Among the DEXs, Uniswap stands out by utilizing automated market makers (AMMs) to offer its services. However, the implementation of its protocol has left several issues unaddressed. As cryptocurrency adoption continues to rise across various sectors, an increasing number of decentralized protocols are emerging. The realm of decentralized finance (DeFi) is characterized by its diverse exchanges and protocols, driven by the innovative nature of its operations. One such decentralized exchange is DODO, which markets itself as a liquidity protocol powered by the Proactive Market Maker (PMM) algorithm, aimed at optimizing capital efficiency. This highly regarded DEX has been swiftly gaining traction and is projected to dominate the market in 2021. With its PMM approach, DODO positions itself as a formidable competitor to Uniswap, offering sufficient liquidity for digital assets through real-time market pricing. This review will provide comprehensive insights into DODO’s capabilities, including its governing token and the benefits of decentralized exchanges.
### What is DODO?
DODO is a DeFi protocol that facilitates on-chain liquidity at stable prices through its PMM algorithm. Unlike automated market makers (AMMs), the PMM algorithm helps maintain a more stable liquidity pool. This is achieved through a pricing mechanism that mimics human pricing and employs oracles—essentially, the connectors between real-time data and blockchains. Operating on the Ethereum network, DODO serves as a continuous liquidity solution for on-chain providers. The liquidity provided by this DEX is comparable to that found on centralized exchanges (CEXs), with its price stability closely linked to real-time market valuations. By utilizing PMM, DODO addresses some of the limitations inherent in AMM functionalities. The DEX leverages actual market prices for its assets to ensure adequate liquidity while safeguarding liquidity providers’ portfolios. Additionally, DODO minimizes price slippage and mitigates impermanent loss through incentives from arbitrage trading. Trading on the DODO exchange is exceptionally efficient, offering deep liquidity and minimal slippage, making it comparable to high-performance centralized exchanges like FTX and Binance.
### How does it work?
DODO’s PMM algorithm significantly reduces price slippage and transaction costs. The execution of orders on the platform mirrors that of centralized exchanges, while the ecosystem, much like other DEXs, thrives on liquidity providers and arbitrageurs. However, DODO’s approach effectively eliminates the risks associated with impermanent loss. The PMM replaces the AMM capabilities found in other decentralized exchanges, smoothing the price curve within the liquidity market. The algorithm pools funds at market prices to provide sufficient liquidity. A specific equation within the PMM algorithm helps define the market price of digital assets, while a risk factor is also incorporated. The protocol is designed to adapt automatically as market prices fluctuate, attracting arbitrage opportunities to maintain stability for liquidity providers. The PMM algorithm ensures reasonable pricing, reduced slippage, enhanced fund utilization, minimized risk exposure, and the elimination of permanent loss.
In August 2020, DODO formed a partnership with Chainlink to utilize its pricing feeds. This collaboration enhances the PMM algorithm’s ability to prevent significant price discrepancies between the DODO platform and real-world assets. However, as liquidity increases, so does the associated risk. Consequently, forming a liquidity pool can diminish the risk factor. Since the price data from Chainlink serves as the foundation for DODO’s pricing, any failure in Chainlink’s nodes could lead to inaccurate market information, potentially resulting in substantial losses for liquidity providers. This situation could decrease liquidity away from the market price, thus reducing arbitrage opportunities and leading to a more efficient exchange system. The PMM framework of the DODO crypto exchange actively promotes arbitrage trading to ensure that the exchange price aligns with the market price. While this goal is not unique, the PMM stands out due to its capability to adjust the price curve to achieve effective liquidity distribution. Since DODO’s inception in mid-2020, it has demonstrated a robust track record, proving its model to be more effective than traditional AMM methodologies. The PMM model has shown it can provide adequate liquidity for an unlimited number of trading pairs, thereby benefiting liquidity providers. Ultimately, the PMM approach significantly reduces the risk of impermanent loss, attracting more liquidity suppliers to the platform while addressing the limitations prevalent in conventional order-book and AMM exchanges.
### Features
DODO offers decentralized on-chain asset trading with order execution comparable to centralized exchanges. The core functionality of DODO lies in its exchange feature, allowing users to trade two arbitrary tokens on the same network. This feature provides optimal pricing by automatically determining the best order routing from pooled liquidity sources. Additionally, traders can earn DODO tokens through trade mining by executing transactions on the platform. The Swap function on DODO is user-friendly, ensuring that slippage is minimized and liquidity is readily available for everyday traders.
