The world of traditional finance is not set up in a way that encourages a fair game for all players. There are many different rules, and the markets that exist are set up to favor those who are already well established in them. Newcomers rarely perform well, and at best can only hope to stay above water long enough to learn the game, build up a network, and perhaps over decades start to gain traction as a strong trader.
Web3 was designed for many reasons, but one of the biggest was an outright rejection of this philosophy. You simply shouldn’t have the advantage to make more money than your competitors because you already have more money. Yes, it is a fact of life, but Web3 has worked hard to offer a more democratic way for anyone to invest, to earn, and to benefit.
This Web3 model has been largely successful. While there have been exchange crashes due to bad actors, hacks, and regulations that need to mature, the market has learned quickly to understand how to determine the best ways of judging reliability, trustworthiness, security, and transparency in a platform. Many platforms and exchanges across Web3 have been extraordinarily proactive about showcasing these attributes and allowing others to both see and test them. We as an industry have made significant strides in this area and are well on the way to continuous improvement.
Assuming that the Web3 market is solid, it has also made strong progress in opening the doors to investing and trading activities, and it is difficult to overstate the reach and magnitude this has had on a global scale. Considering that only registered traders can access traditional markets, and the rest of us must go through a trader/broker to make any type of trades, this is incredibly limited. Compound this with the strict geographical limits this places on many areas of the world without access to trading markets, and it’s clear to see that traditional markets are a relatively elite service. With Web3, all of this changes. With a few exceptions, nearly all global citizens can access either centralized or decentralized exchanges for Web3 (often both), and can take a direct hand in making trades however they want. Whatever markets are available on the platform, a large portion of the global population can theoretically access at any given moment. The change in accessibility from TradFi to Web3 is difficult to comprehend. That said, this Web3 playing field can actually be flattened even further through a fairly radical development called permissionless market listings. There seems to only be one successful launch of this concept so far, from dYdX – dYdX Unlimited. dYdX claims that the permissionless market listing, especially with automatic liquidity, is not yet available in any other decentralized exchanges (DEXs) or centralized exchanges (CEXs).
Creating Markets, No Governance Needed
How does this work exactly? Well, the name does a decent job of describing it. In a Web3 setting, it involves a user identifying a new market they would like to be listed on the platform, then performing the necessary steps to initiate it. On most exchanges and platforms this process would involve some sort of approval process with centralized platforms, and some level of governance approval with a decentralized exchange. In a permissionless structure, the user can set up from a wide range of markets including cryptocurrencies and prediction markets, and instead of approval they would simply need to fulfill the minimum requirements to launch the market. The most logical kickoff step would include initiating the market through an infusion of deposited currency. This would both ensure that the user is serious about the launch and is willing to invest in its launch, and helps inject initial liquidity for the market as well (not necessarily enough for the market, but at least a token amount). By setting up a necessary but minor gateway to launching a new market, the users in the platform are able to add their own insights, research, and understanding into what markets are likely to take off and become popular with the community. This distributed wisdom has its own value, but having this work done by an eager community also takes a big step closer to full decentralization, preventing a centralized team from having to research and launch prospective markets for the platform.
dYdX Unlimited, coming soon.
— dYdX (@dYdX) August 13, 2024
With a range of new groundbreaking features, this will be the biggest upgrade to dYdX Chain since launch.
🧵 Here’s what you can look forward to pic.twitter.com/f5savJAIwx
Liquidity Needed and Supplied
One of the biggest challenges to the permissionless market listing model is liquidity, and may be why only dYdX has thus far been able to implement it. While the platform will list a new market if the user deposits a certain amount of USDC, the real ability to manage these many new listings is the structure of large pools called “MegaVaults.” These are a critical piece of the model because they help to optimize the liquidity across the entire spectrum of listings. Simply put, the MegaVault has a large amount of pooled liquidity that has been deposited through new listings, but also through community members/investors looking to generate yield. USDC is deposited into the MegaVault, which then monitors all the associated listings and supplies just enough liquidity to each as the trading occurs. This ensures that the listings are given the full support of the platform, even if they are very niche and have little activity; at the same time, it ensures that the liquidity itself is very efficiently utilized, never waiting as excess liquidity when another listing needs it.
Depositors are highly motivated to place their funds into the MegaVault due to a number of ways the vault can earn revenue, which then generates yield for the depositors. In addition, the vault allows depositors to withdraw their funds at any point, preventing any anxiety.
While this describes the specific methods for the dYdX model, the core elements would likely be similar for any platform wanting to establish a permissionless market listing service for its trading community. A deposit-driven cost of entry would be required, and a multi-role pool would be at the center of the service in order to efficiently serve all market listings as they would likely fluctuate greatly in terms of demand. The pool would need substantial liquidity, so depositors would need to be motivated through generous yields and few penalties. These guidelines could likely be used successfully on any major platform wanting to pursue this service for its members. The finely tuned management of the listings, the liquidity, and the motivations would help determine success or not.
Looking Ahead
Regardless, a successful launch of a permissionless market listing service means that the playing field becomes truly level. From the exclusive broker zone of TradFi, to the more open policy of Web3, to the “anyone is welcome” of permissionless market listings, we have come a long way toward an open market that can be enjoyed by all. Seeing this type of win for the industry, you can’t help but anticipate what great things Web3 has in store for us in the near future.
