Order book model
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Order book models are crucial in centralized exchanges for several reasons. According to , founder of dYdX, order books support advanced order types like stop and limit orders and provide better liquidity, which is essential for professional traders. Juliano explains that most volume in the crypto space goes through the top markets, and order books help capture this volume and offer the best user experience and liquidity. This level of service is difficult to achieve with automated market makers due to the capital requirements 1.
In the context of decentralized finance (DeFi), the limitations of order book models on platforms like Ethereum have led to the dominance of Automated Market Makers (AMMs). points out that the high costs and complexity of running an order book on Ethereum make AMMs like Uniswap more appealing. Order books often require off-chain solutions for efficiency, whereas AMMs offer simpler interaction models that fit the current constraints of Ethereum 2.
Furthermore, , founder of Compound Protocol, underscores that non-order book protocols in DeFi are often more user-friendly and efficient. He asserts that interacting with a smart contract, or "money robot," allows for single-player mode operations, eliminating the need for multiple users to match orders. This peer-to-contract model has proved more effective for DeFi applications compared to traditional peer-to-peer order book systems 3.
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