This article explores some of the most promising Layer 1 Bitcoin decentralized exchanges (Dexs) and automated market makers (AMMs). Most of these markets are still under development, and some are only in the testnet stage. In general, these markets can be divided into two categories: order book trading platforms and automated market makers. This article included research interviews with most of the teams involved.
DeFi on Bitcoin is coming. We have already initially seen what DeFi will look like on Bitcoin, with the emergence of Ordinals, Runes, and meta-protocols such as BRC20 and TAP. The community wants to trade "shit coin" on Bitcoin, but this is about to change!
Currently, the experience of trading tokens on Bitcoin is poor and full of friction. On markets such as Unisat and Magic Eden, sellers of Tokens (BRC20 or Runes) must list a specific number of Tokens at a specific price and wait for buyers to purchase the same number of Tokens at the same price, which increases the friction of transactions.
Many teams are trying to solve this problem by bringing AMM and Dex style trading to Bitcoin, providing the trading experience we are accustomed to on EVM. Since Bitcoin uses the UTXO model rather than the account model used by EVM, some features need to be redesigned. In fact, UTXO has technical characteristics that EVM cannot achieve in designing Partially Signed Bitcoin Transactions (PSBT) to achieve atomic swaps.
I consider specific criteria when analyzing each market: user experience at the exchange, degree of decentralization, whether permissions are allowed, and other trade-offs.
Most teams are innovating in PSBT and signature hashing (Sighash). A signed hash is the mechanism used to sign the inputs and outputs of Bitcoin transactions. There are six different types of signature hashes, from the most secure but least flexible "Sighash All" to the least secure but most flexible "Sighash None — Anyone Can Pay".
Currently popular markets such as Unisat and Magic Eden use "Sighash-Single" to build their PSBT. This means that not all outputs are signed and transactions may therefore be subject to MEV sniping. Using "Sighash-All" means that all inputs and outputs are fully signed, and any transaction signed in this way can avoid MEV sniping.
There are many other factors to consider when analyzing Dex or Swap, such as liquidity and slippage, market making and taker fees, liquidity provider incentives, trading volume, etc. However, since most of the markets analyzed are still in testing or early release stages, it will take time for these indicators to become relevant.
Fluid BTC
Website: https://btc.fluidtokens.com/swap
Twitter: https://x.com/FluidtokensXBT
Fluid Tokens is an order book-based decentralized exchange (DEX). Users can currently trade Runes-BTC, and the Runes-Runes function will be launched soon. Fluid is essentially a marketplace for peer-to-peer transactions. When a trader wants to establish an order (maker), they make an off-chain "commitment" (for example, I want to sell 1000 $DOG in exchange for 0.001 BTC).
These commitments are posted in the order book as limit orders. When a taker accepts an order to buy or sell in the market, they initiate a PSBT (Partially Signed Bitcoin Transaction), which details all inputs and outputs committed by the maker. The original maker is then notified (via email or in-app) that their limit order has been matched, and they then sign the PSBT to broadcast the transaction to complete the transaction.
This transaction design is completely permissionless and peer-to-peer. The market is essentially the facilitator of these transactions. The trade-off is the round trip in user experience. The maker commits and releases the limit order - the taker matches the order and initiates the PSBT - and then the maker signs and completes the PSBT. This friction essentially slows down the trading process and often fails to meet traders' needs to sell quickly.
Another potential issue is order manipulation or spoofing, for example, makers setting up orders that they have no intention of filling in an attempt to manipulate prices. To mitigate this situation, the Fluid platform currently only allows one maker commitment order per trading pair per address. Therefore, it is currently not possible to gradually establish positions through ladder orders, but this feature is already in the development plan.
All transactions on Fluid are completely permissionless, and since "Sighash All" can be used in PSBT, they are also MEV protected and sniper protected, meaning that transactions will only occur if both the maker and taker addresses are involved in the transaction Be verified. Third parties cannot "snipe" transactions, as often happens with transactions on currently popular markets such as Magic-Eden and Unisat. Fluid prioritizes completely permissionless and secure transactions at the cost of a less frictionless trading experience. Fluid will be launching their marketplace in the coming weeks.
Saturn BTC
Website: https://www.saturnbtc.io/
Twitter: https://x.com/Saturn_btc
Saturn BTC is an order book-based on-chain trading platform initially launched in the summer of 2023 for rare sats (the smallest unit of Bitcoin). They just launched the Runes trading market. They focus on building a smooth trading experience similar to centralized trading platforms. They have a "peer-to-peer" order book where users can place limit orders on the chain to fill the order book, and users can also make market buys and 'accept' existing limit orders in the order book.
This user experience is very smooth, especially since users do not need to worry about the exact requirements of splitting UTXOs or matching orders placed by the maker. This is a significant improvement over the traditional, more cumbersome Runes trading experience on Unisat and Magic Eden. Saturn also has a "swap" function, but this is not an AMM-style liquidity pool swap. Through the exchange, the user only buys the appropriate amount of sell orders in the order book at the market price, and vice versa.
