DAEX BLOCKCHAIN: EFFECTIVE CLEARING SERVICE FOR CRYPTOCURRENCY TRADING
BLOCKCHAIN OVERVIEW
Blockchain technology has opened the face of the global economy up to a new dimension as more investors embrace and adopt the blockchan technology in their businesses on a daily basis. There are more than 2,000 cryptocurrencies in the world each designed to solve a problem.
So far, the total market value of all cryptocurrencies has exceeded $280 billion with bitcoin having 50% of the market share. Until the third quarter of 2017, the investment returns on cryptocurrencies has far more exceeded the returns on other assets such as stock market, gold and real estate as the returns on cryptocurrencies went up as high as 448% of the of the investment.
The proliferation of emerging cryptocurrencies has led to the development of cryptocurrency exchanges where different cryptocurrencies are traded in exchange for another and cryptocurrency trading has been very active with almost 60 cryptocurrencies having average daily trading volume of $10 mlliion. This active trading of cryptocurrencies has eventually led more exchanges entering the cryptocurrency market.
However, the current types of cryptocurrency exchanges namely Centralized and Decentralized Exchanges are associated with some advantages and some disadvantages which will be discussed below
- CENTRALIZED EXCHANGE
Centralized Exchanges provides centralized order matching mechanism for traders. Here, trader’s cryptocurrencies are deposited by traders and held in the centralized storage of the exchange platform. The exchange then issues IOUs to trader’s exchange account and traders then trades these IOUs with each other at the exchange. The IOUs is also used to instruct the exchange to send corresponding cryptocurrencies to specified addresses when traders want to transfer their cryptocurrencies to other places.
Although centralized exchanges provide high liquidity, high matching speed and flexibility, they have flaws in their current infrastructure. Customer’s assets are exposed to both serious internal and external risks as each centralized exchange maintains its customers’ assets. Also, the operation of these exchanges are also opaque and there is no way to guarantee an exchange’s objectivity in being an unbiased matching mechanism. Centralized exchanges are also prone to security incidents with an example of Mt.Gox and Yubit security incidence in recent years. These security incidents are presumed to continue happening due to the faulted infrastructure of centralized exchanges.
- DECENTRALIZED EXCHANGE
A Decentralized Exchange is usually based on distributed ledger technology and t does not need people to maintain its operation since it runs on its own. Here, there is more security for trader’s asset because trader’s asset is held in his own account and the exchange does not have access to it. Traders on a decentralized exchange also trade directly with each other and the exchange underlying technology guarantees the trade goes through, cleared and settled correctly. Examples of Decentralized Exchanges are EtherDelta, Forkdelta, Idex and BitShare.
A decentralized exchange provides more security for traders as trader’s asset is well protected, trading and clearing costs are favorably low, traders can freely join and exit without having any centralized account or attachment of any sort with the exchange and they can trade with any other user in the world as long as the user is on the same exchange. However, despite the advantages of a decentralized exchange, it is faulted in terms of its liquidity, matching speed and flexibility which are the major concerns of traders that uses the decentralized exchanges and eventually hindered decentralized exchanges from being widely used in cryptocurrency trading.
INTRODUCING DAEX ECOSYSTEM
DAEX ecosystem is composed of a clearing service that is built on distributed ledger technology , centralized exchanges and user wallets. Here, traders use their wallets to perform trades on exchanges after which the trades are matched and exchanges sends matched trades to the clearing service while the clearing service is carried out by smart contracts on the distributed ledger technology.
ADVANTAGES OF DAEX ECOSYSTEM
The DAEX ecosystem provides enhanced trading security by ensuring participating exchanges meet the business and technology requirements of the ecosystem, hence the quality of trading service is maintained and since all user’s assets are held on the blockchain, assets cannot be moved without the user’s permission. DAEX ecosystem also provides multiple-part private key for user’s assets and also a safe recovery mechanism in case a user loses his private key. The smart contract and blockchain technology adopted in the ecosystem also guarantees the correctness of clearing and settlement.
The DAEX ecosystem provides a trustworthy environment for exchanges and traders by separating the trading and clearing services to guarantee the safety of customer trading asset. Also the insurance fund received from participating exchanges provides another layer of safety.
DAEX ecosystem is open to new exchanges and the participating exchanges in the DAEX ecosystem can use all products and services provided by DAEX which includes wallets and clearing. In addtiton, the participating exchanges can use more added value services provided by DAEX including cryptocurrency trading
THE GOAL OF DAEX
DAEX aims to help bolster the security of trading cryptocurrency in the trading industry by providing a better infrastructure and taking the reasonable parts of the mainstream securities and all these security provided by DAEX are made possible by taking advantages of new opportunities brought about by the distributed ledger technology. DAEX also provides clearing services for trading on exchanges where trading and clearing will be separated into different entities without interference.
Current centralized exchanges will continue to provide trading service but the clearing work will be handled over to a common clearing service which is based on the DAEX solution. The DAEX clearing service is based on distributed ledger technology which guarantees that trades are correctly and safely cleared and settled .
The distributed ledger technology also ensures that trader’s assets are kept in their own accounts on the blockchain . this provides security for traders and improves the experience of traders on these exchanges hence no one can access trader’s assets without their permissions. This eventually eliminates trader’s asset risks in current centralized exchanges effectively.
The DAEX solution will be an open sourced clearing service based on a public blockchain. However, its code is open for public inspection and supervision.
THE DAEX TOKEN
The utility token of DAEX is called DAX and it is the token used to facilitate cooperation among different parts in the system. The DAEX Foundation also issues DAX to raise funds for the development of DAEX solution.
CONCLUSION
The clearing service provided by DAEX provides a secured trading of customer assets separating the trading and clearing services. This is a welcomed development and a service that should be adopted by exchanges as it will enhance the security of trading on the platforms of the exchanges.However, Cryptocurrencies will be serviced during the initial phase of DAEX while cryptocurrency derivatives wll be serviced which means DAEX will provide clearing service for cryptocurrency derivatives traded on exchanges.
For more information on DAEX clearing solution and clearing mechanism and how to participate in the token sale kindle visit the following links
Website: https://www.daex.io/
Whitepaper: https://www.daex.io/pdf/DAEX(EN)-NonTechnicalWhitepaper-V0.9.8c.pdf
Author
BitcoinTalk Username: Eyez_berg
BitcoinTalk Profile Link: https://bitcointalk.org/index.php?action=profile;u=2118767