Introduction
DFlow is a decentralized marketplace for order flow that introduces an open and fair payment-for-order-flow (PFOF) model. This means sources of order flow can integrate DFlow to monetize their order flow and access a new type of liquidity.
On DFlow, order flow means marketable orders or unfulfilled user buy and sell orders. E.g. Alice places an order to buy 10 ETH. Swap orders make up a large portion of on-chain transactions.
Open and fair PFOF brings significant improvements that are essential for well-functioning digital markets. Firstly, retail investors receive the best prices in addition to price and size improvements on their orders. Secondly, sources of retail order flow, such as wallets and Web3 swapping apps, can monetize their order flow without sacrificing execution quality or UX for their users. Finally, all of this is provable: execution quality, price, and size improvements are measurable and verifiable by anyone.
Who uses DFlow?
DFlow is a marketplace that facilitates the efficient price discovery and exchange of order flow between order flow sources and market makers. Retail investors are the end consumers who generate order flow.
Order Flow Sources (e.g. wallets): route orders to permissionless auctions on DFlow and receive USDC payments from market makers.
Market Makers: submit bids into on-chain auctions to receive the right to execute orders.
Retail Investors: perform token swaps on DFlow-powered applications – trades are guaranteed to always be executed at the best prices.
Why use DFlow?
DFlow is the first time order flow can be bought and sold in a transparent and market-driven way. A fair PFOF model aligns all stakeholder incentives to ensure each party is better off.
For Order Flow Sources:
- Safe and efficient order flow monetization. In return for routing orders, order flow sources receive USDC payments from market makers, resulting in a large monetization opportunity for sources of order flow. It is considered safe because the right to execute orders is determined in public auctions, reducing centralization risks from private order flow. Unlike in closed / traditional markets, payments are also determined transparently and settled on-chain. The DFlow model is efficient because auctions are permissionless and competition yields the fairest market prices for order flow.
- Guaranteed best-execution. DFlow algorithmically ensures market makers provide best execution, ensuring the end users always receive the best prices. Execution prices must be better than the Consolidated Best Price (CBP), a decentralized price oracle that represents the best price for a token.
- Enable zero fee trading. Order flow sources can offer zero fee trading with the optionality to add a platform fee. Fair PFOF can fund opportunities to develop new user experiences.
For Market Makers:
- New business opportunity. Providing liquidity on DFlow is an alternative to providing liquidity on centralized exchanges and AMMs like Uniswap where the average liquidity provider is at high risk of being exploited by sharp takers. On DFlow, order flow must be endorsed and is tranched along various axes to indicate certain information (i.e. exact order details will never be revealed) about the toxicity of the orders.
For Retail Investors:
- Guaranteed best-execution. When swapping on DFlow-powered trading platforms, retail investors will always receive the best price because executed orders must be better than the CBP.
- Cost savings. Retail investors can expect to receive better than best prices (i.e. better than the CBP) in the forms of price and size improvements from market makers. Passive LPs on AMMs can not provide these cost savings.
- MEV protection. Since orders are executed by a request-for-quote (RFQ) model, user orders cannot be frontrun or sandwiched. Slippage tolerance settings will no longer be needed as all trades will be executed at zero slippage.
- Zero fee trading. Current AMMs charge anywhere from 20 to 40 bps in fees. Trading on DFlow-powered platforms is free.
How does DFlow work?
DFlow allows order flow sources to sell order flow to market makers through decentralized and permissionless auctions that are hosted on the DFlow Chain, a decentralized appchain built using the Cosmos SDK.
DFlow auctions are blind auctions and represent rights to execute orders of a specific grade as specified by the auction owner. Each order flow source creates its own auctions and the highest bidder of the auction receives the right to execute the orders. Therefore, order flow (i.e. the underlying assets) are not bridged to the DFlow Chain.
An on-chain marketplace for order flow maximizes market prices for order flow, provides transparency to market maker payments, and makes all order execution statistics verifiable. This is a big step away from the traditional relationship-driven PFOF process.
Overview of the Docs
For a high level overview of PFOF and how DFlow is bringing a revamped version of it to digital markets, check out What is PFOF and to understand how DFlow is bringing cost savings to retail investors, see What is Price Improvement.
To see the details of how order flow is tranched and sold to market makers, see the section on DFlow auctions. Learn more about how the Consolidated Best Price guarantees all orders are executed at the best price and how DFlow auctions enables Market Prices for Order Flow and what that entails.
Check out DFlow Dashboard to see how DFlow is making transparent order handling and execution. For more information on DFlow's architecture, see the Advanced Concepts section.
Ready to start integrating with DFlow? Head over to the Integrate tab.