Why Has No One Created a Stop Loss for DeFi?
An ode to DeFi’s UX and what’s still missing
You’re probably interested in “DeFi”, but we’re here to tell you that you’re probably performing sub-optimally.
It’s December 2020. You now have everything from DEXs (dex.blue), to AMMs (Curve and Uniswap), to mesh network price fillers (0x), to meta DEX aggregators (Matcha, 1inch, & Metamask). You have synthetic assets, liquidity mining schemes, interest-earning stablecoin schemes, and automatic liquidation protection. You can enter into automatic yield farming protocols (in some countries), social trading contracts, and money lego builders. You can get price notifications on your phone with Blockfolio. You can buy NFTs on Rarible, Async, or OpenSea you use with Trust Wallet or Argent. You review your order history on Zerion. You keep your assets on a Trezor cold wallet. You use Trading View for charting and Binance as a centralized on-ramp. Yet, something is missing.
We call what’s missing the Last Mile of DeFi UX — it’s about making this painless.
Because, whether you have $500, $500k, or $5m, you’re not effectively managing risk.
For example, here’s a situation:
You’ve just bought into a project like Orion Protocol ($ORN) or Thorchain ($RUNE) because you think the projects have significant potential. You know these prices are essentially beta assets of Ethereum and behave with some correlated multiplier of what’s happening in ETH. Essentially their prices reflect the psychological and real buy/sell pressure of ETH.
As an oracle, decentralized liquidity sources like DEX AMM pools, notably Uniswap, serve as a mechanism for price discovery. You know traders are expected to arbitrage information asymmetry and inefficiencies between the centralized price metrics and a decentralized market supply/demand.
So now you’re trying to swap ETH for ORN or RUNE. You trust that these DEX markets
Have appropriate liquidity
Accurately reflect the real price balance
Won’t steal your funds
You won’t get front-run or your transaction fail
When you perform this swap, probably on Uniswap (but also Sushiswap, Mooniswap, or Balancer) you essentially forego the convenience of centralized management for price discovery, order routing, order management, and trade clearing for an on-chain alternative. You need tools like Uniswap’s own uniswap.info to give you better indicators on pool activity and fees. Else, how will you know if you’ve made any money on that position?
So by playing in the DEX world, you’re doing everything manually and by yourself. You want to perform a trade? Good, then set a limit order on 1inch and pray to god they can profit from internal price arbitrage so they fill your order. Did your order fill? Good, but now you realize you lost 10% of your relative holdings with that swap so you’re in debt to return to your starting position.
You effectively don’t have a way to determine prices and forget that you did. You’re forking over massively valuable cognitive capacity, time, and losing assets that could be spent on any number of things because of existing UX inefficiencies despite all the extremely gorgeous UIs, contract audits, and toys that have emerged from the DeFi summer.
The decentralized exchanges that have caused the shift of over $500 million USD in assets this year alone lack the tools necessary to let lose the floodgates of $TSLA Robinhood meme traders. One such tool is a stop-loss mechanism.
Stop losses protect profits and automate an exit when markets fall beyond a certain threshold. Stop-loss orders are usually only available to highly technical traders, technical teams, and crypto hedge funds with in house developers. However, even some VCs, funds, whales, and nontechnical traders, across institutions and retail alike, lack these essential product features.
In our last article, we explored what DeFi in December 2020 looks like and the remaining, but essential UX challenges to adoption. It’s not easy and you’re gonna have some bad bouts of sleep if you think you’re going to make money from trading!
You’re spending way too much time and money…
On the Uniswap interface and probably with multiple windows.
Figuring out how to minimize loss.
Waiting for limit orders to fill without any indication of their progress.
Setting blockfolio price alarms.
Sweeping liquidity mining staking rewards into your wallet at optimal times (for price and for gas).
Even today, the markets dropped after a leak from Ledger exposed user information, a resting stop-loss could have saved you lots of money!
Dexible is introducing the first market-ready stop loss orders to DeFi and they have the potential to change the game.
What you’ll find is that Dexible’s flexible stop-loss orders are not only a first for DeFi, but they’re probably better than the TradFi ones that exist today.
What is a Stop Loss Order, really?
First, let’s start with defining what a stop-loss order is and how it accounts for that Last Mile of DeFi UX?
Stop loss orders work by setting certain price thresholds that trigger sells. They minimize losses and help with time management. So when prices move against your intended strategy, you want your stop-loss orders to sell.
Multiple stops could be implemented where one stop sells some portion and another stop sells a larger portion.
Some stops may want to be placed based on an absolute price threshold whereas others may want to be placed based on a percentage drop.
While stops in TradFi succumb to whenever the market is live, intermediary brokers, and centralized trade clearing mechanisms; decentralized trading offers you the advantage of constant run time, constant sources of liquidity, and fair level playing field options for setting up trades.
Now you can create stop losses for ERC-20s. This changes the game.
Cost you nothing to implement, just a flat fee per swap.
Let you keep custody of your assets.
Remain private to all other users.
Creating your First Stop Loss
First, head to https://dexible.io and check out the brand new landing page. Click Launch App or Use Now.
Connect to Metamask, Authereum, or via Wallet Connect.
Let’s take a look at what’s going on here.
Choose your input token and the amount you want to protect with the stop loss.
Choose the token you want to exit your position to. This is the output assets of the order. We recommend choosing a stable coin since falling markets tend to affect all token prices.
Choose either a Percent or Price based activation for the stop loss. You can select whether that price is a percentage below the current market or set an exact price. You’ll want to set this to a value that protects your current profit level or prevents an immediate loss of a newly acquired asset.
The example price below corresponds with the price of 3480.6822 BAND per renBTC (remember we’re dealing with Uniswap liquidity, which means prices are denominated by the demand/supply curve in each pool).
Choose max slippage per each round. Remember, the way flexible orders works is that orders are automatically split into market impact and fee minimizing rounds. So each round experiences the slippage you specify at its max.. 0% slippage is impossible. Crypto hedge funds and whales prefer 0.5% slippage since it’s the safest way to protect the transaction.
With this click “Estimate Outcomes”.
Nice! In this case, we’d be saving about 2% more REN.
Because the order executes across lots of rounds, gas fees still play a role in the final margins. But you will preserve your token outcomes better than what currently exists.
Upcoming Features
And there you have it, working operational flexible Stop Loss orders. First of its kind and it only gets better from here, with more use cases, liquidity sources, and automation wizardry. Here is what’s on the horizon:
Trailing Stops: follow market trends and lock in value as prices go up
Stop Limits: only enter a position after an up-trending price threshold is past
Take Profit: exit an asset after a certain profit level is reached
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