Crypto exchanges — a critical part of crypto infrastructure and much talked about in this space. Whether it’s about the huge profits being made on the big exchanges, or the hacks that happen with alarming frequency or the manner in which these exchanges are imitating, adapting and innovating upon the kinds of financial services available on Wall Street.
In researching this area it was really impressed upon me the sheer amount of exchanges in this space already as well as the large number of exchanges coming into being. Those exchanges already here are looking to adapt their offerings and exchanges incoming are innovating in order to occupy their own niche in a market which is fast filling up with competitors.
Binance and decentralisation
Binance shot onto the scene only a relatively short time ago. It’s a testament to the amazing opportunities available in this very nascent crypto space and also to the sheer drive and intelligence of CZ and his team that this was able to happen. So what is Binance doing now to reinforce and perpetuate their standing at the top of the crypto exchange tree?
Decentralisation is an area where Binance promised much and now their decentralised exchange (DEX) has become a reality. The generally accepted rationality for decentralisation is no central authority, heightened security and cheaper, faster transactions. How far Binance will be able to achieve these factors is a moot point given the centralised model of Binance itself but there is a realisation that decentralisation would severely curtail government meddling and heavy-handed control, especially since certain governments (China et al.) have shown a huge propensity for this.
Scaling is an area where the Binance Dex is supposed to make a real improvement on what has been an issue for decentralised exchanges thus far. The ability for the Dex to process the same volume as the Binance centralised exchange is supposed to be a reality and ‘a couple thousand’ transactions a second is what is envisaged.
In addition, the Binance move into lending as well as rolling out a futures platform ensures that its circle of influence is spreading ever wider.
Liquid — an ultra-secure exchange
Given the large number of hacks that have already taken place and the propensity for more given the early nature of such a new technology, many traders and investors are looking for an edge in security and Liquid has set out to give them just that. An extremely thorough KYC process can be off-putting to some who wish to remain anonymous but Liquid isn’t about that as it is a fully licensed and regulated entity.
Liquid is the first exchange to employ MPC (Multi party computing). This technology has been exhaustively trialled and tested and rolled out globally (with the exception of Japan where 100% cold wallet storage is still in force in order to remain compliant in that jurisdiction). The technological advancement of MPC enables Liquid to reduce reliance on cold wallets by 90% while still maintaining the same level of security. In addition, the speed of withdrawal for customers has gone from 1 to 15 hours to a vastly reduced 1 to 15 minutes.
Liquid appears to be ultra confident of its security so doesn’t provide insurance for user funds, unlike Binance, so if that hack does occur at some point it’s the old adage of ‘keep your funds off exchanges as much as you can’.
DACX — Tokenising and fractionalising capital markets, commodities & real estate
DACX is part of the GFIN sandbox; created by the UK’s FCA (Financial Conduct Authority) in order for an elite selection of Fintech companies to collaborate with 17 regulators in jurisdictions across the globe with many contrasting laws. DACX will be looking to exit with full licenses across selective collaborating regions.
The DACX exchange will be using DLT, AI and high-performance computing to deal in multi-currency payments, assets and commodities. With fractionalisaton of commodities DACX hopes to be one of the first exchanges to bridge the divide between crypto and Wall Street. The DACX Foundry is the IEO platform for DACX to which will be added STOs (Security Token Offerings) starting with tokenized Commercial Real Estate in 2020.
Upon an imminent launch DACX will list some of the major cryptocurrencies before then adding stable coins such as HK Dollar, Australian Dollar, Canadian Dollar, GBP. The exchange will use a combination of blockchains including Hyperledger, Ethereum and Stellar.
The DACX Remit project is also under development which entails an interoperable Universal Wallet which leverages traditional banking APIs, Oauth 2.0 and multiple blockchain token standards for the processing of cross border payments, merchant payments and storage of cryptocurrency and digital assets. There is an added feature of a prepaid debit card which makes use of QR Codes and NFC (contactless). Users can switch between their crypto and fiat options for payments where necessary.
Archax — No cold storage?
Archax, a London based crypto exchange, has the backing of Goldman Sachs and Citi Ventures, plus it is partnered with the cutting edge technology of Unbound. What they are doing is truly ingenious and does away with the hardware needed for cold storage.
“Our Digital Asset Protection Platform provides an innovative approach to protecting digital assets by creating and using fragmented private keys without ever unifying them, delivering both security and speed for a seamless customer experience,” said Yehuda Lindell, CEO of Unbound Tech.
Archax is aiming at the custodianship of institutional digital assets and are attempting to become an MTF (Multi-lateral Trading Facility). If they achieve this they will change the landscape for broker/dealer MTF for digital currencies and securities in the UK.
Wirex — “One card to rule them all”
Wirex isn’t an ‘exchange’ in the same sense as all the above exchanges are. It is a card or an app but it does deserve to be mentioned in this company because it does give customers the same services such as exchanging and storing cryptocurrencies (over 50 altcoins supported) as well as fiat (USD, EUR and GBP).
Integration with the Visa network means that shoppers using the card can spend their crypto at over 40 million outlets thereby doing away with the need for currency exchange, to say nothing of the benefits to the cryptocurrency industry of such a massive user base.
Word of warning though — at the time of writing this article I was made aware of user dissatisfaction of the Wirex service and some inept customer service. Wading through a lot of negativity on the Trustpilot review site does appear to bear this out but there are also certainly very satisfied customers in the mix there as well.
Conclusion
Exchanges are the lifeblood of cryptocurrencies and therefore they need to be user-friendly, they need to provide liquidity for the industry as a whole and they need to be super secure. The advent of security tokens is going to be simply huge in this space and once again, the exchanges that achieve full regulation and compliance will come to dominate the crypto/blockchain arena of the future.
Disclaimer: For transparency reasons I declare that I have included a referral link to the DACX exchange so therefore could benefit from any sign-ups that may occur through this link.