In order to achieve this improvement in the trading experience and functionality, especially related to limit orders and matching engines, Saturn currently requires users to "deposit" funds into a "trading account", which is a signed by the user. A multi-signature account co-signed by Saturn. This "transaction wallet" will be replaced by one-time multi-signature in the next version.
When a user places a limit order, they sign a "Sighash None" PSBT, which technically hands over control of the tokens/bitcoins involved in that specific order to the Saturn platform and matching engine, in a 2/2 multi-signature manner. Transactions are finalized via "Sighash All" before being broadcast to the memory pool, ensuring protection against sniping. This trading process means that as long as the order remains open, traders must trust Saturn to handle the specific funds involved. Therefore, the trading experience is not entirely permissionless, with some centralized aspects.
Saturn takes an interesting and innovative approach by replicating the smooth trading experience of centralized exchanges directly on the Bitcoin Layer 1 chain. Their platform also offers full charting functionality powered by Trading View. There is no need to split the order, the platform handles these transactions and there can be partial fills and multiple wallets in the same transaction. Saturn is a very user-friendly and intuitive decentralized exchange platform with many product improvements and new features included in its roadmap.
UniTap
Website: https://unitap.io/
Twitter: https://x.com/Uni_Tap
Unitap is a decentralized trading platform (Dex) built for the TAP ecosystem. The TAP meta-protocol enables various DeFi functions and operations to be performed directly on Bitcoin Layer 1, using a decentralized indexer to assist calculations and account balancing.
Unitap is building a marketplace not only for trading Tap-based assets, but also Tap-to-Runes trading. They are developing a Runes to Tap bridge solution.
Unitap designed a completely unmanaged switching system. Users who wish to sell Tokens (eg -tap) can use "Sighash Single" to create a PSBT, specifying the number of Tokens they wish to sell and in what form (Tokens and quantity) they wish to receive in return. The reward can be BTC or other Tap or Rune Token. This sets up a very specific sell order that may take some time to find a match, especially if the market is less liquid.
To help overcome this friction, Unitap places this sell order into the market, matching all other orders that match the buyer of this particular sell order. For example, if I want to sell some $-tap, I can select the token and click the "Give" tab. This will open a market with all orders to buy $-tap, with sellers of other assets looking for $-tap in exchange for their assets (see screenshot above). This adds flexibility to the market and helps facilitate quick sales that traders love. Currently, Tap-Tap assets are tradable, with Tap-Runes and Runes-Tap swaps set to launch in the coming months.
Unitap will also launch its own wallet in the coming weeks, supporting all TAP operations and supporting cross-protocol exchanges such as Tap-Runes or Tap-BRC20.
Dotswap
Website: https://www.dotswap.app/
Twitter: https://x.com/dot_swap
Dotswap is a native AMM-style trading platform based on Bitcoin Layer 1, supporting BRC20, ARC20 and Runes. The trading experience is very similar to how Uniswap works. Users can already exchange between BRC20/Bitcoin and Runes/Bitcoin, and the exchange of Runes/Runes will be launched soon.
Atomic swaps are completely permissionless and non-custodial, using "Sighash All" PSBT. Users select how many Bitcoins/Tokens they wish to exchange and receive the corresponding amount of another Token in the same transaction. Using Sighash-All means all deals are sniper resistant.
The "trade-off" here is that the liquidity pool is custodial. When liquidity providers deposit funds into liquidity pools, those funds are stored in a multi-signature system because Bitcoin has no smart contracts to which funds can be sent. Dotswap's unique MMM (Multi-Layered Multi-Signature Matrix) custody solution is developed in-house and executed in partnership with custodians Safeheron and BitGo. The process of adding and removing liquidity is as simple as expected and similar to the EVM AMM experience. Dotswap is the first team on Bitcoin to implement a centralized serializer to protect transaction ordering (and therefore price ordering).
Dotswap has also developed a new Runes Token launch platform that operates similarly to pump.fun on Solana. At launch, participants use Bitcoin to purchase a specific Runes Token, with the majority of the Bitcoin used to seed the liquidity pool for that token. Therefore, any Rune launched on this platform has an immediately available liquidity pool, and users can exchange and trade in a completely permissionless manner. Contributors who launch the platform also thus own their share of the liquidity pool and can earn trading fees.
Dotswap has developed a completely permissionless and non-custodial AMM trading platform for traders/exchangers to use. Liquidity providers are the ones who assume the assumption of trust. To date, Dotswap’s trading volume has exceeded $40 million. If Dotswap succeeds in attracting more liquidity into their pool (through favorable transaction fees, liquidity mining, etc.), trading volume should increase.
Ordiswap
Website: https://app.ordiswap.fi/
Twitter: https://x.com/OrdiswapLabs
Ordiswap is an AMM that exchanges BRC20 or Runes Token on the chain. Users can exchange, provide liquidity, remove liquidity, and create new liquidity pools on Bitcoin Layer 1. Last year, Ordiswap was the first AMM to appear in the BRC20 field.
When a user initiates a swap on Ordiswap (for example, exchanging BTC for ORDI), they create a transaction that transfers their BTC to the Ordiswap liquidity provider. The transaction also includes a script containing the details of the exchange. The Ordiswap backend indexer reads this script and transmits the corresponding amount of ORDI to the user in subsequent transactions. This means that consumers must trust the Ordiswap API when signing transactions to initiate exchanges.
