The financial service sector has in recent times provided some of the best use cases for blockchain tech. From remittance and payments to trading and storage, blockchain is constantly springing up ways to challenge the traditional finance system. The emergence of the nascent decentralized finance (DeFi) further builds a strong case for blockchain in finance.
What is the buzz about Decentralized Finance?
Decentralized Finance became huge in 2020, and has since become a trending topic in the crypto space. In contrast to the move to decentralize money through bitcoin, the DeFi approach is the decentralization of the traditional financial industry. At the core of the initiative is opening up traditional financial services such as lending, wealth management, investment, trading, etc, to everyone and providing a permissionless ecosystem on blockchain infrastructure.
Margin Trading x Crypto
The invention of the internet revolutionized the trading industry, giving regular people access to the markets and the ability to enter with small amounts of money. Since the goal is making money, new ways soon emerged to earn even more from trading, leading to the invention of margin trading. Margin trading simply involves using funds made available by a third party to trade. Compared to regular trading, this can lead to a maximized profit, and adding an equally large amount of risk of losing.
In crypto, the risk is even greater due to the high level of volatility of assets. As well, margin trading is majorly done on centralized exchanges, which has its own drawbacks (like the recently forced liquidation) and defeats Blockchain’s promise of decentralized governance, as almost all transactions are controlled completely by a single central entity. This is where Unimex provides a solution.
Unimex is a low-cap DeFi project that facilitates on-chain margin trading of native Uniswap tokens. With over $4.69 billion liquidity pools provided on the Uniswap protocol so far, there is no way to directly long or short these tokens. This is a problem currently solved by Unimex.
How Unimex works
Unimex’s trading platform makes use of a central factory smart contract that allows margin traders to enter leveraged long or short positions by lending specific Ethereum-based tokens on Uniswap. Lenders provide liquidity to lending pools for ERC 20 – ETH Uniswap pairs. Liquidity can’t be provided for ERC 20 – ERC 20 pairs to stop market manipulation from happening. A measure of decentralization is unfortunately sacrificed, to combat the high-manipulation ability of low liquidity pools on Uniswap. Fees from leveraged long or short trades are then paid to lenders & stakers on Unimex.
Margin trading on Unimex is entirely contained within the Uniswap DEX platform, which means all trade will be completely on-chain and decentralized. Traders are required to stake ETH as collateral to be able to borrow ERC 20 tokens and ETH from the lending pool for their long or short positions as long as the ERC 20 – ETH pairs are available on Uniswap.
Traders can get leverage within the range of 1x – 5x depending on the liquidity of the trading pairs on Uniswap, and the fees from borrowing for long/short positions are disbursed to lenders in the particular pool.
Degen Protocol (DGN)
Degen is a decentralized protocol launched on both the ETH and BSC chain. Like UMX, users will be able to trade, stake, and also lend to pools on the Degen protocol. At the core of Degen protocol is a bi-pool. Bi-pool makes more liquidity available for every trading pair e,g, ETH/USDC bi-pool is a pair for ETH pool and a USDC pool. Degen protocol also serves as an alternative to paying huge ETH gas fees on the Uniswap platform as the Degen Protocol (DGN token) was created to make Unimex available on the Binance Smart Chain (BSC). This is to take advantage of the fast transaction time and very low fees to make leverage trading available on the BSC. Users can purchase DGN on Pancakeswap, then stake and trade on the BSC version of the Unimex platform.
New and Upcoming Updates From Unimex
Unimex is already a fully functional DeFi product with a first-mover advantage in the fully decentralized margin trading space. And there’ll always be room for growth. A recent Unimex v1.2 saw UI upgrades to the ETH and BSC versions. Users can now use stop loss, take profit, and limit orders functionality to afford more control over volatility just like on the centralized exchanges.
Also, stable coin trading pairs (DAI, USDT, USDC etc.) will be added for withdrawals and deposits on both the ETH and BSC platforms. Community governance staking mentioned earlier called UMXStaking will also take effect by the end of April which removes the development team from the equation leaving everything up to the community/stakeholders – a truly decentralized margin trading platform.
Although margin trading can be very profitable, it carries significant risk that is further elevated by centralization, and a single entity in control. Since a major selling point of crypto is decentralization, projects that stay true to this will only continue to see exponential growth and adoption.