🖇️Lower Slippage than traditional DEXes
Fermi DEX is expected to offer tighter spreads and better prices for traders than competing DEXes.
Last updated
Fermi DEX is expected to offer tighter spreads and better prices for traders than competing DEXes.
Last updated
High slippage, especially for larger orders, is a core problem of on-chain exchanges (both CLOBs and AMMs). The cause of this can be boiled down to capital constraints - finite capital restricts the ability of market makers to place large orders simultaneously on multiple markets to maintain a tight spread - because they have to provision liquidity in advance to do so. With Fermi, as the capital constraint is lifted, we expect to see far deeper orderbooks across assets, as makers cross-utilise the same assets to market make on multiple markets to maximize their fees/rebates earnt. These deeper orderbooks will result in tighter spreads and lower slippage, especially for larger trades. In short - better prices for traders.
Fermi DEX makes CEX-DEX arbitrage almost costless. Combining not capital locking on Fermi, & customisable settlement periods with low on chain fees on Solana, makers & arbitrageurs can place bids and asks on all markets at prices that diverge beyond those of a centralised exchange. As there is virtually no opportunity cost to placing these orders, arbitrageurs can place them simultaneously on multiple different markets. When orders are filled, they can utilise their custom set settlement delay to provision the liquidity, including from a centralised exchange. They only need to do this when orders are matched - i.e. when actual arbitrage profits are available. There is no need to keep liquidity locked up in anticipation of arbitrage opportunities.
Long tail assets refer to assets with lower volumes on DEXes. Typically they have smaller market caps, and often tend to be more volatile. Market making on such markets is often unprofitable in status quo (both on AMMs and CLOBs), as the limited volumes & resultant fees restrict the profits of the LPs - relative to the amount locked. Fermi addresses this problem by removing the capital cost of market making on long tail assets - makers can now open orders on these assets, only provisioning liquidity when actual trades occur - in this manner, they can take advantage of whatever fees these markets have to offer, without derogation to their ability to market make on more popular markets with higher volumes and fees.
Example of Capital utilisation & market depth on Fermi vs. A traditional DEX that locks capital Assume the market has a total of $1m in liquidity to allocate as LPs for simplicity, and there are 10 assets, in decending order of volumes.
As you can see, on traditional exchanges, LP provided liquidity drops off rapidly after the first few assets - since those assets net the most fees, it makes sense to lock up the bulk of capital in those markets. Even so, every market competes with each other for liquidity. On Fermi, since liquidity can be shared across markets, supply of liquidity naturally rises to the true demand for trades. LPs can avail of opportunities across markets with the same capital - this makes providing liquidity to one market not a competitive choice, but an additive option.
