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OP is obviously talking about CEX since it’s not possible for a DEX to have a USD market (like the above mentioned USDT/USD). As for DEXs being manipulated, ab

OP is obviously talking about CEX since it’s not possible for a DEX to have a USD market (like the above mentioned USDT/USD). As for DEXs being manipulated, absolutely not sure why you believe that’s the case? This has nothing to do with DEXs and everything to do with margin (which is coming to DEXs). DEXs and AMMs make it much more expensive to provide liquidity in terms of capital efficiency versus CEXs, and thus more vulnerable to manipulation. But without margin, there’s not much economic benefit for a bad actor.

SilasX 5y ago
>OP is obviously talking about CEX Certainly -- I agree OP (arcticbull) was replying to a comment about DeFI by explaining the dangers of a centralized exchange! That makes it a confused, unhelpful response, not one that "obviously" meant something coherent if you squint hard enough and practice sufficiently strained exegesis. >As for DEXs being manipulated, absolutely not sure why you believe that’s the case? This has nothing to do with DEXs and everything to do with margin (which are coming to DEXs). Margin has "come to" DEX the moment smartcontracts offer collateralized DeFi lending, which they have, so I'm not sure what you mean here. >DEXs and AMMs make it much more expensive to provide liquidity in terms of capital efficiency versus CEXs, and thus more vulnerable to manipulation. The reason (I'm claiming) centralized exchanges are more vulnerable is that a) they own the platform and are the word of god on it -- whence the stories of people getting margin called at flash-crash prices that don't exist on other platforms. If they say prices are trading at some level, you just have to deal with it. That's not possible when you have to trade how the algorithm says. b) If someone "stupidly" buys in one direction on a DEX, "for manipulation", they've vulnerable to the entire universe of arbitrageurs who can exploit the resultant price differences. Inter-[centralized] exchange arbitrage is much harder. I brought up the point simply to emphasize that, to the extent that there's manipulation, it does not look like the manipulation you'd see on CEX, which was how OP was basing his argument. Furthermore, even the issue of more expensive liquidity from transaction fees wouldn't be true for the far-cheaper L2 sidechains. (Btw, you might want to use the terms in their unabbreviated forms at least once just to make it easy on people who aren't up to speed.)
- qeternity 5y ago
  > Margin has "come to" DEX the moment smartcontracts offer collateralized DeFi lending, which they have, so I'm not sure what you mean here. Ok, fair. What I mean is high leverage, which is the fuel for the type of manipulation I’m referring to. To your point about CEX lying about price, that’s a very risky proposition for the arbitrage reasons you mention (CEX arbitrage actually easier for a number of reasons, but I understand why you’d think DEX is easier). If I run a CEX, unless I collude with every other venue I risk all the arbitrageurs buying/selling my fake prices which means it’s not fake, I’ve just traded against them. > Furthermore, even the issue of more expensive liquidity from transaction fees wouldn't be true for the far-cheaper L2 sidechains. No, I said capital efficiency, not execution cost. DEX costs are crazy, but that’s by choice, whereas the capital efficiency is a structural issue. If I want to provide liquidity on 100 CEX markets, I only need enough capital to wear the orders I actually get filled on at any given point in time. As an AMM I’d have have enough capital to be in a 100 different LPs. To illustrate: let’s say I want to provide $1m of resting liquidity in 100 CEX markets. Let’s say that in doing this, I end up having positions at any point in time that require $10m of capital. If I want to provide the same $1m of liquidity in 100 DEX markets, I need $100m. So a CEX ends up being 10x more efficient from a capital use perspective.
  - SilasX 5y ago
    >Ok, fair. What I mean is high leverage, which is the fuel for the type of manipulation I’m referring to. Why does that make a difference? And how is it any more coherent to talk about margin "coming to" DEX? The moment anyone can borrow on margin, it has "come to" DEX. You keep speaking with a mental model of DEX that doesn't jibe with reality, like they're walled gardens rather than platforms open to anyone with little friction other than gas fees. >To your point about CEX lying about price, that’s a very risky proposition for the arbitrage reasons you mention (CEX arbitrage actually easier for a number of reasons, but I understand why you’d think DEX is easier). It's fun to idly speculate about this, but we know for a fact that flash crashes have happened on centralized exchanges, which is stronger evidence than any of your assertions of superior understanding of how they work. Furthermore, people have had their margin liquidated on those CEXes at the fake prices. >No, I said capital efficiency, not execution cost. DEX costs are crazy, but that’s by choice, whereas the capital efficiency is a structural issue. If I want to provide liquidity on 100 CEX markets, I only need enough capital to wear the orders I actually get filled on at any given point in time. As an AMM I’d have have enough capital to be in a 100 different LPs. If that's what you meant, then it's coming from the same dubious mental model I complained about above -- when you enter into a liquidity pool, you are providing liquidity to the entire cryptocurrency's network, not just people who are "on" that DEX (which isn't a coherent concept). Anyone and everyone has the option to accept that offer (sorry, "remove that liquidity"). Several protocols look at the entire DEX market to find the best (combination of) price(s). You do not need to be in multiple liquidity pools (which, again, not a coherent concept). LPs are not something you have to "be in"; you as a trader are free to accept the offers (sorry, "remove the liquidity") of any LP in existence.

