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MainInsightsAnalysisWhat Is RFQ and How It Changes...

What Is RFQ and How It Changes Trading on DEXs

What Is RFQ and How It Changes Trading on DEXs
RFQ (Request for Quote) is a type of trading based on quotes. In an RFQ, a buyer or seller requests quotes from one or more sources to find the best price. This can be an OTC transaction in which a buyer or seller interacts with a market maker directly, or it can be a transaction conducted on a formal exchange that services the RFQ process for both parties.
Oct, 23, 2023
2 min read
by CryptoRank
What Is RFQ and How It Changes Trading on DEXs

The Relevance of RFQ Today

Thanks to blockchain developments, RFQ transactions are now possible on-chain. This allows RFQs to be submitted and negotiated directly on the blockchain.

What Is the Difference Between a Regular DEX and an RFQ?

On regular DEXes, liquidity providers are AMMs (Automated Market Makers). Any user can become a member of liquidity pools.

In RFQ, the ones who supply liquidity are PMMs (Professional Market Makers). Accordingly, they also regulate prices for the asset. This avoids price slippage and thus provides protection from MEV-bot attacks.

The intermediary in classic DEXes is a smart contract, while in RFQ it is absent. One more difference is that gas is not included in the price of assets on regular DEXs, but is included in RFQ projects.

How Does RFQ Work?

Firstly, a user leaves an exchange request. The market maker offers a price to the user. Then the user accepts or rejects the bid. The RFQ smart contract then sends tokens to the market maker and the user, respectively. It is important to note that the smart contract never stores the funds, but only allows the transaction to take place.

The Main Advantages of RFQ

  • No slippage.

  • The cost of gas is already included in the value of the asset.

  • Protection from MEV bots.

All this makes the user experience as clear and simple as possible, bringing it closer to the experience you get when trading on CEX.

Can PMMs Be Trusted?

Protocols build a special system of penalties. Thanks to this, it is not profitable for PMMs not to execute orders or commit other fraudulent actions. Hence, there is no reason to doubt PMMs.

Future of The RFQ model 

Projects that are already integrating the RFQ model include 1inch, Paraswap, Hashflow, Bebop, 0x Protocol Exchange. RFQ on-chain can be an important model for achieving mass adoption of DeFi. Along with Account Abstraction, it lowers the threshold of entry into the industry for inexperienced users.

In This Insight


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