The following is an objective review of DAEX ICO. The review is based on certain criteria, which we think are important for an ICO project to succeed. We measure a successful ICO by short term and long term ROI estimation. The following is not a financial advice.
DAEX (Digital Assets Exchanges) is an open and distributed cryptocurrency clearing ecosystem. DAEX aims to provide clearing solutions for centralized cryptocurrency exchanges, based on distributed ledger technology and smart contracts. The project is developed and managed by the DAEX Foundation which is registered in Switzerland. Since its foundation, DAEX has established significant partnerships with institutes such as US Temple University, Qtum Foundation, Jenga Blockchain Capital, Sora Ventures, 8 Decimal Capital, 360 and etc. Moreover, they are currently in discussions with several exchanges including Lbank.info, Bitfinex, Bitstamp, Huobi, and Bittrex.
Introduction – The Problem
Since January 2017, the cryptocurrency trading industry has experienced tremendous growth when the total market value rose from 18 Billion USD to over 500 Billion USD, and the average daily trading volume rose from 162 Million USD to 20 Billion USD. The rapid growth of the trading industry has raised the need for more effective and secure trading exchanges.
There are currently two types of cryptocurrency trading exchanges, centralized exchanges and distributed exchanges. In a nutshell, centralized exchanges provide a centralized order matching mechanism for traders, where a third-party handles the order-books and hold traders’ cryptocurrencies in its own storage. These exchanges provide two key advantages: Fast execution time and strong trading liquidity. However, they are more vulnerable to hacking. In fact, in recent years security incidents have frequently appeared from Mt. Gox to the recent hacker thefts on CoinCheck and Youbit. These issues revealed the risks resulting from the use of this centralized model where customers' assets, transactions, and clearing are all handled by a single institute.
Distributed exchanges cut the third-party out of the equation through the use of distributed ledger technology and smart contracts. A trader’s assets on a distributed exchange are held in his own account and the exchange does not have access to them. The main benefits of these exchanges are obvious. High protection for traders’ assets, and certainty which derives from the fact that traders don’t need to trust the exchange. However, distributed exchanges represent major drawbacks in term of liquidity and transaction execution time. Examples of such exchanges include BitShares and EtherDelta.
The Solution – DAEX Ecosystem
To address the problems, mentioned above, DAEX provides an infrastructure for the cryptocurrency trading industry that integrates the benefits of both, centralized and distributed exchanges: strong liquidity, high-security level, transparency and relatively trustless environment. DAEX suggests seperating the clearing and the trading services into different entities. Currently, centralized exchanges will continue to provide trading services, but the clearing and the settlement services will be based on the DAEX solution. The solution is an open source public blockchain which guarantees that the trader’s assets are kept in their own account. Thus, DAEX users can enjoy the benefits provided by centralized exchanges without being exposed to risks arising from the use of such a centralized model.
DAEX ecosystem aims to provide value in four layers:
- Security: DAEX provides a secure trading infrastructure, where the user assets are all held on the public blockchain and cannot be moved without their permission.
- Resource allocation: since each exchange has to do its own clearing work, the whole trading industry is not making good use of its resources. By using the clearing service, industry resources are used more effectively.
- Trust: all operation and assets are transparent on the DAEX blockchain. The transparency provides more certainty and decreases the distrust between the users and the exchanges.
- Exchanges: the separation of trading and clearing helps exchanges to focus more on their core competencies. Moreover, DAEX help to reduce the operational costs by selecting and listing new cryptocurrencies so that participating exchanges can trade.
The clearing solution
To better understand the DAEX ecosystem and its value, we need, briefly, to turn to the project’s underlying technology and features.
