The Future Model for Crypto Exchanges
25 June, 2018 | 5 MIN
Exchanges are not what they used to be — but what is the next step? Decentralized exchanges are hot, but are they the only solution? A mix of decentralized exchanges and community-fueled marketplaces may be the best answer.
How do you figure out the game of crypto trading? Personal trial and error is one way — the way it was done until recently. Crypto trading has a learning curve, and just like any learnable skill on the Internet, it tends to generate discussion, and pull together communities. Those organic communities may be pointing at something important — that maybe, we are not meant to figure it out on our own.
Some services, like eToro, have already included social trading. But classical exchanges are a different matter — most still rely on social media to build their communities. Binance, the leading exchange by volumes right now, comes to mind, as it is always quick to communicate. Other marketplaces, however, leave the community work as an afterthought.
DACXI takes note of this model — and therefore, aims to bring a marketplace and a community wrapped up into one.
In our previous posting, we previewed the state of exchanges, and the rapid growth and evolution they went through between 2017 and 2018. Now, we will look into the future, at the possibilities and new challenges arising.
Decentralized Exchanges: Making a Lot of Noise
Putting any crypto coin on an exchange is a risk in itself. Your coins are mixed in with other holdings in one large wallet, and what you receive in exchange for your deposit is a database entry. When you trade, your assets do not move on the blockchain. It’s a fast and convenient approach — but problematic. Based on the philosophy that whoever holds the private keys owns the asset, this means that a loss or a hack takes away your tokens.
Most exchanges do not exploit their power, but this does not change the fact that your funds are vulnerable.
And here come the decentralized exchanges — solutions that allow you to trade and open positions, without your funds ever leaving the wallet until the trade is completed. One of the most widely used decentralized exchanges is EtherDelta. It is based on a smart contract, and it lists all new Ethereum assets immediately. EtherDelta offers you to control the funds via a private key, and your wallet then communicates with the smart contract.
This approach also has risks — funds lost somewhere on the blockchain, or browser vulnerabilities. However, decentralized exchanges are definitely driving innovation. And in a world of constantly produced digital assets, those exchanges are extremely valuable, allowing for price setting and liquidity. EtherDelta ensures that Ethereum will always be needed as a utility coin for gas, and an asset for trading pairs.
Then, there is also the Komodo ecosystem, which uses a complex approach of atomic swaps between blockchains. With that approach, the Komodo exchange is relatively slow, performing in months as many transactions as other exchanges see in an hour. But it is also a valuable exploration that, if scaled, could change trading.
The biggest strength of decentralized exchanges is that they can immediately list and trade any asset. Some projects use a hybrid approach, with a centralized system for matching orders, while the fund transfers themselves are distributed directly though the wallets. Decentralized exchanges are possible, in theory, for every platform that allows the creation of tokens. NEO has an experimental exchange of this kind, as well as the Stellar project, and other networks have seen side teams develop decentralized exchanges.
This type of exchange is democratic, and accessible to all. However, it has one disadvantage — it is directed to intermediate or advanced crypto coin users. Some decentralized exchanges are quickly cobbled together by developers, with very little marketing. Some are attempting to get more popular — however, they remain just niche fixtures in the crypto space, for now.
Recently, EtherDelta announced it is addressing its most pressing issues — the bad design and low user-friendliness. The exchange has expanded to a professional team, and has addressed flaws and glitches. This is one example of a very basic decentralized exchange, growing into a traditional marketplace.
EtherDelta was also a precursor of the exchange coin — in this case, it used Ethereum as fuel. But other exchanges show that a native asset is instrumental to increased liquidity.
Community Exchanges: Just the Beginning
Community exchange projects already exist — and they approach the business model by building a close-knit web presence. DACXI is an exchange aiming a similar pattern, hiring the best developers to build a modern community hub online, and allow safe, secure trading with access to advice and encouragement.
Regular exchanges do have communities — but those arise spontaneously, and are un-moderated and often uncivil. Regular social media serve as connections, but communication is patchy, questions go unanswered, and many return to Quora with desperate pleas on how to handle their crypto holdings.
Consider the current bear market — as Bitcoin heads back to $6,000, a community would be a handy thing to have for discussions. Sentiment on social media tends to be sensational, relying on memes and in the end, all but useless. But a community of traders has a different view of the market, with a rational approach to any price movement.
Some of the strongest crypto communities have formed on the Bitcointalk forum, as well as Reddit. However, the discussion is still unfiltered, and trading opinions are lost amidst a wave of information, opinion, and general chatter. A crypto exchange for dedicated traders would change all that.
Of course, there are groups for trading discussion, and some are closed and exclusive. Telegram is the place where crypto enthusiasts gather for trading speculation, and word is, it is the leading channel for organized pumps. Without transparency and moderation, this behavior is quite possible.
Now imagine DACXI, with its transparent community and clear reputations. Pump and dump attempts and discussing them would be impossible.
The crypto market is unregulated, and trading decisions big and small are made by anyone — from laymen to big firms, and also bots. There is no attempt at limitations, licensing traders, or anything of the sort. The only thing that could work for crypto coins is a community and an attitude of watching and discussing.
Consider the case of the Bear Whale, a trader that placed an order for 30,000 BTC at $300, below market prices. Somehow, buyers coordinated and “slayed” the bear whale, by eating up the order, after which Bitcoin jumped to $375 and remained at the higher price. This event was legendary — and it showed that traders could act with a common mind. In the case of the Bear Whale, everyone realized there was an opportunity. Now, imagine how many more opportunities would arise if traders could find mentors, learn to recognize patterns, and always rely on information and encouragement.
What About the Bear Market?
In June 2018, crypto markets look quite unappealing. Gone are the easy gains, where all coins went “to the moon”. Unfortunately, all hopes of a speedy recovery were crashed at the end of the month, when Bitcoin had a serious crash each week, stepping down to lower and lower prices. Now, Bitcoin prices are just about to break below $6,000 once again.
Does this market spark any enthusiasm? It should. Sure, the simple pattern of the fall of 2017 may not repeat — but how do you know there are no experts out there who may tip you to making gains with no regard to market conditions? Or how about some experienced traders who have seen it all, and who believe in crypto, despite the spike and crash in December?
All of this, and more, would be possible with exchanges that center around communication, shared experience, and the emergence of experts and prominent traders.
There is no sugarcoating it, the next two years may be tough in crypto. The initial enthusiasm is tainted with deep skepticism. Communities are the key — not the vast swathes of newbie buyers, but those who deeply understand crypto and care for it, and do not leave at the first sign of trouble. A community exchange would be a hub to analyze the market, and also keep enough interest and liquidity to keep the trade going.
DACXI also has one more key element to liquidity and reliable trading — the native DAC digital asset. Beyond its use as an ICO token, the DAC will help form trades, and allow traders to find opportunities unavailable in other markets. We will discuss the performance and necessity of exchange coins in our next analysis of current and future trends in crypto exchanges.