IDEX has silently dominated the decentralized exchange market for more than a year
A fundamental valuation study by Wesley Pryor & Mazin Hamad
While the world waits for the highly anticipated Binance DEX and the 20+ 0x Relayers to generate meaningful volume, IDEX has silently dominated the decentralized exchange market for more than a year.
While the popular press focuses on currency uses of crypto, Aenigma believes that DACs are one of the most powerful and disruptive applications of crypto technology. As opposed to traditional, centralized models that rely on the fiduciary responsibility of management to act in the best interest of investors, the DAC open-source, decentralized model places the responsibility of project success back into the hands of investor stakeholders.
One example of a DAC providing competitive advantage is IDEX, the rapidly growing decentralized exchange built by Aurora DAO (AURA). IDEX has attracted many users because it embodies the ethos of crypto in providing a decentralized alternative to traditional exchanges. IDEX attracts traders because the hybrid decentralized nature is both more secure and censorship resistant. Here, the fundamental value of the AURA token resembles that of a traditional stock, though the participatory nature is different. By hosting and performing the necessary exchange functions, AURA stakers will be entitled to receive 100% of the trading fees paid to the platform, which will be distributed via smart contracts.
Arguably, what’s most appealing about the AURA token is that the platform is already seeing heavy demand and activity. At times, in fact, the exchange has recorded daily volumes in excess of its own market capitalization. According to DappRadar, it’s ranked as the number one DApp exchange by volume and usage on the Ethereum network.
Presently, we view the decentralized exchange sector as a greenfield of untapped potential. Systemic corruption among centralized incumbents trading against their own customers will serve as the catalyst that rapidly funnels liquidity into the sector. Centralized exchanges have the ability to run a fractional reserve system with user funds and frequently leverage these funds to suppress and pump prices to front-run customers in their favor. They can also deny access to deposits and withdrawals for wholly illegitimate reasons. As the public begins to understand the corruption rampant among these exchange giants, DEXs will become one of the top alternatives for trading that retains custodial privileges without the front-running and censorship.
In this report, we:
- Examine AURA, the native staking token that incentivizes a decentralized group of operators to perform the critical functions that power the exchange;
- Quantify the market opportunity for IDEX, examine the competitive landscape, and review the customer acquisition strategy, management team, and progress;
- Discuss the token economic incentive structures, business model, and architecture which combine to make a fully decentralized exchange possible;
- Develop the basis for fundamentally valuing the AURA network by utilizing our service fee discounted cash flow model.
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