eXchangily — A High Performance Decentralized Crypto Exchange

Dora Tang & Paul Liu @exchangily.com

Contents

1. Executive Summary
2. Exchangily Project Description
3. Introduction
4. Exchangily Mission and Vision
5. The Problem with Centralized Exchanges
6. Not All Decentralized Exchanges are Created Equal
7. Decentralized Exchange Challenges
8. Exchangily Technical Solution
9. Comparison with Other Decentralized Exchanges
10. Economic Model

1. EXECUTIVE SUMMARY

Crypto trading, digital asset management and global payments need a new model, and the industry is leaning to decentralized exchanges (DEXs) as the solution. As distributed ledger technology evolves, centralized exchanges, regulators and governments need to do more to protect investors from the risk of theft and losing funds. DEX’s eliminate the inherent problems with centralized exchanges, namely security vulnerabilities, centralized control of digital assets, custodian challenges and more.

All the current mainstream exchanges are centralized, which is contrary to the decentralization of Blockchain technology. The industry is shifting to make room for decentralized exchanges, and Exchangily is positioning itself to take a leadership position in the space.

Changpeng Zhao, CEO of Binance and other Kings of Crypto believe that it is only a matter of time before traders make the shift to DEXs.1 In a recent Techcrunch interview, Vitalik Buterin voiced “I definitely hope centralized exchanges go burn in hell as much as possible.” According to ConsenSys, “99% of cryptocurrency transactions still go through centralized exchanges; this trend is expected to be reversed in the coming years.”

2 EXCHANGILY PROJECT DESCRIPTION

Token Name: EXC — Exchangily Coin

Exchangily is a type of decentralized cryptocurrency exchange. Decentralized cryptocurrency exchanges are a new generation of peer-to-peer (P2P) platforms that will be more transparent in operations and fees than the current exchange model. 3

Exchangily is a new decentralized model based on the Fast Access Blockchain. It carries the best of a centralized exchange, namely speed and ease of use with all the security benefits of a decentralized exchange. In a centralized exchange, a trader deposits crypto funds along with the private keys on the exchange account and in return the exchange gives the trader an IOU that can be used to trade on their platform. This transaction is lightning fast because the deposit transaction does not occur on the blockchain. The exchange maintains your private key in a centralized account and has full control of your funds. Withdrawal of funds from an exchange happens on the blockchain and are not instant.

With the Exchangily decentralized exchange, a trader deposits funds to the Kanban blockchain coin pool. The signatures of the transactions of the coin pool are decentralized generated by combining multi signature and special aggregate signature technology.Said differently, any individual does not manage private keys instead they are handled across the Kanban blockchain, which is decentralized. Kanban supplies the current state universally of each activity in real-time, so there is no double spending. There are many Kanban nodes work together to generate the signature and validate transactions. All Kanbans are required to get consensus. Kanbans use a proof of stake consensus mechanisms, and nodes run as sharding groups. Kanban’s job is to provide validation and verification relationships between KanBan, Fast Access Foundation Blockchain and open storage networks.

Kanban is a publicly available node that runs either within the node computer of the foundation blockchain or independently linked to a foundation blockchain node. A Kanban node is a program that runs as an in-memory database. Transactions happened in Kanban blockchain are off-chain and persisted in Kanban memory database. Only withdrawals occur on the Blockchain as cross-chain transactions. Exchangily is a side chain, a peer-to-peer trading platform with an on-chain settlement for withdrawals.

Exchangily establishes a decentralized fast transaction processing engine network that provides decentralized real-time supply and demand information and transaction processing, compatible side-chain operations and asset management to support large-scale decentralized currency transactions, online payments and asset management operations. The first step in performance is to achieve 10,000 processing power per second and finally reach a million processing capacity per second by sharding.

It provides a user-oriented super wallet and an API for professional developers: the wallet has functions such as asset management, currency transaction, fast payment, secure chat, e-commerce, etc. The API can satisfy users to develop their decentralized application (DApp).

