PONTEM x NOTIFI: CENTRALIZED VS DECENTRALIZED EXCHANGES RECAP
Replicating a CEX experience on a DEX
Thank you for joining us this week for our Fireside Friday. Today we’re excited to have the Notify talk with us on centralized and decentralized exchanges.
Notifi and Pontem have teamed up to bring you notifications for changes in prices and your liquidity positions – first on Liquidswap and soon also in Pontem Wallet. This can bring DeFi products closer to the level of UI that CEX users are used to.
With the Notifi integration, you’ll be able to monitor price changes and big fluctuations on APT or BTC, concentrated liquidity, new features, etc. - instead of being glued to their devices. This UI gap is a huge hurdle (together with costs) preventing DEXes from becoming the go-to place for all things crypto.
We aim to replicate the CEX user experience on decentralized exchanges, and notifications are a huge part of it. Luckily, we can do that natively in Web3 by sending notifications to a wallet: you don't even have to share a Web2 identity, like an email.
Notifi allows you to do this across all devices, making the experience more seamless. If we can make the user experience on a DEX as similar as possible, maybe even indistinguishable, from a DEX, more people will be encouraged to try self-custody.
Of course, there are other challenges, too, especially on-ramping: getting money into non-custodial wallets, which is something that most people use CEXes for. But small pieces like notifications are important, too, because that’s what makes life easy in Web2. People are used to being able to reset their password if they lose it, or to initiate a chargeback for an item that never arrived. But in crypto, once the funds are sent, they are sent.
Add to this having all the assets in one place on a CEX, being able to log in with a password that you can recover, buy any coin with Bitcoin, etc. - all this is hard to replicate on a DEX. You could make wrapped versions of all those assets, but maintaining liquidity would be hard. Plus, you’d be outsourcing trust to bridge providers, which haven’t always been reliable.
One interesting trend we're starting to see is Web2-style logins, like Gmail, in Web3. Next year we should see more of this: easy logins and helping users be less worried about losing their keys.
For example, Web3Auth enables multisig accounts where one of the keys is held by an MPC network, the second is held in your device, and the third is with your social login. As long as you don't lose your device or access to your social login, you can always get access.
There needs to be a stepping stone from the way that people traditionally access their accounts to Web3. But if you can get people to on-ramp money into crypto and then keep custody of their own keys, it would cause a paradigm shift.
Diversifying features: build vs. partner approach
Another challenge is that decentralized exchanges don’t offer as many features as CEXes Hardly any individual dApp has, for example, options or perpetuals, and lending or borrowing, all within one app. These are fragmented across different protocols. But there's nothing stopping someone from building a consolidated front end for all these, as long as people trust the backend protocol.
However, rather than trying to build it all yourself, it could be more efficient to form a consortium with other protocols focused on different products to target advanced features and segments. Also, centralized versions of perpetuals or credit are more complex than centralized ones, because if something goes wrong, you can’t undo the error in a decentralized protocol.
Next, a consolidated front-end can be added on top: something that looks like Binance would make it easier to use, but you would also avoid single points of failure and contagion. Of course, it’s very important to disclose what the different back-ends are and how they link these DeFi apps together. Pontem is already taking this approach through its partnerships with Aries Markets, and Notifi is looking into this, as well.
Using the wallet as an interface
Integrating blockchain applications into a single wallet interface is a way to improve accessibility and convenience for users. We will be launching Liquidswap soon, liquid staking, and credit will be made available within the wallet and this will get rid of using the browser as an intermediary.
However, trust is a significant issue that must be addressed due to the risks of smart contract vulnerabilities and economic attack vectors. Another issue that has been raised is the potential for companies like Apple and Google to act as middlemen in cryptocurrency transactions, taking a percentage of fees as they currently do with in-app purchases. This could pose a problem for the adoption of cryptocurrency as a means of bypassing traditional payment systems and their associated fees.
The Saga phone and other decentralized hardware solutions aim to address this issue by embedding cryptocurrency functionality directly into the device, making it easier for users to conduct transactions and potentially increasing adoption. However, it remains to be seen whether these solutions will be widely accepted by retail outlets and individuals as a replacement for traditional payment methods.
Integrating blockchain technology into the mainstream
The integration of blockchain technology into mainstream use requires a centralized experience that is easy and intuitive for users while maintaining the trustless and decentralized nature of the technology. This can be achieved by abstracting the login process to use a private key instead of a password stored in a centralized database, and replicating the user experience of traditional financial applications.
