Predictive Allocation Could Reshape Decentralized Exchanges: A Conversation with Chris Boulos

The ratio of DEX spot volume compared to centralized exchange spot volume is back on the rise.

And at the same time, the way decentralized exchanges offering rewards could be changing.

That's because Arrow will launch this summer with a new core initiative called Predictive allocation.

And joining me now to break this down via Zoom is Chris Boulos, President of Dromos Labs.

Chris, thanks so much for joining us today.

My pleasure to be here.

So Chris, Aero is the upcoming unified protocol from the creators of Aerodome and Valdrome.

Tell us about the predictive allocation.

Sure thing.

The core question that's being solved by decentralized exchanges is how do we make sure that liquidity arrives exactly at the moment when it's needed.

Very difficult question to answer.

You need some sort of coordination mechanism to ensure it, and what we've released is a way to not just guess at where liquidity is going to be going, but actually use a market mechanism to ensure that liquidity will be there when there is demand for it from trades, from volatility, what have you.

So Chris, break down the key benefits of predictive allocation for us.

Sure.

So the way, um, the way this sort of financial intermediation works, you need to be able to compensate liquidity providers, um, essentially makers, uh, to, to arrive at markets to make sure that there is, uh, a good execution for, for traders there, right?

And so, uh, the way that you, uh, that we do it, uh, in a way that's different from, um, other mechanisms is that, uh, we will, uh, pay out arrow tokens to these liquidity, uh, providers.

And so, uh, the way that predictive value. works is you are using a market-based mechanism to determine where to pay and how much to pay at what time.

And so where before you had, you had people trying to guess individually and being compensated, you know, retroactively, now you are, you're using something kind of like a prediction market to use markets to really get to a true estimation of where liquidity is going to be needed and when.

So there could also be an upgrade from prediction markets with predictive allocation.

The prediction and the investment are the same.

So explain this for us.

Yeah, the, the kind of question that that Prediction Markets is, is asking is, do I think this thing is going to occur, and if I'm right, I get compensated.

Whereas what we have is something where we're using a shared resource, in our case the arrow token, to make bets or to make predictions about what's going to be the most productive, what's going to return the most value.

The stuff that returns the most value is those, those sorts of liquidity pools, the sorts of trading activity that is, that is.

Offering a high demand for it.

So the question here that's being asked is if I fund this thing, will it be profitable, which is in our view, a very generic, you know, broadly applicable sort of mechanism that is not dissimilar to any sort of capital allocation process.

And so this is the thing that's really exciting about us is that Um, we've been able to crack, uh, in effect, um, a way to, um, in a decentralized way, uh, to, to make this sort of capital allocation activity, and the AMM is, is one of the best venues for it, right, because it's one of the most profitable, enduring business models across all of crypto and across all of, and indeed probably across a lot of financial intermediation generally.

Awesome.

Chris and talk to us about native tokens.

What do investors need to know?

How do investors take care about them and what makes them successful?

I think right now we're seeing a massive shift in, in interest, um, I think away from, um, uh, you know, a sort of nebulous, um, value proposition offered by the token, right?

Like the token has to do something, it has to offer real value accrual.

Um, there has to be, um, some sort of benefit to actually having or using the token.

This is something that, um, Aerodrome Belodrome have had.

Uh, you know, core to their building principles from the very start, and my, my estimation is that we'll see a lot more investment activity, a lot more success among those, uh, among those sorts of tokens that really offer concrete committed value in terms of both utility and, and, uh, you know, and, and value accrual to those holders.

And Chris, the ratio of DEX spot volume compared to centralized exchange spot volume back up to over 24% in Q1.

Can you take us through this?

Sure, I think that there's this is in part due to, I think, a lot more activity just generally going on chain.

I think we're seeing now through the use of more front ends, more integrations, I think a lot more organic activity that's that's occurring across the chains.

This is not a, you know, not a cyclical thing.

This is going to be a long term secular pattern.

Um, that, uh, that, uh, you know, that will, um, you know, that will see the, the overall on chain economy kind of eclipsing a lot of traditional counterparts.

It's a better tech.

It's better tech.

It's better UX.

It offers more to more people and agents worldwide.

And so, you know, we, it's it's, it's great to look at, you know, the short term jumps in this activity, but really we're talking about a steamroller that's going to be.

I'm going to be moving over over the coming years.

Chris Brolos, president of Dermos Labs, thank you so much for joining me.