LGO: Position Paper

Hugo Renaudin
Apr 12 · 9 min read

Our vision, our product, what we’ve built, and who we are.

The concept of ownership is at the core of modern economies. Today, ownership implies trust and intermediation. Bitcoin, cryptocurrencies, and blockchain, have for the past 10 years built an alternative. Thanks to technology, ownership in so-called digital assets becomes trustless and disintermediated.

Ownership implies the notion of transaction, which allows two economic agents to exchange ownership in a certain good, service or asset. Oddly, while ownership has been “decentralized” by the blockchain technology, one could argue that transactions have followed an opposite path. Cryptocurrency holders trust their online brokers or exchanges with their assets and with their transaction, too often at a dire price.

LGO was built around the idea of decentralizing transactions, by bringing transparency, fairness, and security to the cryptocurrency market. We engaged a community of 10,000 token holders with our initial whitepaper and our team and delivered a month ago our first platform: LGO Markets, a provably transparent digital asset exchange with no counterparty risk.

This is the first step of a global and ambitious long term target: reinventing the way exchanges are made between economic agents with the help of cryptography and decentralization technologies.

What We Want to Build

We believe that the intermediation and the lack of transparency of the current financial ecosystem create risk which prevents the free flow of assets between market participants. Cybersecurity threats are imposing more and more preventive measures on infrastructures which are getting more and more obsolete. Regulatory risk has grown exponentially with the complexification of markets and the addition of extra layers of intermediation. Those risks translate into costs, which are passed on to market participants, eventually leading to more friction, fewer transactions and slacken innovation.

Technologies like cryptography and blockchain solve these issues by design: their implementation makes current cybersecurity or regulatory risks obsolete.

Beyond the blockchain hype, cryptography is the technology which solves the issues which are currently putting the business models of financial institutions in peril. Distributed systems allow for a decentralization of governance: no single institution is too big to fail as the whole equilibrium of a financial ecosystem now relies on a distributed consensus.

The first application of blockchain/distributed ledgers to financial assets is what is called tokenization, which essentially turns a blockchain into the record of ownership for a certain asset. This way, the asset becomes exchangeable directly by two agents, without intermediaries and with full transparency. Tokenization creates the possibility of liquidity for any asset, by allowing market participants to share a unified view on the record of ownership.

We leverage these two technologies to build our product: the next generation of financial markets. We are building a fully transparent, secure by design and international marketplace for any assets and any investor (institution or retail).

To do so, our strategy is to:

  • Increment: we start by applying this vision to the digital asset world
  • Bridge: the traditional financial incumbents and their processes and the distributed ledger and cryptography technology. The benefits of the centralized world and the decentralized ecosystem
  • Help transition: traditional financial assets to a tokenized version and the current stack of technologies to cryptography and blockchain
  • Put our customers and our community first: by building products and services that solve real problems and create value.

What We’ve Built

While this long term vision may take time to realize — and requires a consensus amongst a majority of the market participants to switch to these new technologies — there is an asset class which today uses these two technologies: cryptocurrencies and digital assets.

Our first product — which is the one described in our original whitepaper — is the application of our long term vision to digital assets. We have built a provably transparent and secure by design digital asset trading platform. Institutional investors can today access our platform — retail clients will be able to do so in a few months.

Our current day-to-day focus is on developing the platform, building liquidity, reducing counterparty risk, offering a best-in-class client service but more importantly, to test our product and prepare it for future iterations.

Our product is made of three components: an execution engine, a clearing and settlement platform and several distribution platforms.

Component #1: Execution Engine

The execution engine matches trading orders between market participants. It is a highly complex part of our technology, which requires full redundancy of systems, high reliability and high throughput. It is operational 24 hours a day and seven days a week, is backed up by multiple server instances and can process more than 1 million transactions per second. It can support multiple order books at the time and has been designed entirely by our development team.

The execution engine is linked to a transparency module, which was described in our initial whitepaper as the anti front-running module. This module allows LGO to prevent front-running — and other exchange-led price and volume manipulations — but most importantly, it allows LGO to prove the accuracy and transparency of the trading data.

As Bitwise reported recently, more than 95% of cryptocurrency exchanges volumes could be fake. This cannot happen on LGO, as we are using the blockchain technology to guarantee the full transparency of order execution and trades.

Component #2: Clearing and Settlement platform

Our Clearing and Settlement Platform takes trades made on LGO’s Execution Engine as an input and settles these trades on chain.

Many cryptocurrency exchanges operate with one or few wallets storing all the assets of their clients (which creates a higher risk of hacking and a lack of transparency into specific client holdings) LGO does not hold assets on behalf of clients.

The two key features of the Clearing & Settlement platform are:

  • Trades are settled on-chain: clients can check their holdings directly on the blockchain
  • Low counterparty risk: at no point does LGO holds clients’ assets

Component #3: Distribution platforms

The third component of our product is a set of Distribution Platforms, i.e. connections to the Execution Engine which allow our clients to trade.

Today, there are two distribution platforms linked to the LGO product:

Those distribution platforms are all made of 3 features:

  • Connectivity to the Execution Engine: through a desktop app or an API
  • KYC/AML module: through which our clients are identified
  • Client relationship and client support

Simply put, our distribution platforms onboard clients and collect their orders. Orders are matched by the Execution Engine which outputs trades. Trades are settled on chain by the Clearing and Settlement module. From order placement to settlement, all processes can be traced back to the client’s investment decision, bear no LGO default risk and are transparent.