The DAEX ecosystem consists of three participants: end users, centralized exchanges and the DAEX Foundation (daex.io). The DAEX Foundation acts as a bridge that connects the other two participants. The core of the DAEX ecosystem is the DAEX blockchain (called “clearing chain” by the company). The clearing chain provides clearing and settlement services for individual and institutional users. The clearing service comprises of three stages: firstly, Traders use their wallets to perform trades on a DAEX participating exchange. Secondly, the exchange matches the trade order. Thirdly, after a matched trade is formed, it is sent to the clearing chain, and a “clearing smart” contract is then formed for this matched trade. The clearing smart contract sits on the clearing chain, and it serves two functions: firstly, it validates the matched trade to make sure that it meets all the business requirements. Secondly, the smart contract goes through the consensus mechanism and then updates the corresponding accounts on the ledger with the new trading information.Atomic Settlement
The clearing chain supports multiple digital assets which can be transferred between different chains. In the current situation, in order for a transaction to occur between different chains, users must use two different wallets. Using the atomic settlement, users will be able to transfer digital assets which sit on different chains, using only the DAEX wallet. This feature improves user convenience while trading on the top of the clearing chain.
A clearing account will be opened for each user. This account is used to register digital assets, monitor asset balances and to view transaction history. As mentioned earlier, since all DAEX participating exchanges use the same ledger, the Customers’ trading assets are all managed on the same transparent ledger.
DAEX Distributed Wallet
The DAEX wallet is the client system of the clearing chain. It is a distributed wallet that supports multiple types of cryptocurrencies including BTC, ETH, Qtum, Neo and all ERC20 compatible tokens. After a user goes through KYC process and is registered on the clearing chain, a unique public address on the clearing chain is assigned to him. Simultaneously while the DAEX wallet is produced, a three-part private key will be generated. The private key is broken into three parts, and any two parts must be used together to access assets in the wallet. The private key comprises of the following parts:
- User part: Stored on user’s mobile client and usually it is kept in cold storage. It only finishes level one signature when a user moves assets in the wallet.
- Wallet part: stored in hot wallet mode on DAEX servers. It supports a level two signature on top of a user’s level one signature.
- Backup part: Stored on the clearing chain in cold storage. It does not participate in any transaction. It is only used for recovery purpose.
The purpose of the consensus mechanism is as follows: (1) prevent malicious attacks through strict clearing responsibility arrangements (2) achieve relatively low network cost (3) prevent centralization of computing power (4) and reaching relative decentralization.
To achieve the above, DAEX customizes the consensus mechanism based on clearing value factor and proof-of-stake called CVF-POS. In the classic proof-of-stake mechanism, the weight of every node is linked to its capital. However, in the CVF-POS mechanism it’s linked to a combination of different parameters including a user’s activeness in the clearing process, user’s capital and user’s contribution to the clearing mechanism. These parameters are specified in the clearing value factor. Further technical details regarding these parameters will be found in the technical whitepaper (to be published in Q2 2018). In accordance with the development of the ecosystem, users will be able to propose amendments to change the above-mentioned parameters.
Security Mechanism – the CVF-POS consists of an inherent security mechanism. Validators which participate in the consensus process will pledge DAEX tokens through smart contracts, and if a validator is hacked or it violates any agreements, those tokens will be frozen. Moreover, the DAEX Foundation runs an administration system. A node which can solve temporary trading exchange problems. For example, when detecting malicious attacks, it can suspend clearing requests.
Let’s briefly run through the technical process: every DAEX wallet user has equal accounting power. The accounting power is determined by the ecosystem and it acquires a specific number of accounting scores based on the clearing value factor (the above-mentioned parameters). Nodes with a certain number of accounting scores can be defined as validators. The functions of the validators include generating blocks and carrying out accounting and consensuses by broadcasting encrypted signatures.
Token Reward Mechanism
To achieve relative decentralization, the CVF-POS allow every wallet user with digital assets to participate in the clearing process by delegating accounting scores to DAEX public nodes (becoming a witness for clearing). In exchange for the contributions to the clearing process and to the functionality of the DAEX ecosystem, nodes and user wallet will be rewarded with DAEX tokens.
The main clearing booking will be performed by three types of full nodes:
- DAEX public nodes – deployed on the public clearing chain. contribute virtual computing power (alongside with the accounting scores sent by wallet users) for the clearing service. By doing so, these nodes concurrently lowering the resource cost of individual’s participation and raising clearing efficiency.
