A decentralized exchange built on the Liquid network is opening for early access on Monday.


Called
TDEX, the project has announced its entry into an Open Alpha stage.
It’s being built by Sevenlabs — a firm that provides consulting and
white-labeling services in addition to its current work.


The
exchange provides a fairly unique twist to the Automated Market Makers
currently dominating on-chain exchange volume. The TSWAP protocol used
by the exchange focuses on ad-hoc atomic swaps, a way of conducting a
trade between two counterparties without intermediaries. 


Unlike
AMMs, there are no mathematical formulas involved that would force a
particular exchange price. As Claudio Levrini, CEO of Sevenlabs, told
Cointelegraph, “TDEX leaves to the liquidity provider full control on
using a fixed price strategy or add external price feeds and custom
trading logic.” The flipside of this is that providing liquidity on the
platform is likely to be more involved than on platforms like Uniswap.


Atomic
swaps are often proposed as a decentralized method for exchanging
assets on Bitcoin and other UTXO blockchains. While adoption has been
limited so far, the Taproot and Schnorr proposals could allow simpler mechanisms through Adaptor signatures. 


Adam
Back, CEO of Blockstream, said that “TDEX is an exciting example of the
increasing number of DeFi solutions emerging on Liquid — or as we like
to call it, LiFi.”


But the relative level of centralization on Liquid has been the subject of criticism in the past, especially in the context of introducing concepts traditionally associated with Ethereum like non-fungible tokens.


Liquid
is a Bitcoin sidechain that relies on a federation of “functionaries”
to both ensure a peg to Bitcoin and validate the network. These
functionaries are business entities tied to Bitcoin, primarily
exchanges. The federation and design of the peg system present a
significant point of trust in the network, as an incident in June
briefly made Blockstream the sole controller of 870 BTC in network reserves.


Some
in the Bitcoin community often push for creating “Bitcoin DeFi” that
could open the network to the world of decentralized trading and lending
which, until now, has primarily been seen on Ethereum.


Atomic Loans
is currently among the only projects that uses native Bitcoin as
collateral for borrowing, though it uses Ethereum for the rest of its
logic. Other “Bitcoin DeFi” projects include MoneyOnChain, a MakerDAO analog on RSK, and now, TDEX. 


None
of these projects are built natively on Bitcoin, primarily due to smart
contract limitations. These same limitations make it difficult to
create trustless bridges to the blockchain, forcing sidechains to adopt
federated peg mechanisms. 


But demand for Bitcoin in DeFi is clearly strong, as evidenced by the success of WBTC. There is more Bitcoin locked on Ethereum than in Liquid and the Lightning Network combined. It remains to be seen if demand for DeFi on Liquid will be as strong.