The Making of Herdius

How the Herdius architecture evolved over time

Founder Balazs Deme explains how the Herdius project began and how it changed over time to become what it is today. By pulling back the curtain on the process, he allows a glimpse into the challenges that ICO projects face today. And he explains why the final Herdius, about which you can learn more in here, is aiming to move the decentralization of trading forward.


The Beginnings

Herdius in its current form barely resembles my original vision. When the idea of Herdius initially came to my mind, the goal was to create a regular, centralized exchange platform with a prepaid card service attached on top. The Herdius token would then have acted as an equity token — and all the profits from both products would have went back to the token holders. The more Herdius tokens you would have owned, the higher your share of the profits would have been, basically.

Now, before you jump to conclusions and say that it would have been just another crypto startup offering the same prepaid cards everyone already knows about, please keep in mind that the whole point of embedding the token into the business was to create a platform that would have been owned by the community itself. I’m glad that we could still maintain the idea’s core and incorporate it within the final release of Herdius: we are now really building something that gives back control over trading to the community.


What did Herdius 0.1 look like?

As mentioned above, in Herdius 0.1 the token holders were directly entitled to a share of the profits which Herdius’ products would have generated. The share each token holder would have been entitled to was directly proportional to the percentage of tokens he held out of all the existing ones.

Another idea was to allow users to vote with their tokens to directly influence fees as well as govern the direction of the exchange platform.

Herdius 0.1 token model

This graphic looks fairly simple but it introduces many problems and legal issues. The legal complexities of setting something similar up are immense and a real challenge. If anyone sets something similar up in the near future, please let me know as I would like to congratulate them personally.

Another addition I mentioned was our prepaid card service. All the fees and profits from this service would have been funneled back to our token holders as well. Our innovation and approach to the crypto prepaid card field would have been the ability to generate digital prepaid cards on the fly. When you are in control of a prepaid card service as well as an exchange, it becomes somewhat easy to perform such operations. The service would have worked the following way: 1) users select the currency they want to spend and send it to the wallet address indicated, 2) once the funds are received, an immediate sell order is created on the exchange and the banking partner issues the prepaid card with the USD equivalent of cryptocurrencies on it, 3) the user receives the prepaid card which is immediately usable anywhere where credit cards are accepted, 4) Herdius settles the transaction with the banking partner.

An early scheme of the above process

It is my personal belief that the biggest challenge FinTech innovators face is KYC/AML laws. Obviously these laws were put into place for a reason and I do not challenge their position. I simply want to point out that their existence makes it harder for innovation to happen. This is something we have ran into as well. The above illustration looks simple once again, but unfortunately KYC laws are not flexible enough to allow something like this to be executed.


So why not create an equity token?

Well, the decision to pivot was made when we realized as a team that creating a token with the behaviors I described is really challenging from a legal standpoint. Would it not have been easier to just do it without regard to any laws? Could we then have published the project only one month after starting it? Certainly. Some projects actually did that, going into the unknown legal tunnel. And boy did some of them get their fingers burned in the process, with class action lawsuits being thrown at them one after another. To us, that clearly wasn’t an option.

While creating an equity token back then was not possible due to regulations, with future regulations we’ll get clarity on what is required to do such an ICO — and there are some interesting projects promising to do so.

At Herdius we kept a low profile all this time, involving as few people as possible about what we are planning on releasing. When we started, we explored all the different jurisdictions, from the Cayman Islands and Gibraltar to the usual ICO favored locations like Estonia and Switzerland. All of these locations have caught on as best practices, but in reality most of them entail a shady, gray area. We have seen with the recent Tezos scandal what happens when the managing director of a Swiss foundation is different from the company’s actual CEO. That is why we set out to start Herdius through a German legal entity and not in one of those jurisdictions.


On Decentralization and Design Choices for Herdius

The crypto community has always been tight knit. Sure, people fight a lot and fork a lot. But at the end of the day, everyone wants to see the space move forward and decentralize everything. If anywhere, decentralization should be especially involved when transacting and trading digital assets. Trading of cryptocurrencies should not be done through middleman or centralized entities! I find it ridiculous that each time a new user enters the space, they pay to centralized exchanges. And each time someone liquidates assets, they pay the same entity again. People are saying that the blockchain space is the new internet. If that’s correct, the current status-quo sure looks like AOL!

This is where Herdius comes in. Herdius aims to democratize the trading of cryptocurrencies by allowing current centralized exchanges to link their order books up with the Herdius chain. This provides for superior liquidity and trading experience. A decentralized exchange is also capable of eliminating any kind of middlemen from the trading experience. Instead of paying an entity to facilitate trading, the fees that are going to be implemented inside the Herdius chain are there to provide an incentive for validators and other nodes inside the network to sustain and secure the chain.

While conceptualizing the Herdius chain, it became apparent to me that if you add a decentralized component to an already robust system, you need at least two additional consensus mechanisms to keep it in check. Every component of the Herdius architecture we outlined in our technical paper can work in a decentralized and frictionless way — without the need for any central entity.



Disclaimer: Herdius is a project by the Berlin, Germany-based Herdius GmbH. Balazs Deme is the CEO of Herdius GmbH. Herdius will start its initial coin offering (“ICO”) on December 11, 2017. All relevant information regarding Herdius and the initial coin offering can be accessed at www.herdius.com