2019: Is the year of DEX

After bitcoin and spectacular ICO`s projecs in cryptocurrency “golden age hype” at 2017 and 2018, market get mature and price of coins has establish. Now in 2019 new solutions are coming to changing the game, this name is Decentralized Exchanges (DEX).

Agenda:

  • Decentralized Exchanges vs Centralized Exchanges.
  • New implementations and possibilities for Decentralized Exchanges.
  • Blockchain innovations Decentralized Exchange will benefit from.

Everyone involved in cryptocurrencies and blockchain technology pass through upsides and downsides of cryptocurrencies on the market. The hype has passed, several unstoppable projects which has raised millions of dollars has not even get our of paper, the bubble has deflated and the “dream” has dissipated, honestly this is not a bad thing. Nowadays disruptive technologies and innovation thrives, Decentralized Exchanges (DEXs) has the potential to change the cryptocurrency ecosystem in 2019.

You may ask, what is a Decentralized Exchange? Let’s first take care of Centralized Exchanges (CEX). The Centralized Exchange has owner who is the middle man. It brings several responsibilities such as storing, control and managing all the funds inside of platform.

In general, CEXs has more advanced tools and people more used to it, they offer more liquidity to system and it serves as a gateway between FIAT currencies and crypto assets. However centralization brings a lot of risks for ecosystem itself, the middleman leads risks as such hacks

Source: 2018: A Record-Breaking Year for Crypto Exchange Hacks
Source: Report: Cryptocurrency Exchanges Lost $882 Million to Hackers

or the death of Quadriga’s Exchange CEO.

Source: The complete story of the QuadrigaCX $190 million scandal

Beside the hacks, several frauds as such inside trade, wash trade and fake volumes has been reported by Bitwise.

Source: Bitwise: 95% Of Reported Bitcoin Trading Volume Is Fake

Bitwise Asset Management — SEC.gov” and

Source: [UPDATED] Bitwise Warns SEC That Much Of Reported Trading Volume On Unregulated Exchanges Is Fabricated
Source: [UPDATED] Bitwise Warns SEC That Much Of Reported Trading Volume On Unregulated Exchanges Is Fabricated

and if it is not enough several centralized exchanges has single points of failure leading it to server shutdown for days.

DEXs aim to remove this middleman, and single point of failure in exchanges and trades excused between users through decentralized finance protocol (DeFI — Decentralized Finance, click here to get more information about concept). Providing a infrastructure for buyers and assets to find sellers and vice versa.

The main benefits of DEXs, compared to CEX are:

  • There is no middleman, so they are “trustless”. Consequently users are in charge of their funds and the platform is not centralized anymore. It mitigates the risk of infrastructure hack.
  • There is no censorship, funds cannot be frozen or users banned, also there is no KYC require and exchanges are “private”.
  • You as a trader, can make any exchanges between assets, you are not limited to the assets listed on CEXs anymore.

DEX also has some downsizes that must be fixed. First DEX are currently not easy to use for average users yet. Managing keys, seeds, sign transaction and store keys are something that users are afraid and the UX of DEX is not the best at this moment. Moreover trades are peer-to-peers, so because of that yet DEX liquidity is not high yet.

The DEXs challenges today is bring massive adoption. Fortunately is has been changed, before several problems mention about CEXs above people are getting more interested of Decentralized Exchanges.

Order books and settlements On-chain

The new generation of DEX’s, they were entirely blockchain-based. Orders, trades, transactions, locking funds, triggers, stop loss and swaps are registered on blockchain. There are several approaches to do it. For ethereum, it runs under smart-contracts; In Bizanc it runs under blockchain protocol. The main purpose of those protocols is decentralization, trust and security under blockchain DEX platform.

However, the main problem still the volumes on exchanges; The smart contracts has limited orders execution, it brings a bottleneck for ecosystem, moreover it could be expensive to run under smart-contracts; Is inoperable with other platforms, it is limited into specific tokens as such ERC20 and ERC721 and consequently the ecosystem growth.

