The Orderbook
Trading on cypher provides advantages over other DEXs and synthetic asset platforms. A peer-to-peer (p2p) traded orderbook prevents LPs from suffering from impermanent loss, which is always possible with an AMM style DEX. This will also help the protocol and platform attract more institutional participants, helping bolster liquidity and reducing friction of the trading process by keeping bid-ask spreads relatively small. As we shoot for mass adoption the orderbook will also help the platform bridge the gap for non-crypto native users, allowing them to interact with other users in a manner that is similar to their regular trading experience on centralized platforms.
To accomplish the protocol’s goal of being a price/demand discovery mechanism, the platform will need to push significant volume from both institutional and retail participants. This can only be achieved via an orderbook methodology.
The orderbook serves multiple benefits for the protocol. It allows the protocol to function as a true price discovery mechanism, allowing for traders to bid and ask on what they believe certain assets are worth, and thereafter settling trades directly with other users. In addition, an orderbook will help bring institutional participants to the platform, whether that is to market make and collect bid-ask spreads or if it is to deploy typical strategies leveraged by hedge funds. The orderbook is necessary for cypher because unlike other synthetic platforms which provide only passive price exposure to a traditionally traded asset (i.e. “price taker”), the mission of cypher is to perform active price discovery for an asset before it is traded on a public market (i.e. “price maker”). Ultimately, the goal is for companies preparing for an IPO to be able to use cypher as the “oracle price” rather than the other way around.
The protocol will provide a front-end interface for users to leverage Project Serum’s decentralized orderbook infrastructure that is built on the Solana blockchain. The transaction speed and low costs help keep the platform efficient. Leveraging this infrastructure, the protocol will allow users to take short positions as seen in traditional finance. Instead of having a long token and a short token, traders will be able to borrow an asset from a peer-to-peer lending pool to short sell via the orderbook.
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