Maladex is one of the many decentralised exchanges (DEX) working towards mainnet deployment on the Cardano blockchain. Besides providing liquidity to the Defi ecosystem, the team behind Maladex is also working towards more ambitious goals in bringing more elements of Tradfi (Crypto Indexes, Crypto Financial Deriatives etc) onto its platform so that it can be accessible to all.
Maladex has also recently released its whitepaper v.1 , which is very technical in describing its proposed solution to the over-magnified concurrency “issue” faced by users on a Extended Unspent Transaction Output model [EUTx0, and itself a novel approach implemented on Cardano], through programmable swaps; and to tackle more serious concerns relating to high impermanent loss and lack of capital efficiency. There would be 2 more condensed versions of their whitepaper released in a couple of weeks.
Challenges of a Cardano-based Dex
In any dapps/ dex development on any blockchains, the accounting model is fundamental. While Ethereum uses an account-based model ,where the global state is shared and all operations are applied sequentially. Cardano uses the ETUxO model, where all assets are stored in boxes that can only be spent using private keys and a Plutus script, with the total input equaling the total ouput. Each eUTxO must be spent when used, therefore it can only be used once per block (20 seconds).
In addition, Cardano also has a scaling issue with each transaction memory limited to 16kB and each block memory limited to 65kB.
There are 3 main consequences due to the above protocol design
a) Concurrency -> progressing of the same task by multiple agents at the same time, which implies communication between agent
b) Arbitrage/ Slippage –> losses due to inefficiencies of the capital market between exchanges or the trading price difference between an expected vs executed order.
c) Impermanent loss –> the loss of capital in comparison if it had been made “HODLing”, instead of investment in the liquidity pool, due to inherent flaws in the fund formula of liquidity.
Maladex proposed solutions
a) Concurrency –> Programmable swaps stored as NFTs on chain( with verifiable data defining a set of triggers). These programmable swaps are composed of 2 phases (commit – which sends a commitment to the blockchain for a certain action and execution – execution of commitments resulting in trades happening). Frontiers, subdivided into active (all triggers met) and inactive (at least 1 trigger is inactive), significantly improves the efficiency of routing algorithms and further makes the transition state between blocks faster.
b) Memory limits –> scaling Dex capabilities via hydra heads. A Hydra head is an isomorphic Cardano layer 2 scaling solution, which will allow for much shorter block times e.g. producing layer 2 block every 1s and increased memory limit. Each layer 1 block hydra-head state will be committed to the chain. As only the final state is committed back to the layer 1, where it is finally validated and merged, with no history, it allows for significant scaling of transactions speed and memory limit. A Maladex hydra head will be capable of executing multiple block cycles (e.g. 20) during a single Cardano layer 1 block and commit the result of 20 blocks back to layer 1.
c) Impermanent loss –> Emergence of geometric price models (similar to Uniswap V3). Maladex believes that for orders to be executed, only local information is necessary, e.g., to match a limit sell order to a corresponding limit buy order which prices cross are necessary. Similarly, for the market order to execute, they only need to find the matching lowest price limit order or AMM fragment. With Users being able to specify the liquidity range which they feel are good money-making ranges, this allows for the expression of all kinds of market sentiments, giving rise to a truer reflection of the market distribution and pricing.
Through Maladex proposed model, they believe they would be able to achieve:
- achieves maximum concurrency as defined by Amdahl’s law;
- increases the transaction throughput beyond Cardano limitations via the usage of hydra heads;
- provides built-in incentives for fair order execution;
- allows for the trustless expression of order types beyond the current offering of exchanges both centralised and decentralised, both blockchain-native and traditional finance;
- allows for distribution of routing component, which classically is centralised by each exchange and community participation in exchange running;
- is free of impermanent loss and naturally leads to high capital efficiency (which we will further augment via other Maladex features);
- converges on the true market price (increasing the market efficiency) and enabling Maladex to be an Oracle of the true market price for Cardano native assets.
Roadmap and Tokenomics
Based on their roadmap, Maladex is working towards a Q4 2021 mainnet launch, with additional features to be added on in 2022. They are also currently operating 3 pools (note: there are scam pools with similar tickers).
On their Tokenomics, they have reserved 40% for platform rewards, with 4% yearly going towards the team as yearly bonus, 5% reserved for private sales ( it is worth noting here that the Maladex team did not take up any VC offers to develop their platform) and the remaining 25% towards Initial Farm Offering (IFO).
What's next? Huat's thoughts
We were very impressed with the technicality of the whitepaper released by Maladex, which proves that the team behind this platform are truly research-driven. Although the team (we now know there are currently 6 individuals) are mostly anonymous, except for Jared, they have valid reasons to remain so due to existing job obligations. This doesn’t take away the fact that the team has vast experiences in Tradfi, and in true Cardano fashion, work towards resolving issues of the EUTxO models from its fundamentals, using novel ground up approaches, rather than trying to fit a solution to existing account models employed by other Dexes.
In addition, besides only swap functions, the team is targeting towards more ambitious goals to include Tradfi instruments that would attract more investors (who already pay way lower gas fees compared to Ethereum), with a bigger variety of products (. If successful, the platform would likely be a huge upgrade over the existing Dexes across all blockchains. With the recent secured funding from Project Catalyst Fund 6 (overwhelming upvotes), the team would be relieved from its resource constraints and would be able to focus on delivering its targets.
We firmly believe in the potential of Maladex. As such, they are well deserving to earn one of the spots on our showcase initiative. Do give Maladex a visit if you are interested in their work . Connect with them via below:
ISPO pool: MAL, MAL2, XMAL