The Exchangily system is completely decentralized, without any central control links, and users have full ownership of digital assets. System performance reaches more than one million transactions per second to meet global digital assets management, transactions and payments need. The system provides a standard input and output interface, easy to access any currency and connect any service needs.

3 INTRODUCTION

At present, the establishment of a decentralized trading system that is unified and efficient to meet practical applications, the need to connect the chain ecosystem is imminent. Constructing a completely decentralized efficient trading system in the blockchain era will not only enable users to take entirely control their digital assets but also can freely trade all the cryptocurrencies and apply asset intelligent management mechanisms. “A decentralized exchange is an exchange market that does not rely on a third-party service to hold the customer’s funds. Instead, trades occur directly between users (peer-to-peer) through an automated process.”

Decentralized exchanges at their core are a do-it-yourself trading solution, where traders don’t entrust their funds to an intermediary or third party and trades are executed P2P using smart contracts. Traders retain ownership of cryptocurrencies and their private keys. Assets are held on the blockchain, not a central location; therefore funds cannot be hacked.

While DEXs are still in their infancy, there are already distinct architecture differences with governance, trading logic, liquidity and fund management. It is important to note; not all DEXs are created equal. In fact, many favorite decentralized exchanges are marketing themselves as decentralize, and they are not. Coindesk research shows that many DEXs are highly centralized in one dimension and decentralized in others. Others are taking a more radical peer-to-peer approach.

4 EXCHANGILY MISSION AND VISION

MISSION

To build a decentralized trading platform that meets the actual needs of the enterprise to support efficient digital asset management, trading and lightning payment services. Exchangily aims to keep the user to same ease of use and speed as a centra lized exchange. Efficient, secure, and fully user-controlled, with the processing power and user experience of the current centralized system.

VISION

The Exchangily platform is an open-source, P2P protocol built on the Fast Access Blockchain. Individuals and enterprises can trade or transact on Exchangily with ERC20 tokens and all other types of cryptocurrencies. Transactions are facilitated through a high-speed trading engine that can process payment or redemption transaction at the speed of more than one million per second. The trading engine relies on aggregated multi-signatures, sharding and cross-chains to provide real-time messaging, clearing and settlement of transactions.

Designed with the needs of the international crypto trader, wealth manager and enterprise, it has a fully decentralized digital asset management network, trading platform and global payments system. Exchangily plans to solve the inherent problems that exist with centralized exchanges, namely, scalability, interoperability, low transaction processing, security vulnerabilities and guarantees for transaction processing are prevalent issues. Traders retain control over their funds, access to private keys and transaction information is transparent and secure. It is a fully democratic and autonomous platform. Any team or individual has no privilege, the benefits are shared, and the decision making and voting right are held by EXC (Exchangily Coin).

Shortly, various cryptocurrencies will be used as a means of payment, which can be easily traded to meet the daily needs at both enterprise and individual level. Therefore, establishing a high-performance decentralized transaction processing system has long-term implications.

5 THE PROBLEM WITH CENTRALIZED EXCHANGES

Centralized Exchanges are a necessary part of the evolution of distributed ledger technology. They allow individuals to transact and participate in the space, but they come with a dark side. There is front-running, identity breaches, server downtime, price manipulation/insider trading, data storage hacks and high transaction fees. The ones that profit the most from the set up are private owners. A centralized exchange model has many similarities to a bank; transaction happens fast because deposits occur outside the blockchain. Centralized exchanges require an intermediary to execute the transaction, hold your funds and take custody of a digital asset. Vitalik believes centralized exchanges exist because they serve as an interface between the fiat world and the cryptocurrencies. And the fiat world only has centralized gateways. 6

SECURITY VULNERABILITY

Centralized exchanges have a single point of failure and are vulnerable to hackers. The most significant risk for investors is losing their entire investment. Last year it was estimated USD 15 billion had been stolen from crypto exchanges and this number is expected to escalate.7 Cryptoaware.org tracks frequent attacks, and 2018 is poised to be the worst year of crypto funds stolen. Investors can store digital tokens offline in cold storage, but this is not a practical solution for the crypto trader. Governments are scrambling to find a solution. After the Coincheck crypto heist, Japan introduced a licensing system, China and Russia created outright bans, India introduced specific prohibitions. Regulators are issuing warnings about investing in cryptocurrencies in US, Hong Kong and South Korea while Malta is establishing itself as a crypto hub.