SilasX 5y ago

>OP is obviously talking about CEX Certainly -- I agree OP (arcticbull) was replying to a comment about DeFI by explaining the dangers of a centralized exchange! That makes it a confused, unhelpful response, not one that "obviously" meant something coherent if you squint hard enough and practice sufficiently strained exegesis. >As for DEXs being manipulated, absolutely not sure why you believe that’s the case? This has nothing to do with DEXs and everything to do with margin (which are coming to DEXs). Margin has "come to" DEX the moment smartcontracts offer collateralized DeFi lending, which they have, so I'm not sure what you mean here. >DEXs and AMMs make it much more expensive to provide liquidity in terms of capital efficiency versus CEXs, and thus more vulnerable to manipulation. The reason (I'm claiming) centralized exchanges are more vulnerable is that a) they own the platform and are the word of god on it -- whence the stories of people getting margin called at flash-crash prices that don't exist on other platforms. If they say prices are trading at some level, you just have to deal with it. That's not possible when you have to trade how the algorithm says. b) If someone "stupidly" buys in one direction on a DEX, "for manipulation", they've vulnerable to the entire universe of arbitrageurs who can exploit the resultant price differences. Inter-[centralized] exchange arbitrage is much harder. I brought up the point simply to emphasize that, to the extent that there's manipulation, it does not look like the manipulation you'd see on CEX, which was how OP was basing his argument. Furthermore, even the issue of more expensive liquidity from transaction fees wouldn't be true for the far-cheaper L2 sidechains. (Btw, you might want to use the terms in their unabbreviated forms at least once just to make it easy on people who aren't up to speed.)

qeternity 5y ago
> Margin has "come to" DEX the moment smartcontracts offer collateralized DeFi lending, which they have, so I'm not sure what you mean here. Ok, fair. What I mean is high leverage, which is the fuel for the type of manipulation I’m referring to. To your point about CEX lying about price, that’s a very risky proposition for the arbitrage reasons you mention (CEX arbitrage actually easier for a number of reasons, but I understand why you’d think DEX is easier). If I run a CEX, unless I collude with every other venue I risk all the arbitrageurs buying/selling my fake prices which means it’s not fake, I’ve just traded against them. > Furthermore, even the issue of more expensive liquidity from transaction fees wouldn't be true for the far-cheaper L2 sidechains. No, I said capital efficiency, not execution cost. DEX costs are crazy, but that’s by choice, whereas the capital efficiency is a structural issue. If I want to provide liquidity on 100 CEX markets, I only need enough capital to wear the orders I actually get filled on at any given point in time. As an AMM I’d have have enough capital to be in a 100 different LPs. To illustrate: let’s say I want to provide $1m of resting liquidity in 100 CEX markets. Let’s say that in doing this, I end up having positions at any point in time that require $10m of capital. If I want to provide the same $1m of liquidity in 100 DEX markets, I need $100m. So a CEX ends up being 10x more efficient from a capital use perspective.
- SilasX 5y ago
  >Ok, fair. What I mean is high leverage, which is the fuel for the type of manipulation I’m referring to. Why does that make a difference? And how is it any more coherent to talk about margin "coming to" DEX? The moment anyone can borrow on margin, it has "come to" DEX. You keep speaking with a mental model of DEX that doesn't jibe with reality, like they're walled gardens rather than platforms open to anyone with little friction other than gas fees. >To your point about CEX lying about price, that’s a very risky proposition for the arbitrage reasons you mention (CEX arbitrage actually easier for a number of reasons, but I understand why you’d think DEX is easier). It's fun to idly speculate about this, but we know for a fact that flash crashes have happened on centralized exchanges, which is stronger evidence than any of your assertions of superior understanding of how they work. Furthermore, people have had their margin liquidated on those CEXes at the fake prices. >No, I said capital efficiency, not execution cost. DEX costs are crazy, but that’s by choice, whereas the capital efficiency is a structural issue. If I want to provide liquidity on 100 CEX markets, I only need enough capital to wear the orders I actually get filled on at any given point in time. As an AMM I’d have have enough capital to be in a 100 different LPs. If that's what you meant, then it's coming from the same dubious mental model I complained about above -- when you enter into a liquidity pool, you are providing liquidity to the entire cryptocurrency's network, not just people who are "on" that DEX (which isn't a coherent concept). Anyone and everyone has the option to accept that offer (sorry, "remove that liquidity"). Several protocols look at the entire DEX market to find the best (combination of) price(s). You do not need to be in multiple liquidity pools (which, again, not a coherent concept). LPs are not something you have to "be in"; you as a trader are free to accept the offers (sorry, "remove the liquidity") of any LP in existence.