Do you know what’s a huge turn-on for traders? Depth. No pun intended.
And who offers the deepest of depth? CEXes. This is why you see the massive differences in trading volumes between orderbook DEXes and orderbook CEXes.
This is perhaps why - one of the leading orderbook DEXes, Hyperliquid, does about $450 - $600M in daily trading volume, while its centralized counterparts like OKX do $5B.
But what stops orderbook exchanges from achieving those volumes? Why do they suffer from shoddy execution? You might call our attention to an easy fix.
“Just speak to a market maker, bro.”
Getting market makers on board can be an extremely costly affair. This leaves new innovative orderbook DEXes with limited options.
They either have to rely on a bunch of KOLs to relentlessly shill their protocol in an attempt to invite users to deposit enough liquidity. Or, they bank on inflated airdrop campaigns, which usually attract mercenary capital. These users (our trusty old pals, the airdrop hunters) deposit liquidity for mere airdrops and usually close their positions if/when they make some profits.
There’s currently no trustless option for orderbooks to bootstrap liquidity. But Elixir abstracts away all the complexity, so orderbook DEXes can benefit from deep liquidity, benefiting both LPs and traders.
It’s time to kick your feet back, take a break from aping shitcoins, and educate yourself on how Elixir is going to reshape how on-chain orderbooks work. Trust me, this one is going to be worth it.
The problem
Study these screenshots.
You’ll notice a stark difference in volume between the decentralized and the centralized exchanges. Why is that?
We know that traders in crypto, and in general, appreciate speed. High speed and throughput are requisite features for any exchange that expects to do billions in trading volume every day. Centralized exchanges can manage that volume because they can optimize their trading engines for higher speeds.
With DEXes, the throughput is a factor of:
- liquidity providers,
- the blockchain on which the exchange is housed,
- the gas costs for carrying out transactions, and many other factors.
That’s where the complexity sets in.
The Forgotten Gigachad
Dan Larimer is the 21st-century version of a European conqueror who builds one hugely successful project after the other. He understood the complexity associated with increasing the throughput of DEXes. This was the underlying consensus mechanism of blockchain networks.
You see, whatever transaction happens on a decentralized blockchain must be passed by the consensus mechanism of that blockchain. We know the limitations of PoW and how it's almost unscalable and unsustainable to build financial applications on. We know PoS fixes some of those unsustainability issues; however, the fact that all network participants must vote on transactions for them to be included in a block still introduces latency. Imagine getting a transaction approved across hundreds of thousands of validators.
Now, imagine a highly volatile market. You are pumped about this new shitcoin and want to do an instant buy and sell within 15 minutes. However, because several others like you want to buy that meme-coin, the network gets clogged, and you miss the chance to buy that token on time. This is the opportunity cost of decentralization. To ensure a network remains decentralized, it must forego the dream to be quick.
That’s exactly what Mr. Larimer set out to solve with a Delegated Proof-of-Stake (DPos) network. In essence, anyone with the network’s native tokens can decide to delegate their power to “trusted” representatives. It’s essentially like democracy.
These voted-in representatives are free to make decisions on their own that aid the network. Thus, the consensus needed earlier across hundreds of thousands of validators is now reduced to a few hundred (or even a thousand) validators.
This effectively reduces latency and increases transaction throughput.
This is exactly what’s needed to power a decentralized orderbook DEX.
Enter Elixir
Elixir is a DPoS network that empowers order-book exchanges with deep liquidity reserves.
They achieve this by allowing users to deposit liquidity directly to orderbooks. By abstracting the complexity of provisioning liquidity (which previously was reserved for HFT firms and designated market makers), Elixir attracts LPs who earn rewards via the order book exchanges’ incentive programs as well as traders, who benefit from the tighter bid-ask spreads that these exchanges can offer.
This prompts the question: why do we need Elixir in the first place? Can LPs not deposit their assets to the orderbook exchanges themselves?
Elixir allows users to supply liquidity to orderbook DEXes - just as they would supply liquidity for a Uniswap V2 position, xy=k style. This decentralizes every orderbook DEX that integrates Elixir while providing the same optimal trading experience as a centralized orderbook exchange.
Elixir uses the Avellaneda-Stoikov algorithm to build up orderbooks, dynamically adjusting bids and asking to maintain optimal reserves in the inventory - even during a highly volatile market. This creates an almost CEX-like experience for traders, as well as an optimal LP’ing experience for liquidity providers.
We’ve majorly dumbed down the liquidity provisioning method here for you fellow apes, but if you would like the more in-depth technical spiel, check out Elixir’s docs here.
How Elixir works
Elixir consists of the following components:
- Validators
- Relay Nodes
- Dispute Resolution Layer (Auditor, Controller, Provable)
Each component comes together to ensure that the orderbook exchange to which liquidity is provided keeps running smoothly. Validators are responsible for executing Elixir’s market-making algorithm and submitting order proposals to the exchanges.
These proposals are then checked by the Auditor (as part of the Dispute Resolution layer mentioned above). In case of any dispute, the Controller helps in rectification. The Auditor continuously checks validator actions and ensures that in the case of any discrepancy on the part of the validators, they submit a slashing request. This request is on the ELX tokens that validator stake within the network. Relay Nodes connect with orderbook DEXes in the back end and help relay orders (submitted by validators and audited by Auditors).
