Aphelion Disables Mainnet DEX-What it means and where do we go from here?
It is with great disappointment that we must report, Aphelion has made the business decision to disable mainnet trading effective immediately. All market pairs in the Aphelion DEX will be disabled on November 21, 2018. Users are urged to cancel their orders and withdraw any contract/DEX balances back to their wallet. Funds are safe and even if you don’t cancel your orders or withdraw your funds we will process those automatically starting on Friday November 23rd, 2018.
Also, any users with committed APH should start claiming those assets back to your wallet. We are not planning on disabling that feature any time soon and if we do we’ll also automatically process those APH claims on users behalf.
To date since release on October 10th, the DEX has collected just under 3500 APH in fees — 80% of which have been or will be redistributed to the community. This leaves roughly 700 APH in organization collected fees (around $20 at current rates). We’ve not touched those and they will stay on the contract until the DEX is reinstated or we’ll burn them; meaning no profits have been made from Aphelion DEX trading.
With markets deactivated there will be orphaned NEO since its not divisible and so we will manually airdrop the NEO equivalent in GAS to those that have fractions of NEO on the contract. We will be doing that at our own expense and those will be processed in the next several days.
Why Are We Pausing?
It’s been a perfect storm of bad news: new SEC rulings, disastrous market conditions, NEO tech challenges and diminishing cash flow.
First, recent SEC action against EtherDelta sets a new precedent that directly impacts our trading platform. In short, the SEC ruled that non-custodial cryptocurrency exchanges allowing users to trade are firmly within their scope. Previously, we’d been advised that we were not in their regulatory purview. Since that action, and based on expert advice from multiple leading attorney firms specializing in compliance, we fully expect the SEC to continue to target all crypto exchanges (decentralized or not). And so, we have been advised to cease trading activities immediately and identify a path towards compliance. The SEC has not contacted us and by proactively disabling trading, after only being live for few short weeks, we don’t expect any action.
The decision is not related to any specific SEC action towards us, nor is it related to any recent listings on the Aphelion DEX; it is a solely a direct consequence of the EtherDelta action.
It is important to note that the recent action puts every exchange accessible to US citizens that is not registered as a national exchange in clear violation (regardless of where they are incorporated or where their team is from); its not limited to Aphelion.
Path Towards Compliance
Right now, the path forward starts with obtaining a broker-dealer license through registering as a national exchange or partnering with an organization that has one. For example, Coinbase acquired a financial services group that is a broker-dealer and so they got compliant that way. Another option is to enable full KYC-AML (we don’t see ourselves doing that, but who knows). We could also partner with another project that is nearer to compliance and integrate our tech with theirs or we could create an additional utility for the token and wallet to create value for it in the interim. Lastly, the SEC through it’s newly announced FinHub platform is working towards releasing additional guidelines and engaging with projects like ours. Either way, we will continue to analyze and monitor all paths towards compliance; we have several options.
Current Financial Situation, Tech Challenges & Market Conditions
On top of the regulatory news, the market and recurring operating costs have provided additional challenges. We held a reasonably small ICO with limited funds and we need to cut costs to stay operational. We have been frugal to date and are proud we have been able to get done what we have under the market conditions. That being said, the market this past year (since our ICO Nov ‘17) has been brutal across the board with volumes and token values plummeting 90% or more. NEO (blockchain on which we operate) has been especially hit hard with tech challenges and a falling token value ($195 to $9) which has directly impacted our cash flow and development plan. Thankfully, we prudently sold some NEO shortly after the ICO or we’d have never made it this far but the NEO we’ve had to sell over the last few quarters to continue development (mobile specifically) has crippled our cash flow.
It is important to note, that we’ve not sold any of the 21M APH organization tokens. Also, our decision to pause the DEX came only this week and has remained 100% confidential preventing any unethical trading practices and the order history reflects that.
Next, without getting into the technical specifics, there have been several instances we’ve had to pull our development team off the DEX to solve for limitations and challenges of the NEO blockchain that would cripple the wallet and DEX. Those challenges came at a direct cost, cutting into our time and budget (and many issues are still not fixed). We haven’t complained, instead, we continued to develop, contributed to the blockchain and did what needed to get done in order to release our product.
Additionally, Aphelion operating exclusively with NEO based tokens puts us on an island of trading potential and there is not enough volume across the ecosystem to support a self-sustained model, at least not at this point. We we’re the second ICO on NEO, and at the time we forecasted on a different market outcome, higher trading volume and also had planned to use chunks of organization tokens and APH collected fees to fund us to the next level. But, the market had other plans, making that plan unfeasible at this time.
That means we will stay operational, but not develop towards cross-chain until we find a compliance solution at which point we will evaluate budget and scope.
In summary, we’ve been hit by a perfect storm of circumstances beyond our control that have crippled us, but we are not dead. We still believe in the project, the vision and the community, and we will continue fighting. It is not an easy path forward, but it’s also not a dead end.
Where Do We Go From Here?
Aphelion wallet stays live across desktop, Android, iOS and web and we will continue to maintain it moving forward. We also plan to keep the DEX fully functional on testnet and release mobile DEX on testnet (today) so users can continue to see and interact with the DEX while we pave the path ahead. Regarding mobile, it was ready earlier this month, but when we saw the EtherDelta action we needed to pause its release while we researched the legal implications of the ruling.
In closing, we are grateful for all those that have supported Aphelion and we are hopeful that with a market turn, targeted partnerships, and new regulatory framework that we will be able to activate the DEX again in a better, and stronger way. Aphelion has mostly been an up-against-all-odds, scrappy, underdog, bootstrapping and persevering team and we will continue in that tradition while we deal with this setback.