Convexus is a peer-to-peer decentralised protocol designed to exchange ICX and IRC-2 tokens on the ICON blockchain in a permissionless manner through the use of immutable smart contracts.
How does Convexus compare to an exchange?
To understand how the Convexus protocol differs from a centralised exchange, it is helpful to review how the Automated Market Maker (AMM) design deviates from limit order book-based exchanges, and how permissionless systems depart from permissioned systems.
Order Book vs AMM
The term order book refers to a list of buy and sell orders for a specific cryptocurrency organized by price level. An order book lists the number of tokens being bid on or offered at each price point which creates the market depth.
The Convexus protocol takes a different approach, using an Automated Market Maker also referred to a Constant Function Market Maker, instead of an order book.
An AMM replaces the buy and sell orders in an order book market with a liquidity pool of two assets, both valued relative to each other. As one asset is traded for the other, the relative prices of the two assets shift, and a new market rate for both is determined. In this dynamic, a buyer or seller trades directly with the pool, rather than with specific orders left by other parties.
The second departure from centralised exchanges is the permissionless design of the Convexus protocol. Permissionless design means that the protocol’s services are entirely open for public use, with no ability to selectively restrict who can or cannot use them. Anyone can swap, provide liquidity, or create new markets at will. This is a departure from centralised financial services, which generally require proof of age, identity, address and nationality in accordance with the regulations and laws they abide by.