Dragonfly Partners: Interpreting the Decentralized Shadow Brokerage Hashflow

Written by: Haseeb Qureshi, Managing Partner at Dragonfly Capital

Automated Market Makers (AMMs) have become the catalyst that ignited the DeFi space over the past year. Ethereum cannot reach the cost levels of traditional order book trading, but these "liquidity vending machines" are performing well. Uniswap processes over a billion dollars in trading volume daily, solidifying its position as one of the top ten spot exchanges globally. Sushiswap and Curve follow closely, with daily trading volumes reaching hundreds of millions.

However, the specific levels of AMMs are far from ideal. New AMM designs are constantly emerging due to the numerous issues that exist with AMMs. Uniswap V3 is the latest design attempting to address the shortcomings of AMMs (namely, the slippage caused by constant product and the inefficiency of capital). Yet, we still face flaws such as front-running, sandwich attacks, high fees (30 bps per transaction), low gas efficiency, and frequent transaction failures. It remains unclear whether V3 or any other AMM can solve these problems.

Can it be done better?

I have articulated that once professional market makers from traditional markets find a way to enter DeFi, they will provide competitive liquidity, bridging centralized finance (CeFi) and DeFi. They can execute this in a trustless and user-friendly manner for end users, just like Uniswap. However, since these market makers will not be constrained by simple pricing like the x * y = k curves of Uniswap, they will be able to price on-chain as they do off-chain. In other words, the pricing you get in DeFi will be the same as the prices you get on Binance.

The only question is when this will become a reality. Given Uniswap's soaring success—why haven't these traditional institutions entered the space? Why are these market makers nowhere to be seen?

The answer is quite simple. What attracts market makers is trading volume, and DeFi has only recently reached this level of trading volume. The trading volume of centralized exchanges completely dwarfs that of DeFi (the spot market alone is equivalent to 10 times that of DeFi, not to mention the derivatives market).

However, after last year's explosive growth in the DeFi space, all market makers are now acutely aware: DeFi represents the future. To stay ahead, they are ready to join the competition, but they will not entrust their funds to passive Uniswap LP protocols. What market makers need is a platform that allows them to effectively service DeFi order flow.

That platform is Hashflow.

Hashflow is a protocol that connects users with top crypto on-chain market makers. It simplifies this process to the absolute essentials—extremely gas-efficient pricing (about 50% cheaper than Uniswap), a powerful lineup of the world's top crypto market makers (from day one!), and the highest capital efficiency.

Because this is DeFi, you can trade with these market makers without needing to trust them. They will quote prices for you, and if you don't like that price, just don't accept it! This is similar to the permissionless experience of Uniswap, but with more attractive pricing. Hashflow also comes with built-in order routing—if Uniswap can offer a better price, it will service your order through Uniswap with one click.

You can think of Hashflow as a decentralized shadow brokerage—connecting you with the world's top market makers, Hashflow creates a gateway for all liquidity in CeFi to enter DeFi. You can execute large trades at Binance prices, with all transactions settled directly on-chain. You can also complete trades at prices cheaper than any other platform, while saving on gas fees!

Moreover, trading on the platform is completely free from MEV (Miner Extractable Value) exploitation. The signature-based pricing mechanism also means no more front-running, no sandwich attacks, and no traps or any form of value extraction.

Ultimately, Hashflow will support permissionless market-making pools. This means anyone can provide capital to these market-making strategies (with some built-in safeguards to mitigate the negative impact of bad actors). The best market-making strategies can be combined with traditional capital, all of which can be achieved with higher capital efficiency than Uniswap.

In the long run, all markets focus on efficiency. DeFi will also become more efficient over time. I believe Hashflow is a new generation leader in this process.

You can start trading immediately at hashflow.com. Give it a try! (Big moves are coming soon, so you’ll want to start transitioning your trades as soon as possible.)

Dragonfly, along with Electric Capital, co-led Hashflow's seed round financing, with participation from Alameda Research, Metastable Capital, Galaxy Digital, IDEO Ventures, Gumi Cryptos, and angel investors including Balaji Srinivasan, Kain Warwick, and Ryan Sean Adams. We are very excited to support Hashflow's vision of bringing market efficiency to DeFi. If you are also interested in helping to build this vision, the Hashflow team is hiring.