A decentralized exchange called Phoenix launched in February 2023, and its public-facing user interface launched in August. The startup said the money will help it “create a new financial ecosystem that offers competitive financial products on top of high-throughput blockchains,” combining DeFi's accessibility and openness with traditional markets' efficiency.
Decentralized exchanges are peer-to-peer marketplaces where crypto traders trade directly without an intermediary custodian, however they lack the liquidity to compete with Coinbase, Binance, and Kraken.
Phoenix is the fifth-largest decentralized exchange by trading volume in the past 24 hours, according to DefiLlama, with hundreds of millions of dollars traded everyday. The exchange's on-chain limit order book lets market makers compete on liquidity, the business stated.
After meeting in middle school, Ellipsis Labs cofounders Eugene Chen and Jarry Xiao became high-frequency traders. They started Phoenix to answer a problem with DeFi: protocols, which provide on-chain liquidity at all times, cannot compete with centralized exchanges in depth and spread.
Chen: "We think we can build DeFi products that are comparable—then significantly better—than centralized venues." Chen told Fortune that Phoenix's main goal is to entice market makers with exchange opportunities, not extra tokens.
When you deposit money into an automated market maker (AMM), you usually lose it. Chen explained that AMMs attract liquidity through economic incentives. He emphasized that this system needed constant external funding to run, making it unsustainable. Chen said proving the system exchange is self-sufficient is "the most important thing" for the organization.
He stated that the early-year raise is expanding the engineering team and developing on-chain finance primitives.
Chen said the company built the exchange on Solana because active liquidity requires “the blockchain needs to run really, really fast, so it needs very high throughput, and the fees need to be very low.” When liquidity providers place or cancel limit orders, they pay blockchain gas fees.
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