Ordiswap uses a set of off-chain servers, oracles, indexers, and Bitcoin nodes to build the AMM function. Ordiswap's servers update the off-chain balances of participating trading users and perform regular settlements on the chain. Currently all swaps are handled by the Ordiswap API. This is a slightly less elegant solution than using PSBT for atomic swaps, which can complete the entire swap in the same transaction. However, atomic swaps are already on the roadmap.
The liquidity pool is once again custodial, and discussions are currently underway with custodial partners to upgrade security. Their V2 BRC20 exchange has been live for two months with a total trading volume of approximately $500,000.
Ordiswap also has the potential to become a major AMM on Bitcoin if it achieves everything they set out to do. This is an ambitious, modular implementation of a Bitcoin exchange. They are currently in the closed testing phase of the V3 mainnet. According to reports, testing is going well and they are refining the final details of the exchange mechanism.
RunesDex
Website: https://www.runesdex.com/
Twitter: https://x.com/RUNES_DEX
Runes Dex is another recently launched AMM on Bitcoin Layer 1 for Runes-BTC trading. They are well funded, have a large team, and are growing rapidly. They are currently in the Alpha testing phase on mainnet. Users can test swap their local Rune IS・THIS・WORKING. Similar to the aforementioned AMM, trading on Runes Dex is completely non-custodial and permissionless, but the liquidity pool is custodial. Currently Runes Dex has full control over the private keys, which are stored in a vault using AWS. Hosting partnerships are in the works.
They are also building a launchpad similar to pump.fun, a Runes tracker that takes into account pending transactions in the mempool, and a Runes bridge to bridge memecoins from other chains such as Solana to Runes. They use "Sighash All" in Dex swap PSBTs, which means every swap is Sniper Resistant. They plan to let liquidity providers charge fees in Bitcoin. They have also built an automatic UTXO splitter in terms of liquidity provision to ensure a smooth experience when swapping. Runes Dex’s AMM will be fully live in the coming weeks. Another AMM with potential.
Runeswap — Swapsats
Website: https://rune-testnet.swapsats.io/
Twitter: https://x.com/Swapsats_io
Runeswap is a Runes-BTC AMM style exchange platform developed by the Swapsats team, the team behind the development of the OGsub 10k Ordinals collection Ordinal Eggs. This exchange platform will operate similarly to the exchanges mentioned above; offering a permissionless exchange experience, but with the liquidity pool being hosted.
As a group of collectors, their philosophy is to create a decentralized trading platform for their community. Holders of their collections will receive various benefits on the exchange, such as reduced trading fees and a share of the revenue from the exchange. They prioritize a smooth user interface and a great user experience to further nurture their community. Currently, the exchange platform is in the alpha testnet stage, with the mainnet scheduled to go online in the coming weeks.
RunesFi
Website: https://runesfi.io/
Twitter: https://x.com/Runes_Fi
RunesFi aims to be a one-stop infrastructure hub for Bitcoin assets. They plan to build Runes block explorer, launch platform and incubator, Runes Sculptor, and most importantly, a decentralized trading platform for Runes and BRC20. They are currently in the testnet phase of their trading platform and expect their mainnet product to be online before the end of 2024.
There are a few other decentralized exchanges in development that promise more decentralization than those listed above, such as Omnisats and Motoswap (OPNet). I can analyze them as they get closer to launch and more information becomes available. Unisat recently announced their new BRC20 exchange module, which will include liquidity pools and more. Currently under development and expected to be available within 6 months. Magic Eden is also hinting at upcoming swap features, although the timeline is unclear.
Conclusion and Outlook
Building on Bitcoin is challenging, especially if trying to directly replicate the functionality of the Ethereum Virtual Machine (EVM). Bitcoin's UTXO model is different from EVM's account-based model. Those teams that can fully utilize Bitcoin's unique mechanisms (such as PSBTs, Sighashes, etc.) are more likely to succeed in the long term, rather than just trying to re-establish the EVM stack. team.
Teams currently building innovative solutions make different tradeoffs. For example, when it comes to its order book decentralized trading platform, Saturn prioritizes ultra-smooth user experience and functionality at the expense of completely permissionless trading. Fluid takes a different approach, prioritizing fully decentralized and non-custodial trading, albeit with some friction in the trading experience. It will be interesting to see which philosophy the market values more.
In the automated market maker (AMM) space, most teams are building a system that allows traders to trade completely permissionless, but liquidity pools employ some form of vault, multisig, or semi-custodial solution. This may be an acceptable trade-off, as most traders don’t care how liquidity pools are set up as long as they can exchange quickly and permissionless.
Additionally, given how many bridges and contracts have been compromised on Ethereum, providing liquidity to a reputable custodian might even be a more attractive solution. Currently, Dotswap has the advantage here as they are the furthest along in development, product offerings, and liquidity provider custody solutions. However, other teams such as RunesDex and Ordiswap are also following suit and their products are about to be launched.
I believe there are other teams building that I'm not aware of at the time of writing.
