Introducing Dex Brokerage — A next generation hybrid-decentralized exchange
Dex Brokerage is poised to disrupt traditional decentralized exchanges that trade ERC20 tokens.
Sometimes the name says it all. In this case it is Dex Brokerage — “Decentralized Exchange Brokerage”. The exchange uses a hybrid-decentralized architecture, offering the benefits of trading speeds normally associated with centralized exchanges, with the security benefits of decentralization. In addition, we have created truly decentralized call and put options that users can buy, sell, and underwrite. Add superior UI/UX — and you’ll know why you should be taking note if you’re a cryptocurrency trader.
A decentralized vs centralized exchange
Most crypto exchanges are centralized and resemble stock-exchange type institutions. It is necessary to trust the security and honesty of the exchange itself and the broker in the middle. Funds are controlled by the exchange. There are, unfortunately, multiple examples of crypto-exchanges being hacked. The MtGox hack in 2014 is one of the best known. It led to a loss of $700 million or 171,955 BTC — currently valued at $6 billion. The loss came as a result of poor protection of the private keys of the exchange wallet — and everyone who had money stored on the exchange lost it. Similarly, Bitfinex lost $72 million or 120,000 BTC in 2016, despite having multi-signature wallets. As recently as April 2018, CoinSecure lost an amount of $3.3 million (438 BTC). Customers claim that this was an inside job and have filed a claim against an exchange employee.
Decentralized exchanges, on the other hand, have the benefit of being “trustless”. Funds are held in personal wallets or are controlled through smart contracts and trading is peer-to-peer. Privacy is maintained and there is no risk of theft, as hosting is distributed through nodes, or thousands of individual computers all maintaining the records of transactions.
Dex Brokerage uses a hybrid decentralized exchange, where funds and decisions are always in the hands of the user, and where transactions are governed through smart contracts, registered on the Ethereum blockchain. One benefit to this architecture is that that there is no need to login or share your personal information with us; all transactions on our exchange are executed with the help of Metamask or a Nano-Ledger device.
Hybrid exchange architecture
A drawback in the use of blockchain and smart contracts is speed and scalability. The more transactions on the blockchain, the slower it is likely to be. In a trading environment this can have significant impact — if you have to wait for the system to respond you run the risk of missing the best trades.
A second drawback is cost. Dex Brokerage uses the Ethereum blockchain as the basis for its own platform. Every transaction on the Ethereum blockchain uses “gas” or a certain number of Ether. This includes gas for cancellation of orders. Trading can therefore incur quite high costs.
Dex Brokerage has designed the exchange architecture to circumvent these problems:
· The Dex Brokerage system is a hybrid of on- and off-blockchain steps. Unimportant parts of an exchange are taken off the blockchain so that trading speeds can match centralized exchanges and costs are limited, while the exchange never holds any of your funds.
· All assets you want to trade are placed into the Dex Brokerage smart contract through a deposit that you have authorized.
· The off-blockchain Dex Brokerage database gets an event notification from the contract and updates your balances.
· Once you have funds in the Dex Brokerage smart contract, and your balances have been updated, you can place buy or sell orders.
· If you want to place a trade you must again sign and approve the transaction, and the trade request is placed in the system. Only one signed trade request is necessary to fulfill any order.
· Dex Brokerage will validate that the balance is sufficient for the requested trade, and then add it to the orderbook, where the matching engine is always working to find a matching trade.
· If a matching trade is found, the Dex Brokerage database updates the balances of both parties and the transaction is placed into a processing queue for execution through the smart contract.
· All fees are paid directly in Ether, or an approved currency token. There is a 0.1% maker fee, 0.2% taker fee + gas cost, and the only fee for withdrawal is the gas cost.
· Users can also directly create call and put options without depositing any assets into the exchange. By depositing assets into the option smart contract a user receives a representative call or put option token that can be executed or traded to another.
What is the significance of this?
The smart contract is responsible for storing all assets and executing trade settlement, and the user’s private keys must authorize all trades. This means that Dex Brokerage cannot initiate any unauthorized trades and users cannot rescind any completed trades. At the same time, users are not blocked indefinitely from access to their funds. There is an “escape hatch” in the smart contract that allows users to withdraw their funds after 20,000 blocks have been mined since the last transaction the user executes.
The initial validation of balances, and the matching of trades are undertaken off the blockchain. This means that, based on new balances, trades can continue to occur, even across multiple markets and for multiple orders at the same time, while the order is still in the process of settlement on the Ethereum blockchain. Orders can also be cancelled immediately, without gas costs.
It’s important to note that balances are updated immediately, allowing the user to trade. However, these balances must be validated on the blockchain, and all traded assets must also be officially settled on the blockchain, before any assets can be withdrawn.
The way forward for Dex Brokerage
Join the conversation on Discord, Reddit, or follow us on Twitter or Medium, to stay updated on the latest with Dex Brokerage. We will soon publish a detailed document on how our decentralized options work, along with more technical posts, and how-to posts coming shortly afterwards.
We expect to have our site live on the main net during the second week of October.
http://bit.ly/dexbrokerageDiscordChat
https://twitter.com/dexbrokerage
https://www.reddit.com/r/dexbrokerage
https://medium.com/dexbrokerage
