DAEX — Background, Introduction & Solution
The scope of this article is to outline the DAEX clearing solution in basic terms and how it will impact cryptocurrency markets. Other aspects of the DAEX ecosystem will be posted soon, regarding the DAEX multi-asset wallet, clearing chain and other benefits the ecosystem provides to exchanges and traders.
Background
The Global DAEX (Digital Assets Exchange) Foundation are the creators of DAEX, which is an open and distributed cryptocurrency clearing ecosystem that aims to provide clearing solutions for cryptocurrency exchanges. The clearing as a service (CaaS) is based on distributed ledger technology and smart contracts. Since its inception, DAEX has established significant partnerships with institutes such as the Qtum Foundation, Sora Ventures, ChainPE, InnoNext, 8 Decimal Capital and Jenga Blockchain Capital.
Introduction — The Problem
The total market value of the cryptocurrency market hit an all-time high at over $830 billion on January 7th 2018, with daily trading volumes reaching over $70 billion in the same week. With further development of blockchain technology and increased attention on cryptocurrency trading, exchanges are expected to have added responsibilities due to their mass increase of users.
Both centralized and decentralized exchanges each have advantages and disadvantages of their own. Centralized exchanges act as a single entity that provide a centralized order matching mechanism to match trades. They also control ownership of their customers’ digital assets once they are deposited on onto the platform. Trust is a significant concern for traders who use centralized exchanges, as they cannot access their assets directly using a private key. This makes centralized exchanges a target for hackers as the digital assets are stored in an off-chain system (Mt. Gox & Coincheck are famous examples of centralized exchanges being attacked). Meanwhile, centralized exchanges are still widely adopted because oftheir fast trading execution times, liquidity, easy to user interfaces etc.
Decentralized exchanges are considered to be more secure in terms of asset ownership, as wallets are accessed using a unique private key by the trader. Trades utilize distributed ledger technology and smart contracts for peer to peer trading, therefore eliminating the need for a “middle man” or third party entity to have control. The problem that exists today with decentralized exchanges is that they provide significantly slower transaction execution times and lack liquidity. The UI of decentralized exchanges are aren’t so friendly, which makes them even more of a challenge for beginners to use.
Solution — The DAEX Ecosystem
DAEX’s ecosystem is a solution that integrates the benefits and advantages from both types of exchanges. These advantages include security, transparency, liquidity and efficiency that create a more attractive environment to both the trader and exchange. DAEX plans to separate trading and clearing into separate entities. Trading services will still be provided by centralized exchanges, although the clearing and settlement will be served by DAEX’s clearing chain. The open source public blockchain will also provide traders with full ownership of their assets by issuing traders with a multi-segment private key to access a multi-asset wallet (the DAEX Wallet). This essentially allows traders to use centralized exchanges with added benefits that remove the issues that exist today (trust and security).
Below is a table that represents the advantages and disadvantages of exchanges, in comparison with DAEX’s solution.
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