Read Binance Launchpool's new project HashFlow in one article
How to provide sufficient liquidity for the market is a common problem that all trading platforms need to face.
In the traditional order book trading platform, trading orders are reported by buyers and sellers separately, and are matched on the platform according to the principle of time and price priority. However, in this trading mode, for some trading pairs with small trading volume and not active quotations, it is often difficult for the buyer to find the seller, or it is difficult for the buyer and the seller to reach an agreement on the transaction price at the same time. This makes it impossible for any party to smoothly buy or sell assets, which in turn leads to a loss of market liquidity and hinders the smooth progress of transactions.
In order to solve these problems, traditional trading platforms have gradually established a market maker mechanism in their development. That is, by selecting some institutional traders with good historical reputation and strong financial strength, they actively provide quotations to the market, so as to provide liquidity to the market. Therefore, to become a market maker, you must undertake two additional obligations: 1. Report the transaction price to the market at any time; 2. As long as the trader is willing to trade at the quoted price, the market maker must unconditionally complete the transaction.
In order to accomplish the above two missions, market makers often need to establish and maintain a huge pool of funds so that they can meet the trading needs of traders at any time. It is precisely because of this that market makers relying on traditional trading platforms have become the largest liquidity aggregation centers on traditional trading platforms.
The rise of on-chain trading platforms
However, all this has changed with the rise of on-chain trading platforms. At present, the mainstream decentralized trading platforms on the chain are basically based on the automatic market maker (AMM) mechanism, which reduces the quotation function of the market maker, and instead automatically calculates the transaction price by the AMM algorithm. Therefore, under the new model, the AMM trading platform no longer needs a traditional full-featured market maker, and only needs the liquidity provider (LP) to continuously provide liquidity support to the platform to maintain the smooth operation of the trading platform.
Since then, the total lock-up volume (TVL) has become the most important indicator to measure the AMM trading platform. According to DeBank data, as of June 24, the total transaction size of the on-chain trading platform has reached 3.96 billion US dollars per day, and the total capital locked (TVL) has reached nearly 30 billion US dollars.
The thriving on-chain trading platform provides traders with more choices. But at the same time, due to high transaction costs and difficulty in changing user habits, many users and liquidity still remain in the off-chain centralized trading platform. The two trading modes each occupied a part of the market share, and developed in parallel for a period of time, resulting in a relatively obvious split in the originally relatively unified liquidity market.
The fragmentation of liquidity makes the same asset be repeatedly priced on multiple platforms, and it is difficult for users to obtain the best quotation in the entire market on the platform they are used to. At the same time, different market quotations also create a lot of arbitrage space for cross-platform arbitrageurs. So, is there a way that traders on the trading platform on the chain can obtain quotations off the chain at the same time, so as to reduce the loss caused by arbitrage?
Hashflow is currently working on solving this problem.
Liquidity aggregator beyond the on-chain and off-chain spaces
Hashflow is a decentralized trading platform deployed on the chain, dedicated to helping traders on the chain to directly obtain quotations from market makers off the chain. Through the Hashflow protocol, traders on the chain can obtain the best prices on the chain and off-chain trading platforms at the same time, and can trade at the best price. Of course, users can also leave this process to the protocol to complete automatically. Hashflow provides users with a built-in order routing that automatically selects the best offer for traders.
In addition, when the protocol is used to execute the quote order of the market maker under the chain, since the quote of the order is directly reported by the market maker, the trader no longer needs to pay the calculation cost of the AMM chain, which can save a lot of money. The gas fee further helps traders reduce the overall cost of transactions.
In addition, choosing to trade directly with off-chain market makers in Hashflow can avoid almost all the ills caused by the AMM mechanism.
For example, frontrunning transactions and sandwich attacks, which are hated by DeFi users, have caused a lot of losses to ordinary DeFi users. However, if users choose to trade directly with market makers on Hashflow, all of the above problems can be fundamentally avoided. Users no longer need to understand complex transaction curves, and no longer need to consider transaction slippage. The only thing they need to do is to choose a market maker quote and wait for the execution of the agreement.
For traditional market makers, providing quotations on the Hashflow platform will not be deprived of their quotation rights like market making on the AMM platform. Market makers can still price transactions in the way they are accustomed to, and apply mature market-making strategies that have been developed for hundreds of years and have been repeatedly verified by the market in Hashflow. The original organizational structure of the market maker does not need to be adjusted, and the original risk control strategy can continue to be used. The only thing that needs to be done is to compete fairly with the AMM platform for transaction quotations to provide traders with better transactions experience.
Of course, the introduction of a centralized market-making institution into an on-chain trading platform will indeed bring certain centralization risks to the entire system. Therefore, Hashflow will gradually reduce the admission steps of market makers, and finally make Hashflow a market maker quotation platform that does not require admission. All market makers who are willing to participate in on-chain transactions can easily access it through Hashflow. Finally, through sufficient market competition, better transaction quotations are provided for traders, and the risk of single point of failure that may be caused by the failure of any centralized institution is reduced.
Readers who are familiar with DeFi may be familiar with on-chain aggregation protocols. Indeed, Hashflow can also be understood as a liquidity aggregator. However, previous aggregation protocols were often limited to aggregating the liquidity of different platforms on the chain, and the greatest significance of Hashflow is that it extends the scope of liquidity aggregation from on-chain to off-chain. This connects a larger scale of funds and makes a more beneficial contribution to the improvement of the overall capital efficiency of the industry.
From the above analysis, it can be seen that Hashflow's innovation directly eliminates the obvious boundary between the two liquidity aggregation centers, allowing capital to flow more freely. It not only enables traditional market makers to obtain more business income, but also provides traders with better transaction prices, reducing the losses caused by arbitrage activities in the entire market. If we want to sum it up in one sentence, then we can say that Hashflow is the connectivity center for on-chain and off-chain liquidity, and an aggregator of the world's best transaction quotes.
The latest progress of the project
The Hashflow project has been recognized by mainstream investment institutions and has completed a seed round of financing co-led by Dragonfly and Electric Capital. The round was also joined by Alameda Research, Metastable Capital, Galaxy Digital, IDEO Ventures, Gumi Cryptos, Morningstar Ventures, and angel investors including Balaji Srinivasan, Kain Warwick, and Ryan Sean Adams.
At present, Hashflow products are not yet fully open, and users need an invitation code to experience the product. Interested users can go to the official website of the project to apply for a trial.