Centralized and private, mean the regulators are at the mercy of the Exchange management. Even regulators aren’t getting the response they need from exchanges about their internal controls. Jesse Powell, Founder of Kraken, slammed the New York State Attorney General for trying to extract information about internal controls and said that “licensing, regulation and market manipulation didn’t matter to crypto traders.”8 According to Chris Skinner, “the point is that regulators can regulate … but it’s harder to regulate networks that don’t recognize borders”.

Meltdown and Spectre vulnerabilities can affect CPU and steal information from services and applications that a computer’s GPU processes, further compromising the security of wallets and exchange reserves. Encryption cannot block the vulnerability.

6 NOT ALL DECENTRALIZED EXCHANGES ARE CREATED EQUAL

At present, some decentralized exchanges are being developed or put into operation, but these projects cannot indeed meet the needs of actual usage. Problems mainly include:

Low liquidity levels, low volume

Inefficient, slow transaction speed, poor user experience

Limited by cross-chain trading technical problems, limited trading cryptocurrency types, etc.

The majority of the DEXs are trading platforms for Ethereum and ERC-20 tokens.

The main problem is the association with the main chain limits that transaction performance and the efficiency is low. Also, due to the complexity of cross-chain transactions, cryptocurrency selections in trade is limited. Below is a synopsis of some popular DEXs and some of their pitfalls.

Areas of concern:

IDEX — OFF CHAIN TRADE MATCHING WITH ON-CHAIN SETTLEMENT

A trading platform for Ethereum and ERC20 tokens. On chain settlement enforced by smart contracts and arbiter. The gas costs for any trades and the transfer of Ether to and from wallets is slow.

BANCOR — IN-WALLET TRADING

They use the Bancor wallet and are not genuinely decentralized. They don’t match takers and makers as other exchanges and protocols do. Conversions are made against smart contracts.

In July 2018, Bancor experienced another security breach and this time $13.5M US dollar hack. They froze the ability to freeze funds; the crypto community responded that by doing so, they are no different than a centralized exchange.

ETHERDELTA — ON-CHAIN ORDER BOOK

A trading platform for Ethereum and ERC20 tokens. This site was hacked via a DNS hijack and redirect.12

12 https://www.ccn.com/cryptocurrency-exchange-etherdelta-hacked-in-dns-hijacking-scheme/ They host order books on the blockchain to provide security which slows down trading and has scaling problems. Running order book can be very costly. Smart contracts facilitate transactions. Deposits, withdrawals and trading are all associated with gas costs. Specific flaws include slow cancellation, slow order processing and high gas costs for competing transactions. They also charge a taker fee that goes towards the developers of the site.

OX — OFF CHAIN ORDER BOOK

Closely resembles EtherDelta with better coding. Their open source protocol relies on independent layers for token trading ERC20 tokens on the Ethereum blockchain. The layers are meant to provide liquidity. Ox uses a messaging format for trade settlement and a system of smart contracts for governance module. Significant flaws are decentralized governance, side deals and maker griefing. Under governance, their white paper does not provide detail on the use of token for decentralized governance and neither does the code in Ox’s GitHub repository. With side deals, Ox has two types of transaction broadcast orders, and point-to-point orders and the trading scheme allows Makers and Taker to evade relayer fees. With maker griefing, there is a flaw where the Taker can potentially incur high order fees, costs and delays.

Ox decentralization has come into question. Ox itself isn’t responsible for compliance with regulations but one of its relayer “Paradex.” Coinbase, a centralized exchange recently purchased Paradex.