We can prove that all trades which are settled on a given blockchain correspond to a client orders and that trades were executed transparently and without LGO counterparty risk.

These three components form the basis of a global market for any kind of investor with no intermediation, full transparency and low counterparty risk. There are only one product and one technology, but the distribution strategies and the distribution platforms are different.

Some more details on LGO Markets and LGO Exchange below.

LGO Markets

LGO Markets is our distribution platform for institutional investors. When onboarding with LGO Markets, institutional investors can enjoy a high-quality trading experience in a secure and transparent ecosystem. We strive to provide a high level of service, strong standards of compliance, and a deep and institutional liquidity. LGO Markets has been live for a month now and allows our clients to trade BTCUSD.

  • Assets listed: BTC/USD
  • An institutional-grade onboarding process
  • Market Structure: Ability to place BUY/SELL and MARKET/LIMIT orders
  • Institutional liquidity: Dedicated Market Makers provide 2 sided markets at all time
  • 24/7 trading and daily settlement
  • Regulatory licenses: we have applied to:

_ NYDFS BitLicense
_ FINRA Broker-Dealer License and SEC Alternative Trading System
_ NFA Introducing Broker
_ FINCEN Money Service Business

If you are a trading business or a financial institution, please fill out this form and/or contact our sales team (sales@lgo.markets).

If you want to test our platform, here is the link to our API documentation and our Sandbox version.

LGO Exchange

LGO Exchange is our distribution platform for retail investors. Similar to LGO Markets, our clients enjoy institutional grade standards for trading digital currencies. Retail investors have a direct access to our the LGO liquidity and hold their coins themselves. Clients self-custody their own digital assets, and trade in a provably transparent ecosystem. We focus on bringing an institutional level of service to all of our clients.

LGO Exchange is currently being developed and will be regulated in France and the European Union.

These two distribution platforms are different and operated by different teams.

LGO Markets allow institutional investors to trade in a safe, transparent and compliant environment with the highest standards of customer service. Institutional investors can fulfill the fiduciary duties they have to their clients by trading on LGO.

LGO Exchange empowers the individual investor. Clients have a direct market access to LGO and self-custody their funds. They can exchange with the market with no intermediary, with the same standards as institutions. Clients trade with the comfort that they get a non-manipulated price in a liquid institutional-grade market.

Even though the distribution strategies are different, both LGO Exchange and LGO Markets are part of one single product and connect to the LGO Execution Engine and Clearing and Settlement Platform.

Our Team

Our product and our platforms are operated by the LGO team, which is made of 30 people between Bordeaux and Aix-en-Provence in France, and New York City and Hoboken in the US.

From our first day as a company, we have put a heavy focus on building the best team possible to deliver our vision. Although team members don’t necessarily share the same focus, we all share the same vision and work on the same product. We put a great pride in having been able to create a diverse team, from all backgrounds and with different experiences.

The LGO Token

Our story began in February 2018 after a highly successful initial coin offering through which more than 9,000 persons from 50+ countries purchased LGO tokens.

The LGO token as the cement of the company: it aligns the incentive of our team with those of our community. It plays a heavy role in the day-to-day operations of our trading platforms — especially LGO Exchange.

The LGO token is a utility token which was issued in February 2018 by LGO Exchange SAS, a French registered company in compliance with French laws.

LGO token holders can pay transaction fees on the LGO trading platform using LGO tokens.

In addition, LGO token holders are incentivized on the transactional volume on the LGO trading platform. LGO will burn 25% of the net fees of each cryptocurrency transactions made on the LGO platform.

  • If the fees are collected in LGO tokens, a portion will be burnt directly
  • If the fees are collected in another currency, LGO tokens will be bought back with a transparent mechanism described in this article, and then burnt

It is important to stress that LGO is the first exchange to implement a provably transparent mechanism to buy back and burn its own tokens. Some cryptocurrency exchanges already use a token and burn it, often with a lot of opacity on how many tokens are actually bought back and what processes prevent price manipulation. There are two ways to cheat on a buyback and burn mechanism:

  1. Manipulating the metric which is used to determine the amount of tokens to buy back and burn
  2. Taking advantage of asymmetric information and place orders in the market just before the buyback of tokens occur.

LGO solves these 2 issues :

  1. Thanks to the transparency module, every trade can be linked to an authenticated order from any market participant. Volumes and trades cannot be faked on LGO hence nor can the amount of tokens to buy back. We are building a tool for users to exploit the data stored on the blockchain by the transparency module.
  2. For every fee collected in another denomination than the LGO token, we have designed a buyback program which limits price manipulation and negative externalities such as front running or insider trading.

Conclusion

Our long term ambition is to change the way exchanges of value are governed, by introducing cryptography and decentralization to the current financial processes.

Our product is unique, and allows the development of a new generation of financial exchanges, with less risk, more transparency and less intermediation for any kind of investors.

We are today applying our technologies to solve the centralization problem in digital asset transactions, for all kinds of investors in any jurisdiction with the ambition of expanding it to any financial contract.

The LGO team

LGO Group

Building the next generation of financial exchanges.

Hugo Renaudin

Written by

CEO & Co-Founder @ LGO Markets

LGO Group

LGO Group

Building the next generation of financial exchanges.