An Introduction to Decentralized Cryptocurrency Trading on Oasis Trade
Oasis Trade is a platform built on top of the OasisDEX Protocol, a decentralized market matching engine, and the Maker Protocol, one of the most significant decentralized applications (dapps) on the Ethereum blockchain, with audited and formally verified smart contracts created by the Maker Foundation. The Maker Protocol was the first decentralized finance (DeFi) application to earn significant adoption.
Exchanges are foundational to the crypto market, as they facilitate the trades that power the market engine. A decentralized exchange (DEX) means that there is no central authority behind it. By using smart contracts to facilitate transactions automatically, DEXes enable users to trade directly, peer-to-peer, without third-party interference.
The best way to start this introduction to decentralized cryptocurrency trading on Oasis is to have a solid understanding of the basics: the terminology, the different types of trades, and how various trading platforms differ.
Decentralized Cryptocurrency Trading Terminology
In February, the MakerDAO blog published How to Read Cryptocurrency Price Charts, and Why They Matter, which details essential concepts behind price charts, especially Dai price charts. Learning the language of trading is the next step.
Crypto Trading Terminology from A-Z
- Custodial/Non-custodial. A custodial exchange takes custody (control) of users’ crypto assets deposited prior to trading; a non-custodial—or decentralized—exchange, such as Oasis Trade, does not. When using a decentralized exchange (DEX), traders maintain total and independent control of the private keys used to manage their assets.
- Pairs (also known as Trading Pairs). Pairs are two cryptocurrencies that are traded against each other on an exchange. For example, the ETH/DAI trading pair means that Ether can be traded for Dai, and vice versa.
- Limit Order/Buy/Sell. Rather than executing a Market Order (see below), a trader can post a Limit Order (to buy or sell) at a specific price, and then wait for the price to rise or fall to that level.
- Fill or Kill Order. An order to buy or sell that must be either filled in its entirety or not at all (killed).
- Market Liquidity. Market Liquidity reflects the amount of a given cryptocurrency available for trading at any given time, and thus how easy it is to buy or sell an asset.
- Market Order/Buy/Sell. An order to buy or sell at the prevailing market price (e.g., filling existing resting Limit Orders on the opposite side, regardless of price).
- Order Book. The Order Book is the list of all Buy and Sell Limit Orders active on an exchange.
- Price Impact. Price Impact is the effect a Buy or Sell Order has on the Order Book, and how much the order differs from the best Buy or Sell Order listed. For instance, a large order to sell may lower the prevailing market price on an Order Book; conversely, a large order to buy may raise the prevailing market price.
- Slippage. Between the time a trader places an order and the point at which the order is mined, the Order Book and thus the market price may change slightly, and the price that order executes for might differ from the price quoted to the trader at the time the order was placed. This difference is referred to as Slippage.
- Spread. The spread on a market is the difference between the best Buy Order price, and the best Sell Order price.
Not All Exchange Platforms Are Created Equally
Generally, two types of platforms are used to buy and sell cryptocurrencies: centralized exchanges and decentralized exchanges. There are pros and cons to each platform.
Centralized exchanges, such as Coinbase and Binance, take custody of users’ funds and manage Order Books hosted on their own databases. Generally, centralized exchanges offer a faster user experience than decentralized exchanges since centralized servers and databases allow quicker order matching. However, they also present risks due to the necessary existence of single points of failure and the potential for delays in fund settlements, as funds can get “stuck” for several days during depositing or withdrawing. Plus, because users of centralized exchanges lose control over their assets, those assets might get stuck due to having to trust the exchange to custody their private keys (i.e., "not your keys, not your coins").
Decentralized Exchanges (DEXes), including Oasis Trade, use the blockchain as their infrastructure, providing order and trade transparency through digital ledgers, and allowing users custody of their assets and control over their transactions through various types of crypto wallets. While full control of assets is certainly an advantage, it also means that users are completely responsible for maintaining the security of their wallets, private keys, and devices. Other potential cons can include slippage, higher transaction costs, and at times, a lack of depth on Order Books. Plus, blockchain transactions are irreversible. Therefore, if a user makes an error, there is no official support desk to contact for help.