KYBER NETWORK — ON CHAIN PEER-TO-PEER

Kyber is an Ethereum based trading platform for ERC20 tokens and other cryptocurrencies. Similar to the Ox and EtherDelta projects, except it performs all transaction on blockchain through smart contracts. Their concept is a good idea, and they are trying to solve liquidity issues with Kyber

Reserves and multi-cryptocurrencies trading. Kyber has created a liquidity solution called Kyber Reserves, yet the problem is that Kyber will never have the lowest conversion rates on coins from third-party reserves.

AIRSWAP — OFF CHAIN PEER-TO-PEER

It is a peer-to-peer Etherum token marketplace for ERC20 tokens. The Swap protocol links buyers with sellers. It is trying to solve the similar problem Ox is solving. Trading on Airswap is fee-less and requires a certain amount of AST tokens. Users find themselves through Airswap’s indexer. An Oracle helps makers and takers negotiate pricing.

7 DECENTRALIZE EXCHANGE CHALLENGES

Below are the common challenges faced to build a versatile and efficient digital asset trading system:

1. Efficiency barrier: Since the public blockchain is subject to non-scalability, the low transaction processing efficiency is always the main bottleneck of the industry technology, which also restricts the performance of the decentralized trading system because of the weak performance of many main chains;

2. Cross-chain problems: Cross-chain transactions are complex, there is no uniform protocol specification, and the length of each network transaction confirmation cycle varies, and the effectiveness is different, which brings enormous challenges to cross-chain implementation. Exchangily uses mostly universal side-chains. The first deposit of funds into the Kanban blockchain is a cross chain, the remainder of the transaction are side-chains. Cross chains are not fast and are not high performance.

3. Secure and credible technical support: There is no mature technology to implement, there is no reliable ruling mechanism as a security and trust guarantee for transaction processing;

4. Quotation barrier: the decentralized system is based on peer-to-peer technology. The transaction connection between users often needs to be implemented by the centralized system, which also violates the primary purpose of decentralization of blockchain.

5. Vulnerability to miner frontrunning: Front running is a common practice in Etherum based exchanges, but this does not exist in Exchangily. Exchangily charges a fixed percentage fee for the exchange transaction. If multiple transactions are executed simultaneously, transactions are prioritized by time stamp. With an Ethereum trading platform, “The front-runner sets the gas price for their transaction to be higher than that of the target transaction. Given the inherent limit on gas consumption for each Ethereum block, a rational miner will prioritize transactions that pay a higher price per unit of gas to maximize the value of their block reward. It follows that by setting a higher gas price, a front-runner can generally expect miners to give their transaction higher

priority than the transaction they are attempting to front-run.”

6. Exposure to exchange abuses. With a centralized exchange, queries from regulators or interested bodies must go to an exchange manager. Decentralized exchanges are open source so regulators can look at all transactions on their own.

The Exchangily project aims to propose a complete set of technical solutions and complete architectural design to adequately solve these problems in practice, to establish a genuinely efficient and practical decentralized trading network that meets the needs of enterprise-level applications.

8 EXCHANGILY TECHNICAL SOLUTION

A series of How to technical problems that need to be solved before efficient decentralized multi-cryptocurrency transaction processing can be achieved.

How to achieve efficient processing?

Universal State Layer (KanBan) and Sharding.

How to implement decentralization?

Multiple KanBans are required to get consensus. KanBans use a proof of stake consensus mechanisms.

How to achieve cross-chain operation?

The first deposit of funds into the KanBan is a cross chain, the remainder of the transaction afterwards happen inside KanBan blockchain. Cross chains cannot be fast, and they are not high performance.

How to achieve functional scalability?

KanBan and Sharding.

How to provide a unified interface?

The backend is complicated, and we plan to provide an universal API as a simple user interface for client applications.