### Vending Machine
The DODO Vending Machine leverages the PMM technology to empower any wallet holder to create a liquidity market. This innovative feature establishes a decentralized, non-custodial, and open liquidity market for user-selected assets. Its unique permissionless nature allows anyone with a wallet to create trading venues without censorship or intervention, thereby ensuring fair token distribution and market-making opportunities. This functionality is particularly advantageous for blockchain developers or project teams looking to introduce a token without the financial resources to establish necessary liquidity on a standard AMM.
### Crowdpooling
Crowdpooling is a token launch platform that promotes equal opportunity for consumers to access projects in a fair manner. This feature allows projects to generate liquidity markets and distribute tokens equitably, mitigating risks associated with frontrunning by early investors or bot manipulation. DODO offers two types of Crowdpooling: Fixed-Price CP, which auctions token assets at a set price, and Variable-Price CP, where a predefined pricing curve dictates the asset price, increasing with the release of more tokens. Through DODO’s Initial Offering feature, new projects can secure funding with a free listing, establishing liquid markets while benefiting from a liquidity protection period.
### Private Pool
The Private Pool feature caters to sophisticated investors, offering advanced options beyond the Vending Machine. Users can adjust the price curve indefinitely and access single-direction deposits or withdrawals, ensuring continuous liquidity availability with a price range of 0 to infinity. This functionality helps users discover active prices and maintain consistent market pricing while avoiding negative risks. The Private Pool transforms the traditional AMM model, allowing users to become personal market makers through customizable parameters for their trading patterns.
### Pegged Pool
The Pegged Pool invites anyone to provide liquidity suitable for synthetic assets, although the pool characteristics remain fixed once established.
### Mining Liquidity
Liquidity mining on the DODO platform facilitates decentralized market making, enabling users to contribute liquidity to DEXs through cryptocurrencies. This feature operates without a lock-up period, allowing users to redeem their contributions at any time and accrue rewards with each block.
### Combiner Harvest Mining
This feature exposes DODO platform users to promising and trending initiatives keen to engage with the community. Vetted projects can establish liquidity pools, where liquidity providers in these pools earn DODO incentive tokens.
### NFT Vault
The DODO NFT Vault represents a unique form of cryptocurrency pricing and liquidity initiative. Users can contribute new or existing NFTs to the Vault, with the option to maintain them as unique items or fractionalize them into fungible tokens. To utilize the Vault, a compatible liquidity pool must be created for the NFTs, ensuring market flexibility and efficiency for trading these fractionalized assets. The entire process is driven by the PMM algorithm.
### Bridge
The DODO platform includes four bridges: Arbitrum bridge, BSC bridge, cBridge, and Polygon bridge.
### Fees
When it comes to trading fees, many centralized exchanges apply taker fees for those removing liquidity from the order book and maker fees for those who add liquidity. DODO, however, stands out as one of the DEXs that do not impose trading fees at all, a significant factor contributing to the appeal of decentralized exchanges over centralized ones. Additionally, DODO does not charge withdrawal fees beyond the necessary network fees, which are paid to the miners of the relevant blockchain and vary based on network congestion. Generally, incurring only network fees is considered more favorable than the average industry standards for crypto withdrawals.
### Security
Security is a primary concern for users of any platform. To address this, DODO has undergone multiple audits conducted by reputable firms such as SlowMist, PechShield, Certik, Beosin, and TrailofBits. These audits cover the platform’s smart contracts, including those for Crowdpooling and the DODO Vending Machine. While the platform is fortified by the underlying blockchain protocols it employs, users must still exercise caution and responsibility when utilizing a decentralized network.
### Conclusion
The DODO protocol has undeniably made substantial contributions to the decentralized finance landscape. The introduction of the PMM algorithm signifies a notable shift away from traditional AMM models, enhancing the transaction experience for traders and investors alike on decentralized exchanges. Furthermore, the platform features a straightforward and rapid interface, allowing users to easily access information and navigate the system. The DODO exchange is advantageous for both liquidity providers and traders, reinforcing its importance in the decentralized finance ecosystem.
