OpenANX (OAX)–Real World Application of Decentralized Exchanges
Beginning in 2016 and accelerating through 2017, there have been an increase in the number of initiatives to launch “decentralized exchanges” with the primary and oftentimes sole objective of eliminating the counterparty credit risk exposure participants assume with a centralized exchange. The premise of many of these initiatives is that through the use of smart contracts, participants are able to maintain possession of tokens and by being able to transact via the smart contracts, counterparty credit risk is eliminated — and this is true for the trading of crypto pairs. But the experience of the decentralized exchanges that have been launched to date is that there is a significant lack of activity and liquidity on these platforms as not everyone is desirous, or is able, to trade only crypto pairs–these exchanges do not work for the general population. In the utopian quest of eliminating counterparty credit risk, what has been ignored and shunted aside is the critical and practical services provided by centralized exchanges that are needed for a functioning exchange system. A functioning exchange system is a microcosm of an economy, and as all economies are networks the value of that network is an exponential function of the number of connected users . As network externalities are critical for all networks to be functional and of value, decentralized exchange initiatives that limit or ignore the non-trading functionalities and ancillary services otherwise provided by centralized exchanges are doomed for failure.
Open source, decentralized, transparently governed exchanges will eventually dominate the crypto currency market. With the increasing maturity of the Ethereum Network, Raiden and governance frameworks such as boardroom.to, that vision is increasingly viable. openANX, aims to create a truly open source and decentralized platform that uses a hybrid model to integrate the key strengths of the existing CEM with key enhancements such as credit risk assessment, structured dispute resolution and a collateralized deposit system to empower users, providers and third parties to properly evaluate the uncertainty that has long been a part of the marketplace.
The openANX platform will take advantage of technical developments on the Ethereum blockchain such as payment channels (Raiden, 0x, Swap, ERC20) and utilize them to overcome the challenges faced by the current CEM. It will co-opt the strengths of the existing model to improve the existent decentralized exchange attempts by linking existing exchange platforms (“Asset Gateways”) to the openANX platform and enforcing a collateralize deposit system that will provide users with a way to measure risk. It will also provide an off-chain,dispute resolution system to enhance much needed consumer protection. By utilizing the latest technological advances and a peer-reviewed and implemented open source code, the openANX platform will integrate the strengths of the existing CEM model with the best functionality and features of the decentralized model while circumventing or mitigating the shortcomings of both systems. In addition, by being open sourced , the project will be transparent and subject to scrutiny and input from users and the wider community. In lieu of a centralized authority(government or regulator) the only way to enforce transparency is to write it into the blockchain itself.The initiative will offer gateway services and bridging to secondary, decentralized markets(exchange services) for Ethereum ERC20 tokens. These Ethereum tokens can be in the form of native Ethereum tokens(such as tokens for other DAOs), or tokenized representations of off — blockchain assets.
The platform will also protect users by having each Asset Gateway post collateral into a smart contract. These deposits are transparent and consumers can read and evaluate the creditworthiness of Gateways based on this information. In the event of disputes, an impartial party could evaluate the claim and has the potential to release a part of the collateral to cover damage or loss. These improvements aim to significantly reduce risk for all users, and are a sign that the cryptocurrency market is beginning to mature.
openANX will launch its OAX Token Sale on June 22, 2017.