1. Efficient decentralized transaction processing with a high-speed trading engine

There are three types of transactions within the unified layer:

1. Local transaction: refers to the transactions between different accounts of the same cryptocurrency
2. Same protocol-based transaction: refers to the transaction between different currencies created off the same protocol, such as the transaction between different cryptocurrencies of ERC-20
3. Trading of coins with different protocol: refers to cross-chain transactions. To truly

realize the transaction of the foreign cryptocurrency, it is necessary to establish a decentralized managed storage pool; this is the core technique of the system. The system creatively proposes the aggregation multi-signature technology to implement a safe, reliable and guaranteed high-speed decentralized transaction processing. High-speed transaction processing engine can process payment or redemption transactions at the speed of more than one million per second.

2. Cross-chain/Side Chain protocol

The system uses a unique cross-chain compatibility mechanism to support the import of third-party currencies and high-speed transaction processing. The first deposit of funds into the Kanban is a cross chain, the remainder of the transaction afterwards happen in KanBan chain. Cross-chain transactions are low performance. The implementation of cross- chain transactions

faces many technical challenges. The current popular practice is to use Atomic Swap technology, but Atomic Swap is a cross-chain direct transaction implemented by smart contracts, which will be constrained by the performance of the associated main blockchain.

KanBan chain alleviate blockchain scaling concerns, it runs in parallel to its main blockchain and allows secure usage of coins on both, governed by consensus and smart contracts. The KanBan chain is an universal side chain for all the 3rd party blockchains. The problems of scalability, security, decentralization, and user experience etc. will all be solved by the high performance of the p2p KanBan chain.

The system uses blockchain adapter technology to connect different blockchains to facilitate the injection of other cryptocurrencies into the decentralized managed cryptocurrency pool in the high performance transaction engine layer.

The cross-chain operation can be carried out in both directions, and the system adopts the inheritance aggregation multi-signature algorithm to realize the cross-chain two-way transaction processing, thereby achieving high-performance decentralized transaction.

3. Module embedded framework

The system design adopts the module embedded framework to support the customized intelligent management module and implement intelligent asset management.

4. Unified Interface

The system provides a standardized interface for easy connecting with other applications or clients.

5. Multi-function client API (super wallet)

Multi-function client API (super wallet) supports asset management, self-service transactions, payment, secure chat, e-commerce, etc. The Super Wallet includes exchange features and resides on mobile or desktop. Wallet will connect to KanBan through API.

10 ECONOMIC MODEL

The top 10 centralized exchanges are generating as much as $3 million in fees revenue in a day and raking in billions. Ownership for many of the large exchanges remains a mystery.17 Centralized exchanges have limited transparency on fee structure and unknown discounts for active traders. Some exchanges charge ridiculous fees of up to $15M USD to get projects listed. 18

Exchangily plans to rake in millions with a revenue structure that is transparent, fair and profitable. Every holder of EXC has participation in revenue allocation, governance and voting. Exchangily incentivizes users to trade on the platform by low transaction fee, high security, self controlled digital asset, and EXC mining income. A form of trans-mining, part of the token supply can only be extracted through trading. Exchangily coin holders will share in revenue through:

1. Transaction fees, where sellers are charged a fixed fee to transact. The fixed percentage fee is based on a specified volume. Buyers are not charged a fee to transact.
2. Increases in the coin price

Scenario 1: A trader wants to sell BTC and buy ETH, they pay a fixed percentage fee in native token they are selling, in this case, BTC.

Scenario 2: If you don’t trade at all and hold 1% of the total EXC in circulation and the revenue at the end of the day is 500 BTC and 700 ETH, you will be entitled to 5BTC and 7ETH. Fees can also be charged in EXC. Scenario 3: A trader wants to sell ETH and buy FAB, they can convert ETH to EXC to make the transaction.

Incentives will be given to holders and traders of EXC tokens.

The system is an open source community autonomous ecosystem, which is managed by the community and owned by the community. The platform token EXC entirely holds the benefits

arising from transactions and services in EXC. The system implements a daily distribution reward system, and automatically distributes 100% of the profits generated to the EXC holder. Platform transactions trigger the token mining, and the token-based dividend mechanism fully grants the benefits and ownership to the token holders.

At the same time, the system voting initiation and voting decision-making mechanism are also based on the number of platform tokens (EXC) held as voting rights.

https://exchangily.com