Comment by Uptrenda | Hacker News Reader

Comment by Uptrenda | Hacker News Reader

Just another day for Bitcoin exchanges. The sad thing is the technology exists for fully decentralized exchanges (and has for a while.) There are actually multiple 'smart contracts' that allow money to move directly between peers without the need for centralized deposits. E.g:

- micropayment channels -- send money a piece at a time

- cross chain contracts -- bind simultaneous release of funds to a shared secret

- lightning channels -- cross-blockchain stateful commitments

- reputation -- not great but can still work

The order book is another part that can be decentralized. It's a little harder to do this due to the need for high speed communication but I believe its possible. Newer blockchains like Solana have different consensus algorithms that allow for a 'global clock' to be created with minimal bottlenecks. It wouldn't be as fast as everything sitting on a server but its performance would be adequate for traders, IMO.

Bonus section: dark pools could be created with SGX or MPC protocols. There are some popular decentralized exchanges at the moment. But IMO they will need more features that traders are familiar with to be competitive (there's more than just currency pairs and limit orders tbh.)

Also: big shout out to https://www.projectserum.com/

I guess most people use exchanges for the possibility to interface with non-crypto currencies, right? I don't think you can set up a dollars-Bitcoin exchange without centralized exchanges.

Well, everyone has their own bank account. There's a lot of potential there to just transact directly. You would have to design the deposit layer to be someone efficient though so traders can still use credit. But I think its possible.

To give you an example there is this application called https://bisq.network/ that uses double-sided collateral in contracts to trade fiat currencies. There might be the potential to link this up with SSL, too. I've seen this application that can provide proofs that a page was in your browser https://tlsnotary.org/. Use that to prove a bank transfer happened on an SSL page and you've got yourself a dex that can work trustless with oracles.

> can work trustless with oracles

Isn't that a contradiction in terms?

The amount of trust will be limited to trusting that the bank is showing your balance correctly and that nobody stole their SSL keys.

Or, more likely than stealing their SSL keys, found a “vulnerability” that caused whatever string the smart contract is looking for to appear in a signed request from the server. I put vulnerability in quotes because it's not clear to me that that is not something banks would consider part of their threat model.

It's kind of like how SMS messages worked fine until “if I can read an SMS sent to your number I can withdraw from your account” became part of the threat model.

Sounds technically interesting. However, it seems that they can't accept credit cards and transactions take some time, so I guess that most users will end up flocking to centralized exchanges for a better experience.

>Well, everyone has their own bank account. There's a lot of potential there to just transact directly

The technical problems with that are much less important than the legal problems.

It's likely that the IRS will maul users (unless they report every transaction as a tax event!), and the bank may refuse transactions. Users may even ask the bank to refuse transactions, and then your collateral isn't really a collateral.

https://app.osmosis.zone is a fully decentralized exchange with zero fees where you can trade any token including stable coins like (UST e EEUR)

> the technology exists for fully decentralized exchanges

Don’t these DeFi projects have an even worse track record than the centralised exchanges?

Uniswap works. Just the fees are too high.

Uniswap governance just voted ~two weeks ago to deploy UniswapV3 to Polygon . I've never paid more than a penny for any Polygon fees so hopefully this along with wrapped version of coins will reduce my need for Ethereum. Other DeFi exchanges such as SushiSwap have already gone multi-chain to multiple chains as well. Mark Cuban recent talked about the BCT (Base Carbon Tonne) token which unless you mint yourself (via staking a real carbon credit in the real world) you must get via SushiSwap on Polygon at this time - I think he just invested another 50k into it

I will say one thing about Mark Cuban - he's deep into the DeFi/dApp world and seems to actually know his stuff on a deep level.

NO. Uniswap does not work. There are too much details but. In short it just works when there isn't volatility and there aren't many people trading so their trades doesn't invalidate each others trades because of high slippage which has to be set low because otherwise arbitrage bots exploits slippage tolerance.

I've been curious about decentralized exchanges. When you say they have a bad track record, can you share some examples? Uniswap is the one I know of, as far as I know it has a fine track record.

Check out rekt.news if you want a long list of defi hacks, including many decentralized exchanges.

Of course, the code running a DEX is fully auditable by anyone, unlike the code powering a centralized exchange.

Would there be much benefit? Hacks happen because of two reasons:

1. Bugs 2. Social engineering

In a decentralised exchange you increase your vulnerability to 1 trying to get rid of 2 on the exchange side, and I'm unsure you can offer the features that the bulk of traders want on a decentralised exchange. Actually, I'm sure (enough to bet 50 $ on it if there is a way to properly specify it) that the most important thing cannot be offered by decentralised exchanges: cashing out to pay your taxes in fiat.

On a decentralized exchange, users custody their own funds. So if a user gets hacked, it's not on the exchange. The only exception is liquidity providers, who give money to a contract.

Yeah, but what if the contract implementing the decentralised exchange has a bug?

Well, then any LP funds in the contract are in jeopardy, as are any transfers to the contract. That's a lot less painful than all users of the exchange getting robbed.

So the theoretical "bug bounty" is way lower on a decentralized exchange. Decentralized exchanges have a smaller attack surface than centralized exchanges, and be publicly & professionally audited. That's why they don't usually get hacked.

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