Bitcoin holders who don’t want to transfer their tokens to the Ethereum blockchain can now get in on the DeFi yield action, albeit in a somewhat complicated way.
OpenDEX, a new decentralized exchange protocol released today, allows holders of Bitcoin, Litecoin, and Ethereum-based tokens to provide liquidity for exchanges without transferring the value of their assets off of their native blockchains. That means DeFi-style returns without Wrapped Bitcoin (WBTC) or any of the other not-so-decentralized cross-chain wrapping protocols.
OpenDEX markets itself as the first step toward a more robust standard for decentralized exchanges within the fragmented landscape of competitors like Uniswap, IDEX, and Balancer. Agreeing on standards is arduous, so OpenDEX aims to create an open community of liquidity providers to agree on common standards over time.
OpenDEX is built using Bitcoin’s Lightning Network and Connext, a peer-to-peer micropayments protocol for cross-chain transactions. Combining the two results in near-instant trade settlement, whereas many decentralized exchanges can only move at the speed of blockchain transactions.
The target users for OpenDEX are market makers, or users who provide large enough amounts of liquid assets that every time they buy or sell, they help set the price.
These large liquidity providers will be able to connect to centralized exchanges and perform arbitrage trades, generating profit by buying an asset from one exchange and then immediately selling it at another at a higher price. The OpenDEX announcement claims premiums of up to 3% on arbitrage trades, which can happen dozens of times a day during significant price swings.
OpenDEX is just getting started on its long-term goal of creating a set of standards. In the near term, however, it should allow Bitcoiners to start generating yields to compete with Ethereum DeFi—without ceding custody of their BTC to third-party custodians.