- Exchange nodes – deployed at participating exchanges. These nodes basically serve the same function as the public nodes. the number of nodes deployed at one exchange is correlated with its clearing contribution, and to prevent centralization, an upper limit is specified.
- Super nodes - when the clearing power of an individual DAEX wallet user reaches a certain level, this individual can apply to become a super node. A different grade will be assigned to this node based on its “effective time DAEX holding”. Higher grades correlate with a higher reward income.
As a further incentive to encourage user participation in the ecosystem, opening an account or invitation to open an account will be rewarded with DAEX tokens. However, the total opening accounts award, as well as the total invitation will gradually decrease once DAEX is online.
The DAEX Token (DAX):
The DAEX tokens are to be distributed in exchange for private and community donations. There is no public sale. During the initial offering phase, the DAEX token will be an ERC20 compatible token. When the DAEX solution is in production, those original ERC20 tokens will be repurchased and destroyed, and new native tokens will be issued with a 1 to 1 ratio.
DAEX tokens will be used to pay the clearing and the settlement fees in the DAEX ecosystem. Those fees can be paid solely using the DAEX tokens. Such a token economy ensures that DAEX tokens will play a central role in the clearing chain, as the driver of the ecosystem.
Total hard cap: ~25K ETH
Token allocation (Finite number of 2 Billion DAX): DAEX foundation is yet to publicize a specific allocation plan, however, according to the team members, only 10% will be held by the team.
Use of the fund: the fund received from private and community donations will be used for the following fields: 45% R&D, 20% community building, 10% branding and P&R, 1% financial affairs and 24% will be allocated to alliances (mainly exchanges). The usage of the fund can be traced and will be periodically publicized to the community through social media.
The project will be announced to the public by the end of March. The DAEX wallet and the clearing chain are expected to be launched at the end of June, and The Test Net is expected to be up by the end of December.
Q2 2018: publish DAEX technical whitepaper.
Q4 2018: Beta release and start testing.
Q2 2019: 1.0 release and start in production.
Q4 2019: 2.0 release.
Clearing for margin trades and short position – currently, such advanced trading tools, are not available in distributed exchanges. According to the whitepaper, such trading tools are expected to be developed during the second phase (Q4 2019). This development may provide a further advantage to the DAEX infrastructure over distributed exchanges.
Derivatives Clearing - The demand for cryptocurrencies derivatives is increasing in accordance with the rapid growth of the cryptocurrencies trading market. CBOE and CME have already introduced bitcoin futures, and It is expected that derivatives based on other cryptocurrencies will be gradually introduced. The major drawback with the existing bitcoin derivatives is that there is no underlying asset. Traders cannot use the bitcoin derivatives to obtain bitcoins. DAEX intend to address this issue by using smart contracts, in which DAEX will use trader’s digital assets on the blockchain as collateral.
Smart inclusive financing – The DAEX system gives every user the right to issue smart digital assets using DAEX tokens. This idea is similar in certain ways to Bitcoin’s colored coin. A user can create a new smart digital asset such as commercial paper by collateralizing certain highly liquid digital assets. After it is recognized by certain users and exchanges in the DAEX ecosystem, it then can be traded among approved users and cleared by the DAEX clearing chain. This feature basically, allows users to manage “real world” assets on top of the clearing chain.
The core team consists of 5 full-time team members:
Benjamin Gu – Chairman of DAEX Foundation.
Mr. Gu has a vast professional and management experience in both, Chinese and US financial service firms. He worked at the US Options Clearing Corporation and was involved in the development and operation of the US options trading market's clearing system ENCORE. He holds an MBA degree from the University of Texas at Austin and an MA from the University of Notre Dame.
Hua Zhang – Co-Founder
Ms. Zhang has a vast experience in strategy development in the field of finance, payment, and engineering. She used to work in A.T.Kearney, Dun&Bradstreet and Euromonitor International as a strategic consultant. She is also an initial member of IDEL (International Digital Economic League) and an expert in blockchain applications. Got “Best Female CIO” Award in 2016, JiePu Finance and Technology. She graduated from Shanghai Jiao Tong University.
