Speculating How FairX.io Will Work
These are my thoughts and opinions only and are in no way endorsed by FairX.io
What is FairX.io?
FairX.io, founded by CTO of IBM Blockchain Financial Solutions Michael Dowling, promises to be a new way to safely and legally trade cryptocurrency for fiat, as well as transact in various cryptocurrencies with immediate settlement and zero per-transaction fees. The Exchange is going to run on the Stellar Network (Michael Dowling tweet confirmation).
What is the Stellar Network?
Stellar network is a protocol to communicate value and trust over the internet. Value on the network is communicated by tokens. Anyone on the network can create and distribute a token representing redeemable credit for any type of value. For instance, in this tutorial, Stellar founder Jed Mccaleb creates a token called ‘HUG’ that is a credit redeemable for one hug from Jed. Trust is communicated by setting a trust line to an account essentially saying “I trust this account to provide the value promised on redemption.” The key here is that without trust, these tokens do not have any value. The network enforces this by not allowing any account to hold a token issued by an account it does not trust. This system enables anybody to become a bank, issuing credits that are only as valuable as the trust that the bank will redeem them. On the Stellar Network entities that take deposits irl and issue credits that represent them on the network are referred to as “anchors”.
What are Stellar Lumens (XLM)?
Lumens are the native asset on the Stellar Network. It is the only asset on the network you are able to hold without trust. It is also used for anti-spam measures to incentivize valid account ownership and transactions. Each account on the Stellar Network must hold at least 20 lumens to be considered valid. Each transaction on the network costs .00001 lumens.
What is FairX.io doing on the Stellar Network?
FairX will become an anchor to the network, taking in deposits of fiat and crypto currencies and issuing the credits that represent them to the Stellar network, redeemable upon withdraw. Once issued, these credits will be able to be exchanged over the Stellar Network. Stellar Network is the perfect backbone infrastructure to run this type of exchange with immediate settlement and zero per transaction fees. Transactions on the Stellar network settle in seconds (see video here). The fee to make a transaction of assets on the Stellar network is .00001 lumens which is less than 1 penny today, that FairX will be able to cover itself. Fairx will be able to create the assets for minimal costs, the requirements for building an asset issuing account is minimal, 40 lumens or ~$28 today.
What will I be buying when I make a purchase on FairX.io?
You will not actually be purchasing the currency you have purchased, you will be purchasing a credit redeemable for the currency you purchased upon withdrawal. I am not sure how this will work with actual transaction fees of each currency, but I imagine that they will be your responsibility upon withdraw to a wallet.
Will Stellar Lumens (XLM) be used in the operation of FairX?
I do not think XLM will be used except for their standard purposes on the network; transaction fees and creating accounts on the Stellar network. They will also be available for purchase on the exchange. Since all tokens on the FairX exchange will be issued by FairX, and all people on the FairX exchange will set explicit trust lines to FairX, Lumens will not be needed as a bridge currency in transactions.
