to participate or oppose something like the above, perhaps then Statemint would be justified in creating a standalone DEX?

Have we reached that point?

Dualyti.xyz should be considered as model for a DEX

I don’t agree. The most useful metric for any exchange when a trader wants to know if they’ll get a good price is “order book depth” which in DeFi translates as TVL. Higher order book depth = lower spreads and more efficient trading. Volume is a measure of how much trading activity occurs, and is also a useful metric. The metrics you listed are also useful, but less useful than order book depth (TVL) and volume.

That is a straw man - I don’t believe I indicated which is/are the most “useful”.
But, whichever you believe it is, hold that in your mind.
Now imagine 2, or more, DEX that are practically indistinguishable in terms of that metric… you’ll have to break that tie.

A coin-toss/RNG is certainly one approach.
However, if you are a DEX operator, for purposes of discussion say @Ben, or anyone who engaged in his exercise (which takes time and effort), you’ll likely have other metrics you can use to attract users.

Now, which metric do you say is the most useful? The very first one you had in mind (which is as informative/useful, at best, as an unbiased RNG), or the 2nd, 3rd, etc. that attracted a user by breaking a tie for them?

Retraction:

From what I’ve just said, my previous remark hasn’t aged well :slight_smile:
Apologies @Ben you’re approach would tell me something about a DEX operator.

Nonetheless, I still stand by my opinion that Statemint could be more useful (operationalizing user preferences via a sweet UI/UX) as a DEX distributor:

I cannot speak for others, but I can certainly say for myself that I am in no way afraid of a statemine/t DEX making parachain protocols redundant.

I am, however concerned that to solve the general problem of “How do we improve the onboarding UX” we end up implementing something a bit crappy which only compounds the problem. Not much imagination is required to think of scenarios where the poorly-incentivised pools end up making users pay far in excess to accept and transfer TOKEN_A across statemint. If you follow that thread far enough, you end up with a narrative being that polkadot is an expensive ecosystem to transact.

Let’s get away from “fear is the mindkiller” counter-point, and instead discuss what an efficacious solution would look like and how it would work.

If there is a common good dex, cex or whatever hybrid aggregator structure allowing to bring liquidity and to make cheap and efficient xcm swaps, I don’t think it should be on StateminE/T. It should be governed by another independent common good parachain, only focused on this dex.

I think StateminE/T could be saturated with these transactions and its governance and therefore runtime has nothing to do with DeFi.

Every parachain sector (DeFI, SocialFi, GameFi, Creator Economy, etc.) could have its own Common Good nemesis. I don’t think it’s bad, it just needs to act as an architecture/base layer for Free Market Parachains.

This Common Good parachain could have its own council managed by existing dexes, allowing them to handle conflict of interests internally within this Cooperative structure.

In the real world, we already see some companies merging into a cooperative structure to handle conflict of interests and be more efficient. This way, Free Market parachains can still operate and use this Common Good architecture as a base architecture upon which they create incentives to bring liquidity and stability.

To learn more about cooperatives : Our history | ICA

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circa 1776:

“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices."
A. Smith

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