Running under blockchain protocol, it solve the problems explained above. First, is possible to interconnect to others blockchains; The transactions are not expensive, the code is reviewed and used by several people, it avoids the bottleneck transactions and allows more volume to platform without affects the system performance.

Every trade in Bizanc is registered on blockchain:

  • New offer
  • Partially Filled
  • Filled
  • Canceled

It guarantees the funds and bring the security to users, beside that every coin/token has a book, all books on the blockchain has parity with BIZ cryptocurrency, allowing more liquidity between assets.

Every order/transaction is generated and submitted to some node, it will be checked, validated and stored in mining pool. The order match happens inside of pool or with orders already registered on blockchain, bringing the real trustless in the process to entire trading ecosystem.

Off-chain orders books with on-chain settlement

This approach is implemented by 0x protocol. The trades runs off-chain (centralized) and the settlement is on chain, at least users has the funds control and the order books are hosted by third-parties relayers. It will be broadcasted to entire blockchain infrastructure and registered on chain.

This approach leads to lower commissions, no gas need to be paid for new orders or updates, and it only requires commissions to be paid to relayers and the gas required to process the exchange between users tokens. In 0x protocol, anyone can be relayer and earn tokens for making trades possible. Additionally, the orders are processed off-chain reduces the bottleneck on smart-contract, enhancing DEX performance.

Again, one of the gaps of 0x, is the same of any other DEX builded in smart-contracts, the interoperability with other platforms. 0x protocol are able only to trade tokens on Ethereum mainnet. According with implementation only ERC20, ERC721 tokens are compatible with DEXs. To interoperability, there is another pain point. Once the DEX uses off-chain mechanism, this centralization brings problems as such manipulate orders matching and vunerability in the system.

New generation of Blockchain innovation

As explained before, there are few main issues of DEX that should be solved, some of then are Scalability, Liquidity, Interoperability and UX.

Scalability, Ethereum 2.0, Bizanc and Sharing: One of the main limitations of DEXs is scalability. On chain DEXs we had smart contract and blockchain limitations, to enhance scalability is need a 2 layers but it still centralized and brings vulnerabilities.

Focused on Ethereum 2.0 and Bizanc, the next most promising is sharding. Shardings dividing it into different sub-networks (shards) with local consensus that does not need to be validated and performed by everyone in the entire network. In parallel, shards communicate with each other to reach global consensus. To make this possible, Ethereum and Bizanc needs to port Proof-of-Work consensus to a Proof-of-Stake, and the expectations for Ethereum 2.0 is process around 15,000 transactions per second. Bizanc today process around 800 Transactions/second,once Bizanc blockchain is focused on trading, asset tokenization, payments and atomic swap, our expectation is process around 45,000 transactions per second.

Source: ​https://medium.com/rocket-pool/ethereum-2-0-76d0c8a76605

Interoperability and interchain protocols: How can we interconnect other blockchains? There are few projects that aims to solve that, one of then is Bizanc. Let`s check how it works.

Bizanc networks are able to execute trade, atomic swap, and payments inside of blockchain, full decentralized. In the network is possible to exchange directly Bitcoin with Ethereum, ERC-20 tokens and BIZ directly, Once the Bitcoin and Ethereum are deposit into Smart-contract / Wallet, everything is registered on chain and the network are able to guarantee users funds. Also the network are able to withdrawal the Bitcoin into user Bitcoin address. Moreover we can interconnect to any other blockchain as such Bitcoin Cash, Litecoin, NEM, etc.

Liquidity, UX and Operations:

All operations are transmitted by the users to the network of nodes, which propagates the operation until its eventual mining. A fee is charged on the operation, and brokerage on executed market orders.

The Bizanc platform has its native currency, BIZ. BIZ serve as an award to miners who succeed in mining a block, and as a basis in asset pricing and intermediation between market operations. Intermediating between BIZ and currency pairs in the Exchange environment enables the functionality of pathfinding.