Onboarding new users can be made easier by eliminating the need for them to understand and navigate the complexities of different networks and cryptocurrencies. One solution for this is the use of trusted parties, such as exchanges, to manage private keys and provide secure custodial services for users. The ultimate goal of this approach is to make it as easy and intuitive as possible for users to adopt and use blockchain technology, while also ensuring the security and integrity of their assets.
The Future of Decentralization: Empowering Users and Challenging Centralized Control
Blockchain technology has the potential to offer users more control over their information and the applications they use. This is particularly important in light of the censorship and control exercised by central parties such as large tech companies. Many people are now waking up to the costs of giving up their information for free services, and are seeking more decentralized alternatives.
This trend is being driven in part by the failures of traditional financial systems and the desire to return to a core ethos of decentralization and ownership of one's own keys and tokens. While decentralized applications may not be as convenient as centralized ones, they offer the potential to create a new paradigm shift that puts the power back in the hands of users.
The key to making this transition is building trust and making it easy for people who are used to centralized applications to feel comfortable using decentralized ones.
The Lindy effect
Decentralized platforms such as Solana and Aptos offer faster and cheaper alternatives to Ethereum, but Ethereum still has a strong network effect due to its longevity and perceived safety.
Similarly, Bitcoin's influence is partly due to its "Immaculate Conception," with the unknown identity of its creator, Satoshi, adding to its mystery and appeal. This is an example of the Lindy effect, where the longer a technology or application exists, the more stable it becomes.
Exploring the Possibility of the Singularity
It is believed that the singularity – a hypothetical point in the future when artificial intelligence will surpass human intelligence, is a possibility. Machine learning algorithms are becoming increasingly advanced at completing specific tasks, such as self-driving cars and speech recognition.
The use of cryptocurrency could potentially enable the singularity by allowing machines to transact value with each other without human intervention. These independently motivated machines could interact with each other, leading to a future where they can perform tasks without human assistance. However, the idea of the singularity is both exciting and potentially worrying, as it is unclear how it would impact society and the role of humans.
Immutability vs Upgradability
In the context of blockchain technology, the term "immutable" refers to the inability to change or modify a smart contract or code once it has been deployed on the blockchain.
This is in contrast to "upgradable" contracts, which can be modified using a private key or multi-sig system. One benefit is that it allows for bug fixes and security updates to be made to the dApp or smart contract. This can be important in the event that a critical bug is discovered, as it allows the issue to be resolved quickly without having to launch a new version and ask users to migrate.
Immutability is seen as a key feature of blockchain technology, as it ensures that the code cannot be altered by a bad actor or external force. However, some decentralized platforms, such as Solana, have introduced the concept of an "upgrade authority," which allows for the modification of contracts using a designated key. This has raised concerns about the potential for security vulnerabilities and misuse.
It is important for users of decentralized platforms to understand the differences between immutable and upgradable contracts, and to carefully consider the implications of these differences when choosing a platform or interacting with a smart contract.
Liquidswap was designed to be immutable, which means that it cannot be changed or altered. This was achieved by throwing away the private keys that were used to create it so that no one can modify it. Although there are parameters that can be updated such as the fees, this can be achieved via a multi-sig and soon a DAO of token holders.
ABOUT NOTIFI NETWORK
Notifi is a platform that builds cross-chain communication infrastructure and tools for Web3 projects. Its goal is to help onboard more users into the Web3 ecosystem by improving the way that projects communicate with their users and communities. Thanks to an upcoming partnership between Notifi and Pontem Network, the Notifi team will integrate both Liquidswap and the Pontem wallet – more details on that soon.
Pontem is a product development platform that enables global financial inclusion through blockchain technology. Pontem is developing the infrastructure and decentralized tools necessary for the adoption of the fastest and most scalable layer-one blockchain – Aptos
The Pontem wallet is the gateway to the Aptos ecosystem and it is available as a Chrome extension, Firefox extension, and an iOS application. Users of the Pontem wallet can send and receive tokens, connect to decentralized applications, and explore the Aptos ecosystem.
As a result of its partnership with Aptos, Pontem has developed the foundational dApps, EVMs (such as the Move Playground), AMMs (such as Liquidswap), and other infrastructure (such as ByteBabel) needed to adopt its layer one blockchain.