The ELX token governs all the interactions between various stakeholders in the Elixir ecosystem. Once released, it will act as the key to the entire ecosystem, aiding in passing critical governance proposals, evolving to a fully decentralized technical architecture, and achieving comprehensive decentralization across the major protocol functions.
Partnerships
Elixir has been building alliances and connecting with several orderbook DEXes in the space. So far, they have partnered with over 30 protocols and aided in increasing their liquidity.
Elixir has partnered with RabbitX, a leading perpetual and derivatives DEX built on Starknet. Since RabbitX’s integration with Elixir last year, Elixir now powers 40% of their liquidity via the Fusion Automated Market Maker (fAMM).
This partnership abstracts the complexity associated with market-making for LPs. The fAMM automatically manages the liquidity positions on behalf of LPs, which makes LPs’ lives easier while creating deep liquidity reserves for traders on RabbitX.
A critical partnership was with Vertex protocol, where users could deposit their assets to Elixir’s Fusion Pools and earn from algorithmic market making on the protocol. Within just a week of launch, Elixir was powering about half of the liquidity of Vertex protocol.
Bluefin, an orderbook DEX on Arbitrum and Sui, partnered with Elixir to allow users to supply liquidity to its perp markets in USDC. Bluefin saw a doubling of their orderbook liquidity in just 24 hours of partnering with Elixir.
Elixir is also teaming up with the chads at Monad (the hyper-efficient L1 blockchain) to empower the orderbook DEXes on the chain to benefit from Elixir’s LPs. Additionally, Elixir is planning a future partnership with Injective, thus opening a new stream of liquidity for the finance-apps-focused Layer 1 blockchain.
This will allow users to earn yield by supplying liquidity to Elixir, and in return, users native to Injective DEXes benefit from deeper liquidity reserves. As part of this integration, users could earn a share of the 60K INJ rewards that are allocated by Injective in their Open Liquidity Program (OLP).
Elixir is also on track to go live with dYdX, Hyperliquid, ApeX, and Orderly soon.
Team and community
Elixir is led by Philip Forte, who has an extensive financial background. Philip was the founder and president of the Carnegie Mellon University Blockchain Group, then started BlockVenture (which he later exited in 2021). Along with himself, the team has a crop of seasoned developers and quantitative developers with a deep understanding of exchanges and market making.
Elixir’s community stands 100K strong across its socials. With several partnerships and product updates lined up, the community is eagerly waiting to participate.
What’s hot
Elixir has been cooking and shipping crazy updates since mid-2023.
- Elixir recently raised $8M in a Series B round that was co-led by Mysten Labs and Arthur Hayes’ family office, Maelstrom. Last year, they raised $7.5M Series A at a valuation of $100M. Both these fundraises have gotten the protocol closer to unicorn status, valuing it at $800M.
- They have partnered with Chainalysis to continuously monitor their smart contracts and strengthen the security of their architecture.
- Elixir is also on the path to partnering with NFTPerp, several Blast L2 exchanges, Blast Futures, ApeX Protocol, and Orderly Network.
- It is also partnering with Aftermath Finance, thus allowing Elixir LPs to supply liquidity across the entire orderbook DEX ecosystem on Sui.
- Lately, it has also been teasing a new orderbook-based DEX with just-in-time liquidity and more. Follow their Twitter to stay updated on its announcements.
Elixir has the potential to back all orderbook DEXes in the future.
What can users do now?
Head to the Elixir app and explore the various protocols that you can supply liquidity to start generating returns from market making.
Alternatively, you can run an instance of Elixir’s node and start participating in DPoS network validation. Check out the guide on running a node here.
Elixir recently launched its Apothecary, a points system running leading into the mainnet launch. We’ve received alpha that it's being supported by the chads like Arthur Hayes, Sisyphus, Ansem, and more. Deposit assets on partner applications that are utilizing Elixir and earn potions. These potions can also be earned by participating in social activities (such as via referrals).
Potions is an internal rewards system that tracks your contribution to the Elixir network. There is a cap of 20M potions that will ever exist. Grab yours before you miss your chance!
Elixir allows users to mint elxETH, which are yield-bearing tokens backed 1:1 by ETH deposits. After the 15th August mainnet launch, this token will function as an LP token for liquidity supplied across major exchanges such as Vertex, dYdX, RabbitX, etc.
Concluding thoughts
All ye hungry and filthy degens, we’ve always given you gold. Elixir is better than gold. It has the potential to be the core liquidity backbone across several orderbook DEXes in DeFi and open a whole new world of opportunity for both LPs and traders - all without compromising on the core decentralization ethos.
Elixir has already achieved its product-market-fit (PMF) thanks to the fact that it has aided in skyrocketing the liquidity across major orderbook DEXes. The prime example of this is Vertex protocol, where there was a significant uptick in the number of pairs available for trading (including some exotic pairs) and volume across the protocol.
They have not shared many details about their token yet, and that makes us even more bullish on them. We’ll be excited to see their growth in the future and how the Elixir journey unfolds. Start your journey on Elixir here.
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