Jason Tang – Co-Founder & Chief Architect
Mr. Tang used to work as a product manager in China Zheshang Bank Fintech Application Research Center and took charge of the first blockchain project which applied to the core system in domestic commercial banks. He holds a master’s degree in software engineering from Zhejiang University.
Yan Zhou - Wallet Architecture Scientist.
Bingliu Shen - Partner (Brand Strategy & Marketing).
Swanson is the founder and director of research at Post Oak Labs. He was previously a visiting research fellow at the Singapore University of Social Sciences as well as at Sim Kee Boon Institute at Singapore Management University. Graduated from Texas A&M University.
David has more than 20 years working experience in the fields of global capital market and merger & acquisition. He was previously a member of the Board of Directors of Research & Development committee of ShenYang Huatie Corporation Group. Graduated from DePaul University.
Patrick has extensive experience in the area of development and management of blockchain technology. He holds a bachelor’s and a master’s degree in Computer Science from Sichuan University and from the University of Science and Technology of China respectively. He was nominated for the 2017 Forbes China Top 30 Under 30 List.
Ling Tang - Partner of Jenga Blockchain Capital
Justin Shi - Professor of Temple University, member of the TCP/IP committee. His main research focus is on high concurrency processing.
All team members, advisors, and partners are listed on the DAEX website.
DAEX aims to utilize an existing service, instead of creating a new one. by collaborating with centralized exchanges, DAEX might be able to swiftly penetrate the market and capture a sizeable market share. DAEX allows exchanges to decrease their operational costs and at the same time, creates a relativity trustless environment while decreasing the distrust between traders and exchanges. Hence, it is reasonable to expect that such collaborations will be made. The project has already established alliances with strategic partners such as the Qtum foundation, and is currently in discussions with several high-volume exchanges.
The project’s targeted market is the cryptocurrencies trading industry. A huge market where its current value has exceeded 400 Billion USD (by market cap). To date, given the drawbacks of distributed exchanges in terms of liquidity, user experience and transaction execution time, they cannot address the market need properly. Moreover, there are no KYC & AML processes in these exchanges. The existence of such processes might become crucial in accordance with tightening regulations. The DAEX ecosystem aims to provide strong liquidity, high-security level, transparency and a relatively trustless environment, and therefore, may possess a significant competitive advantage over these exchanges.
The team consists of professionals with rich experience in the fintech realm, and especially in the field of clearing and payment. Alongside the core team, the project has a strong advisory board and partners, which bring essential experience.
The project is still in its early stages. The clearing chain and the DAEX wallet have not yet been launched, and so the proof-of-concept is not be set up yet. Since the underlying technology has not yet been proven, it is difficult to assess the project’s future success.
CryptoPotato ICO Evaluation – result
Key for the evaluation: IF = Impact Factor WA = Weighted Average
Team & Advisory board: The core team, as well as the advisory board consists of professionals with extensive experience in the fintech realm. Score 8 IF 5 WA 1.72
Stage of the project: the project is still in its early stages. the clearing chain and the DAEX wallet are to be launched in June. Score 6.5 IF 1 WA 1.72
Project potential: considering the targeted market and the market penetration possibilities, there is a huge potential. Score 8.5 IF 3 WA 1.29
Community and Media: ~19,000+ Telegram members (~9,000 in the English group and ~10,000 in the Chinese), ~6,228 Twitter followers. Given that the project is still in its early stages, such a community can be considered a strong one. Score 8.5 IF 2 WA 0.73
Token use: The DAX token will be used to pay the clearing and settlement fees on the clearing chain. Score 9 IF 3 WA 1.29
ICO: Hard Cap - 25K ETH, private sale only. Score 8 IF 5 WA 1.7
Whitepaper: the technical white paper is yet to be published. The non-technical paper clearly shows the need for the project and its value, however vital information regarding the token allocation, is missing. Score 7.5 IF 1 WA 0.43
Backend and Technology: native blockchain, atomic settlements, and a distributed wallet that supports multiple digital assets, and an innovative consensus mechanism. Score 8.5 IF 2 WA 0.72
To be a part of DAEX community, please join their Telegram group.