The Evolution of On-Chain Trading

On-chain trading has changed tremendously in its lifespan of nearly a decade. A swap that once took hours to execute now happens in seconds. Native decentralized exchanges like Penguinswap are the next step in this evolution.

Penguinswap combines the best features of order books and automated market makers (AMMs) to create a seamless and cost-effective trading experience at the intersection of decentralized finance (DeFi), Real-World Assets (RWAs) and Decentralized Physical Infrastructure Networks (DePIN).

Before we dive deeper into Penguinswap, let’s first explore how on-chain trading has evolved over the years.

Order Books: The OG On-Chain Days

Before AMMs, decentralized exchanges (DEXs) relied entirely on on-chain order books, trying hard to replicate the experience of centralized exchanges (CEXs) like Binance, but without intermediaries. Platforms like EtherDelta and IDEX allowed users to place buy and sell orders directly on the blockchain, ensuring transparency and self-custody. However, this came at a steep cost: every action, from placing an order to cancelling or executing a trade, required an on-chain transaction, leading to high gas fees and painfully slow execution. Traders often had to wait hours or even days for their orders to be matched, especially in low-liquidity markets.

Beyond the speed and cost issues, order book DEXs also struggled with liquidity fragmentation. Insufficient buyers and sellers at any given time made it difficult to execute trades efficiently. Most traders went back to using CEXs, where deep liquidity and instant execution made for a smoother experience.

Then, in 2018, Uniswap introduced AMMs, taking the industry away from order book-based models. Rather than match buyers and sellers manually, AMMs allowed users to trade against liquidity pools. This solved the liquidity problem and streamlined execution, setting the stage for the next wave of decentralized trading.

AMMs: Liquidity Pools Take Over

The introduction of Automated Market Makers (AMMs) proved to be a turning point in on-chain trading, moving away from the inefficiencies of on-chain order books. Uniswap got the first-mover advantage and their AMM quickly gained market traction by introducing liquidity pools so traders wouldn't have to wait on buyers and sellers.

Unlike order books, where trades depended on matching counterparties, liquidity pools ensured that assets were always available for swaps. This was a pivotal moment, solving the liquidity issues that had plagued early DEXs. Users simply had to put their tokens into a pool, where a smart contract automated all interactions based on a simple formula (x*y=k). The results were instant trades, with no need for a traditional order book. Anyone could swap emerging tokens or pool in some ETH in a liquidity pool to earn fees. It was a game-changer in opening up DeFi to everyone.

But there were challenges: you couldn’t execute a cross-chain swap; traders were limited to the assets available on the blockchain the DEX operated on and big trades meant slippage. Impermanent loss quickly became a buzzword for liquidity providers watching their gains vanish when prices swung.

AMMs Evolve: Specialized Solutions Emerge

AMMs didn't stop evolving. By 2020, projects like Curve had taken the basic AMM model and optimized it specifically for stablecoins, addressing one of the most significant inefficiencies in early AMMs: slippage. Unlike general-purpose AMMs, which linked assets with widely varied prices, Curve established a bespoke bonding curve for assets with comparable values, such as stablecoins or wrapped assets. This resulted in lower slippage and enhanced capital efficiency, making it a popular platform for stablecoin swaps and liquidity providers seeking consistent, low-risk yields.

In 2021, Uniswap V3 made another leap by delivering focused liquidity - another game changer for AMMs. Previously, liquidity providers (LPs) were required to disperse their money over an asset pair's whole price range, resulting in a large amount of liquidity sitting idle in price zones that were not routinely traded. Uniswap V3 modified that by allowing LPs to distribute funds within precise price ranges, guaranteeing that their capital was being deployed where it was most needed. This boosted capital efficiency and allowed LPs to earn higher fees with less money, making market-making more strategic and competitive.

These advances improved the technical aspects of on-chain trading but more importantly, they altered how liquidity was offered and utilized. Curve's strategy made stablecoin swaps cheaper and more predictable, which aided the growth of DeFi lending and stablecoin adoption. Uniswap V3, on the other hand, provided a new toolkit for professional market makers, allowing them to fine-tune their methods while keeping AMMs decentralized and permissionless. It marked a change towards more efficient, flexible, and scalable on-chain trade.

Still, the core issues lingered: no way to set limit orders, and high volatility could quickly erase profits or lead to unexpected losses. People wondered if there was a way to keep the good parts of AMMs but eliminate the downsides.

Hybrid Models: Best of Both Worlds

Hybrid models came to the DeFi scene in 2022, combining the efficiency of AMMs with the precision of order books. Liquidity pools enabled quick swaps, while on-chain limit orders allowed traders to specify execution prices. This reduced the reliance on pool pricing alone and gave traders more flexibility and control. If a liquidity pool's price resulted in excessive slippage, especially for large trades, the order book could provide an alternative execution path to minimize price impact. Layer 2 solutions like Arbitrum further improved the feasibility of hybrid models by reducing gas fees, making on-chain trading more cost-effective.

Hybrid models addressed key challenges in traditional AMMs such as slippage, impermanent loss, and the lack of execution control. They lay down the foundation for a step towards a more efficient and adaptable DeFi trading experience.

Cross-chain DEXs: A Smoother Experience

Another evolution in DEXs has been cross-chain DEX models. These enable users to trade assets directly from one chain to another without wrapping tokens or relying on bridges.

Cross-chain DEXs rely on liquidity pools that span multiple blockchains, helping them reduce fragmentation and enhance capital efficiency.

However, these solutions come with unique challenges, including higher transaction costs, complex infrastructure, and security risks associated with multi-chain interoperability.

Penguinswap: Where It All Comes Together

Penguinswap is the first DEX built on Creditcoin Layer 1. It builds on the best aspects of earlier decentralized trading models to focus on seamless and cost-effective trading. The DEX achieves this by delivering the efficiency of AMM liquidity pools to simplify asset swaps and improve user experience without operational fees. But its value extends far beyond trading convenience.

Plugged into the heart of Creditcoin’s diverse ecosystem, Penguinswap bridges on-chain finance with real-world value for sustainable DeFi opportunities. DeFi protocols can leverage the platform to execute DePIN and RWA initiatives, unlocking new financial products and tokenized assets that create a more dynamic trading environment.

With the total DEX industry's trading volumes surpassing $460B in December 2024, Penguinswap is ideally positioned to meet the evolving demands of traders. As it continues to develop and expand liquidity pools and introduce new assets, it fosters an ecosystem where DeFi can drive real economic utility.

Looking Ahead

While on-chain trading has evolved to be fast and cost-effective, challenges persist. Liquidity remains fragmented, spread across different chains. Seamless trading is still on the horizon, and cross-chain swaps aren’t widely adopted, either. But innovation in the nascent world of DEXs is rapidly improving accessibility, efficiency, and interoperability.

Penguinswap is designed to offer fast trades, low fees, and higher capital efficiency. With the Universal Smart Contract layer coming later this year on the Creditcoin network, bridging assets will become seamless, helping to unify liquidity and expand trading opportunities across networks.

Visit Penguinswap and experience it for yourself today!