There are a million ways to lose money in investing, and decentralized finance (DeFi) makes them more accessible. However, the real problem is not the technology itself, nor most of the participants or protocols; it is the various structures, inefficiencies, and habits that can make people lose a lot of money without realizing it.

While most traders accept the risk of losing money from the outset, the unfortunate reality is that the issues we discuss in this article affect not just investors, but everyday users as well. If you frequently exchange tokens in your daily life, whether to play games, purchase content, or try out dApps, then you may want to read on.

Understanding Liquidity

Liquidity is a core component of any trading environment - whether it is DeFi or traditional finance. In simple terms, it refers to the ease with which an asset can be exchanged for cash, stablecoins, or other assets. In traditional centralized environments, liquidity is assessed through order books, where traders list buy and sell orders at prices that suit them. In decentralized environments such as DeFi, automated market makers (AMMs) are the standard for decentralized exchanges (DEXs); they also operate based on the principles of supply and demand, but prices are determined by token pairs.

These are called liquidity pools, and almost anyone can provide liquidity for these token pairs. Traders simply use these pools to swap tokens, and the price changes accordingly. Considering some limitations, such as tokens always come in pairs, technical limitations of blockchain and smart contract technology, and issues with cross-chain interoperability, we can already see some inefficiencies.

In DeFi, the amount of liquidity is often determined by the popularity of a digital asset, as it means that liquidity providers have enough confidence in a certain token to be willing to buy it and freeze it for an undetermined period of time. Considering the number of projects in this industry, you may begin to realize that obtaining enough liquidity for a large number of assets is a difficult task, so it becomes very difficult and expensive to make exchanges outside of the most popular tokens.

Friction costs add up

Under normal circumstances, this wouldn’t be considered a problem; after all, a few cents difference in large transactions doesn’t mean anything. Indeed, for someone who rarely exchanges, this may be insignificant… but what about the everyday user? What happens if these inefficiencies become frequent in one’s trading habits? How do those few cents add up, and how much time is spent switching between different decentralized exchanges?

It is worth stressing that the value we measure in pennies is only a practical matter. In fact, when we make an exchange, we pay in tokens, not fiat. These may be network tokens or project tokens, sometimes both. Other times, the price on the decentralized exchange used is higher than other exchanges for liquidity and slippage related reasons, so we pay more. However, the obvious implication is that given the volatility of digital asset prices, losses can occur much faster than users initially expect - this is especially true for project tokens in the rising stage.

Combined with the many ways you can put your crypto assets to work, such as staking, providing liquidity, governance, etc., these losses show some unfulfilled promise that some people would rather see than exorbitant exchange fees. This is a seemingly insignificant incremental process, but it may eventually add up.

This not only hurts traders, it also discourages frequent, everyday use. It makes the process longer, more expensive, and more complicated, ultimately damaging the reputation of an industry that is trying to make ambitious changes in the world.

Save more with 0xGen!

0xGen combines many different liquidity aggregators into one user-friendly application platform. Through an easy-to-use and intuitive user interface, 0xGen meets the needs of most exchangers while providing them with the best quotes in a large and liquid market. The protocol also protects users from attacks related to gas fees and slippage, and selects the best route for multiple exchanges, saving fees on multiple levels.

Additionally, 0xGen is at the forefront of AI technology, employing AI in many aspects of the protocol. For example, by using AI and machine learning, 0xGen can provide users with the best trading routes, offering significantly lower fees and faster transaction speeds. Another AI feature worth mentioning is the AI-powered trading signals, which not only provide users with high-quality information but also allow them to execute these signals seamlessly within the same app.

Talking about user personalization, 0xGen also provides personalized services based on the user's trading intentions and preferences. This is done by using artificial intelligence to analyze user trading data and contextualize it through specially designed question-and-answer forms to understand the individual needs of each user, thereby ultimately helping traders with asset allocation and risk management, helping them avoid uncontrollable environments and external factors.

The best part? 0xGen’s technology is easily integrated into other dApps, expanding its accessibility and usefulness to a wider user base! It provides open source AI algorithms and large language models (LLMs), inviting developers to train and utilize them together. This approach is not only beneficial to the project itself, but the impact on the entire industry means that, in the end, 0xGen will almost become a standard, protecting users from inexperience and inefficiency, and helping them save a lot of tokens in the months and years to come.