Pathfinding allows orders to be matched indirectly, in separate order books. For example, supposing Alice wants to buy ETH by paying on BTC and Bob wants to sell OMG and buy BTC, by the time Carol sends an order to buy OMG by paying in ETH, the platform is able to automatically marry Carol’s order with Bob, and of Bob with Alice.

This operation takes place atomically; or it runs at all ends, or does not occur, freeing participants from the counterparty risk.

A: BTC> ETH

B: OMG> BTC

C: ETH> OMG

Beside that, Bizanc aims to implement functions as such stop loss, order limit, derivatives and any possible other market functionalities to bring advanced tools to users and at the same time, easy for anyone use it.

DEXs are the future in Decentralized Finance.

The Bizanc platform has four basic functionalities: value transfer, exchange, Token generation and atomic swap.

Value transfer is the basic functionality of all cryptocurrencies, allowing users to move units of value between accounts. In Bizanc users can transfer any asset present in their wallets, such as the native currency BIZ, Bitcoin, Ether and Ethereum Tokens, or native Tokens generated in the Bizanc network.

In the Exchange environment, it is possible for the user to perform market operations, buy and sell orders, and order cancellations. 3 Token generation transactions allow users to establish a unique ticker name and symbol on the network, total stock of Tokens, and public keys that are allowed to manage the Token.

The atomic swap structure enables you to establish an account with a pre-allocated amount of an asset, and other users can deposit assets into this account and convert them to a pre-determined rate. This functionality exists to facilitate the distribution of assets and the organization of ICOs (Initial Coin Offering).

All operations are transmitted by the users to the network of nodes, which propagates the operation until its eventual mining. A fee is charged on the operation, and brokerage on executed market orders.

Decentralized Exchange:

Bizanc expands on Blockchains standard functionality to allow, in addition to value transfering, to also enable a Decentralized Exchange (DEX) structure.

Users can send bid or ask orders, choosing the asset, quantity and price to be negotiated, which will be propagated to all nodes of the network. Open orders are stored in a temporary chain state, that changes after each order is mined, and is replicated on all nodes, until they are totally or partially matched to other orders. At the time the order matches, and once the block is confirmed the funds are properly credited. This arrangement allows the Exchange operation to be open and transparent.

Membership is free, any user can devote computing power to the mining function and ensure the integrity of the network. All transactions — whether transferring securities, trading, or deposits and withdrawals of assets — are permanently registered and accessible at Blockchain. It is also possible to verify the total volume of assets within the network, even those stored in account and not actively traded.

The matching of orders occurs in a distributed way, by all the mining nodes. These characteristics make frauds and bad practices possible in centralized services become unfeasible, such as falsification of trading volume or selective match of orders.

Emission Tokens:

Token and atomic swap functionality is intended to provide a complete solution to asset Tokenization and an effective digital asset distribution system.

A Token generation request is sent to the network, specifying parameters such as Token name and ticker symbol, supply and other public keys allowed to manage the Token. Nodes confirm that the name and ticker are unique, not conflicting with existing Tokens, and the request is mined and Tokens are generated. A specific fee is charged to avoid network spam or malicious Token generation. Each Token is identified by a unique hash.

Atomic Swap:

Bizanc also enables the establishment of Atomic Swap orders. An operation is sent to the network determining the asset to be sold and which assets are to be accepted as form of payment, total amount and price. Other users may then transfer the predetermined assets so that they are converted to the target asset automatically (once the transaction is confirmed in one block) and atomically, without counterparty risk.

Conclusion

With such functionalities, Bizanc intends to accelerate the adoption of cryptocurrencies and interconnect the real economy with the virtual, overcoming the current entrance barriers and generating an ecosystem with minimal friction. Stable currency-backed securities and other fiduciary currencies may serve to facilitate the adoption of cryptocurrencies by the traditional market.

The goal is to enable organizations that are not possible before, with less dependence on intermediaries, more transparency, enabling a truly global and barrier-free market.

Thanks for reading!

Airdrop is coming, if you want to receive invite please send your email on this forms. 
Please access to: bit.ly/2Jf9CXr

References: