Charles Liu Interview with Jinse Finance — Part 1
Yes, I know we just posted transcript of our live video AMA with Luke Kim, Richard & Allen in the Vite forum (if you haven’t checked it out yet, here are the links to Part 1, Part 2 & Part 3). But, sharing is caring and in this case, we wanted to share an interview that our CEO, Charles Liu did with Jinse Finance on July 28th, right just a few days before the launch of ViteX. For those of you unfamiliar with Jinse Finance, you can think of it as the Chinese version of CoinDesk. In this interview, Charles shares his thoughts on the current crypto exchange landscape, why he built ViteX the way he did, his future plans for ViteX, and much more.
If any of the topics mentioned above sound interesting to you, read on!
Host:
Let me first introduce Mr. Charles Liu. He is a senior blockchain entrepreneur and executive director of the China Blockchain Application Research Center. He graduated from the University of Science and Technology of China, Institute of Software, Chinese Academy of Sciences. He used to be a senior architect of Jing Dong, a co-founder of Bi Feng Gang, and a technical director of Mei Tuan.
Q1. This year there have been many competing exchanges contending for the top. But when talking about exchanges, one is typically referring to centralized exchanges. How do you view the overall status of the current exchange environment?
A1.
Exchanges have always been a hot topic for the blockchain industry. The winning solution is far from clear. Even the leading exchanges have many challenges to deal with. The current status for the exchange arena can be summed up in one word — uncertainty. With the bursting of the blockchain speculative bubble, the entire industry has experienced a long “bear market”, and the exchange’s prospects are not as good as once would have been predicted.
Traditional exchanges face the dual pressure of a falling active user base and insufficient quality in support services. Emerging exchanges can rely on “sinking channels” to quickly “start”, but the proportion of “pure new” users in this dwindling distribution is high, and “coloring” (expertise) is obviously insufficient. These new users have low retention and low continual usage patterns and are under-educated, forcing exchanges to lower product barriers, thus creating security risks. Recently, various exchanges have strengthened their competitive advantages and have attempted many different offerings, including platform coins, trade mining, IEOs, decentralized exchanges and so on. Among these offerings, I am more optimistic on the idea of decentralized exchanges. Because it is more in line with the spirit of blockchain, it also represents the future. With the advancement of public chain technology, it is believed that decentralized exchanges will soon mature and even replace centralized exchanges in the near future.
“Among these offerings, I am more optimistic on the idea of decentralized exchanges. Because it is more in line with the spirit of blockchain, it also represents the future. With the advancement of public chain technology, it is believed that decentralized exchanges will soon mature and even replace centralized exchanges in the near future.”
Q2. It has been discussed before that there is still a considerable gap between the user experience on decentralized exchanges vs centralized exchanges. The biggest problem is the combination of slow speeds, high transaction costs and insufficient liquidity. How does ViteX weigh these three issues?
A2.
Of the three issues you mentioned, the first two are related to the performance of the public chain at the foundation of the decentralized exchange. Our original intent in designing the Vite public chain was to solve the “efficiency” and “cost” problems of complex applications such as decentralized exchanges. ViteX’s combination of speed and order cost makes it one of the best performers among all current DEXess, and its performance is close to that of centralized exchanges. This is mainly due to the underlying Vite public chain, Vite’s biggest feature is: “free” + “high throughput”.
The liquidity problem is the most important of these three issues and at the core of the exchange experience. In my opinion, the lack of liquidity is essentially “liquidity dispersion”. User’s trading needs are objective and will not increase or decrease in a vacuum. As long as they can be gathered together on one platform, the platform will have sufficient liquidity.
So, how can a decentralized exchange attract all users to the same platform? Our strategy is to provide an open platform to remove all intermediate and unnecessary links that hinder transactions, design a fair token model to motivate traders, interested parties and market makers, while introducing “operators” that manage the exchange-listed trading pairs and other operations as the central component. Operators, like merchants on Amazon, operate their own trading zones to share users and liquidity across the entire platform. ViteX can satisfy users regardless of what users want to trade, whether they want to buy or sell, and how much they want to trade.
Q3. ViteX claims to be a completely decentralized exchange. How do you understand decentralization? What is the difference between a decentralized exchange and a centralized exchange for users? In addition, how can decentralized exchanges break the barriers generated by the network effects of centralized exchanges to attract high-quality or attractive assets into ViteX?
A3.
The degree of decentralization of the exchange can be divided into two dimensions: “technology” and “governance”.
“Complete” decentralization means that technology and governance have been decentralized. Technically, orders are matched on the chain, transactions are settled on the chain, and cross-chain assets are supported. In terms of governance, no central organization can modify the rules at will, and the ownership of the exchange, the right to pay the currency, and the right to distribute fees completely belong to the community.
To date, ViteX is the most decentralized of all exchanges. Even our team has no way to interfere with the type of token, the type of user, and who can withdraw assets from the exchange. In addition, fees collected by the ViteX platform will be 100% distributed to holders of the platform currency VX. This is the meaning of “complete decentralization”. There are many benefits to decentralized exchanges. For example, users control their assets through private keys, do not have to worry about their assets being frozen, misappropriated or lost by the exchange, and do not have to worry about the “running” of the exchange or “black box operation” when matching orders; the community can decide what assets to trade on its own.
There is no intermediary in the whole process that can cancel a user or a project, thus reducing transaction costs and so on. At present, centralized exchanges may form a monopoly advantage in the short term, but they cannot form long-term effective strategies. This is why many centralized exchanges are “self-revolutionary”, laying out decentralized exchanges and building “moats”. As the experience of decentralized exchanges gradually approaches that of centralized exchanges, its advantages will become more apparent. And an open, low-threshold, highly decentralized exchange like ViteX has a natural appeal to the community and is more likely to unite community consensus. In the world of blockchain, who can best serve its community members will dominate. Decentralized exchanges with community consensus can naturally attract more and more high quality assets.
“In the world of blockchain, who can best serve its community members will dominate. Decentralized exchanges with community consensus can naturally attract more and more high quality assets.”
Q4. It is understood that ViteX supports anyone who runs his own decentralized exchange based on ViteX. If “anyone” can open an exchange on ViteX, is there really no threshold, no limitations, and regulations? How does ViteX respond to compliance and regulatory issues?
A4.
Essentially, ViteX is the infrastructure of a decentralized exchange. Running your own trading area on ViteX, or using ViteX API to build your own trading website and mobile app, is just like issuing ERC20 tokens in Ethereum, there is no threshold. The ViteX operator, as the main component of the exchange, needs to take the relevant operational responsibilities. For example, due diligence on the project side, compliance with national regulatory requirements, etc. Simply put , ViteX is a completely decentralized exchange where the rights are decentralized and the responsibilities are decentralized.
Q5. ViteX also proposes the concept of operators and gateways, operators can independently take charge of the currency and promotion and obtain transaction fee sharing. How should one understand operators’s responsibility in this small ecosystem? What is the role of the gateway?
A5.
Operators can run their own trading areas, called “Zones”, on ViteX, or build their own exchange website and mobile apps based on ViteX. They have the right to decide which transaction pairs to open, which to suspend (only those transaction pairs can opened by the same operator), and allow the adjustment of the transaction fee of a certain transaction pair within a certain range. The concept of a gateway does not belong to the ViteX exchange, and all tradable assets on ViteX are distributed on the Vite chain.
On Vite, there will be some tokens that are issued by users and anchored 1:1 with other assets, such as some stablecoins that is pegged to fiat currencies, or some kind of token that is pegged to BTC or other public chain assets. This anchored token needs to be accepted through a centralized gateway, and the reliability of the acceptance depends on the credibility of the gateway. For example, if a user sells an asset on ViteX and receives a certain amount of stablecoins, the user is free to withdraw these stablecoins from the ViteX exchange to the Vite wallet. But whether or not these stablecoins can be exchanged for corresponding fiat currency (real legal money) through the gateway is not guaranteed by ViteX, but by the “gateway” that issued the stable currency.
Q6. When it comes to decentralized exchanges, Binance DEX comes to mind. What are differences and characteristics of ViteX as compared to Binance DEX?
A6.
In terms of governance, ViteX is more decentralized in terms of currency review, exchange profit distribution, and rule modification, without any centralization. Technically, because we are a public chain team, the underlying Vite public chain has certain advantages in terms of cost, performance and security. For example, in terms of cost, users submit orders and cancel orders on ViteX for free. On Binance DEX, every time a user submits an order, regardless of whether or not it goes through, he/she needs to spend a BNB worth about 1 yuan as the gas fee of the Binance DEX chain. In addition, a transaction pair opened on ViteX costs only one percent of the fee charged on Binance DEX. Fundamentally, because the Vite public chain supports smart contracts, any dApp on Vite can directly call ViteX contracts to implement asset trading on the chain. For example, a smart contract that stakes assets can complete a forced liquidation on the chain; a game DApp can automatically convert gaming chips into stable coins on the chain.
Q7. The following questions are related to platform currency. As a platform coin of ViteX, what are the innovative designs of VX, and what is the complete pass-through economic model? What is the competitiveness of VX compared to other platform coins?
A7.
The philosophy of the VX economic model design is: be simple and straightforward. In the model, neither the user is tracked nor can the team extract information through previously un-publicized techniques. Users holding VX are equivalent to owning a portion of the ViteX exchange. The concept of “owning” is reflected in two aspects.
First, voting rights: any major decision in the future will be decided by VX holders, such as whether to adjust the basic transaction fee, whether to modify the dividend rules, etc.
Second, the right to benefit: users holding VX will permanently get all the exchange fees and the deposit fee of the exchange, the dividends will be automatically settled on the chain every day. If you hold 1% of VX, you can get 1% of the exchange’s total income. VX has five kinds of mining: trading as mining encourages users to participate in transactions, market-making as mining to encourage market makers to provide liquidity, referring as mining incentivizes increased user activity, listing as mining incentivizes operators to increase trading pair options, and staking as mining provides the exchange quota resources to process transactions.
The total amount of VX will be obtained solely via mining, without fundraising or pre-mining. The team will only retain 10%, which will be distributed at a daily fixed percentage. As in, of the daily amount of VX released, the team will receive 10%. In addition, VX holders will receive daily dividends, calculated via the on-chain smart contract. The dividends come in the form of fees collected by the exchange, resulting in a more decentralized system in comparison to other exchanges that perform buybacks, coin burning and/or lock-ins.
Q8. Is there any other way to get VX than the ones just mentioned? In the future, will there be a VX buyback? Where is the value in holding VX?
A8.
There are no other ways to get VX except via the five mining modes just mentioned. We did not conduct any form of fundraising or pre-mining. Of course, VX trading pairs will be opened on ViteX and other exchanges in the future, and users can purchase directly from the secondary market. VX uses the method of dividend distribution on the chain, which distributes the entire revenue of ViteX to the holders, which is more decentralized than exchanges that have the option to perform buybacks. If one day I suddenly change my mind and decide to give less money to the users, or if I decide to modify the rules of the platform currency — that would simply not be possible.
“If one day I suddenly change my mind and decide to give less money to the users, or if I decide to modify the rules of the platform currency —that would simply not be possible.”
Q9. This question involves the benefits of the platform. Generally speaking, the exchange keeps the processing fee. Why did you decide to allocate 100% of the ViteX fees to VX users?
A9.
Usually the exchange earns a user’s processing fee and a project’s listing fee. As a decentralized exchange, since the ownership of the exchange belongs to the community, it is natural to allocate all the fees to the holders of the platform currency. If there is still a centralized organization that can bypass the platform currency to make money, then it is not a true “decentralized” exchange. In the rules for VX, our team will hold 10% of VX tokens and unlock them simultaneously with the mining process. In addition to being used for for operational purposes, a portion of this VX via ViteX dividends will be retained to support subsequent development.
Q10. In one of the answers above, you mentioned the importance of the public chain for the decentralized exchange. What are the characteristics of the Vite public chain as a platform supporting ViteX? What advantages does Vite have compared with other DAG-based public chains?
A10.
The biggest feature of the Vite public chain is: “free” + high throughput”. This is also the main feature of DAG technology. Compared to other DAG public chains, Vite is currently the only public chain based on DAG, perfect for smart contracts, and can run decentralized exchanges and complex DApps.
And…that’s a wrap for Part 1! Stay tuned for Part 2…
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