While the first versions of DEXes suffered from numerous drawbacks, a new generation of more user-friendly decentralized platforms, including Oasis Trade and various aggregators (platforms that pull price information from any number of global crypto exchanges), has emerged. The new platforms offer secure, robust crypto trading for beginners and experienced users alike. Many now offer the same features experienced traders would expect to find on centralized exchanges.
Getting Started With Oasis Trade
Oasis Trade provides functionality for traders of all experience levels. Trading options range from simple, speedy token swaps on Instant and limit-order matching on Market to Multiply, a solution for more advanced users that allows trades using Maker Vault-created leverage. In just a couple of clicks, traders can create additional exposure through multiples.
Traders looking to profit from the high-volatility of some crypto assets typically focus on crypto pairs, where one side of the trade is a stable currency, such as the USDC, USDT or MakerDAO’s Dai. Most users of Oasis Trade focus on Dai markets, such as the ETHDAI pair.
Oasis Trade Instant is the simplest and fastest way to get started on the platform;
- Select the token you currently have and the token you wish to trade it for by clicking on the token symbols.
- Choose how much you want to Buy or Sell. Filling in the amount of one token will auto-complete the price in the other, and provide additional relevant information.
- Click ‘Start Transaction’ to place your order.
- Sign transactions. If this is your first time using Oasis.app, you may be asked to sign transactions in addition to the order transaction (one to deploy a proxy contract, and another to settle allowances so that Oasis Trade has permission to interact with your tokens).
- Wait for the order to confirm. Once you receive confirmation, the relevant tokens will appear in your balance.
Although Instant makes it easy to start trading without additional information, you can also configure parameters, such as slippage. As with all transactions on Oasis Trade, you will need ETH to pay for gas costs.
Oasis Trade Market is the next step on your decentralized trading journey. The Market feature provides a little more information from the Order Book and trade history, and it’s where you can place Limit Orders.
Placing orders on Market requires some advanced knowledge of how decentralized trading works. For example, in order to trade ETH on a DEX, you must first trade it 1:1 for Wrapped ETH, or WETH. WETH is a token that is conformed to the ERC20 token standard, which gives it the additional functionality needed to place Limit Orders. On Market, you can “wrap” your ETH on the Balances page, using the “Wrap” button on the top row for the ETH balance.
Also, you will need to give Oasis Trade permission to interact with your tokens by “unlocking” the tokens you want to trade. Unlocking tokens, which is done through the “Balance” tab and requires a signed transaction, enables your wallet to grant approval to the smart contract to interact with them. You can remove this permission by re-locking the token approval.
Once your tokens are unlocked, or your ETH wrapped, you can place a Limit Order. With Limit Orders, instead of setting how much of one token you want to swap for another, you set the price point at which you would like your order to execute, and then indicate the amount you want to Buy or Sell. Your total projected cost is then displayed.
When placing an Order, you need to select “Buy” or “Sell” on the Create Order page. For the ETHDAI pair, for example, a Buy Order means buying WETH with Dai, and a Sell Order means selling WETH for Dai.
Placing an order on the Order Book is very simple:
- Enter the price per token you want to Buy or Sell.
- Enter the amount of the token you want to Buy or Sell.
- Click Buy/Sell and sign the transaction on your wallet (this takes the balance from your wallet and places the order into the Order Book).
- When, or if, the market moves to your chosen price, your order will be matched and executed, and the balance of the new token automatically moved to your wallet.
Oasis Multiply is designed for experienced traders. It requires an understanding of how multiples work, knowledge of Maker Vaults to create additional purchasing power, and awareness of the increased risks. To learn more about Oasis Multiply, read Introducing Multiply on Oasis Trade.
Decentralized Cryptocurrency Trading for All Needs
Decentralized marketplaces come in many forms, but all offer more personal control of your trading experience than centralized crypto exchanges. Several DEXes provide a simplified Instant Order interface and pricing information that is perfect for beginner crypto traders. Others, including Oasis Trade, offer advanced features for more experienced users.
To learn more about trading various crypto assets against ETH and Dai, visit oasis.app/trade or other decentralized exchanges.
16 June 2020