If you participate in initial coin offerings, you may already understand why decentralized exchanges are needed for. A lot of new coins appeared since the beginning of 2017 and the majority of them do not have proper access to good digital exchanges. This all leads to the lack of liquidity for many cryptocurrencies, even for good ones. There were times when almost every coin could get listing on the biggest digital exchange in the world, Poloniex. Now even if your coin has big community base, it is close to impossible to be listed on any big centralized exchange. And it is a huge problem for investors not to be able to properly trade tokens due to non-existing liquidity.
We have a lot of problems which are closely connected to the nature of Centralized exchanges and we will discuss them all but you may already realize that there is a strong need for big decentralized exchanges that will be fast, liquid, and comfortable to use. And yes, we already have EtherDelta, but it has many flaws that must be dealt with. In my opinion, those disadvantages are fixed in the two decentralized exchange projects, 0x protocol and Airswap. Both projects are very interesting and promising. I want to show you where they are different, where they are similar. Maybe, by the end of this presentation, you will choose which project is more preferable for you. I hope you will enjoy watching this presentation as much as I enjoyed creating it.
On this slide I would like to talk about why decentralized exchanges are so much needed in the cryptocurrency community.
First of all, I am sure that almost everyone understands that after transferring cryptocurrencies to such exchanges as Poloniex, digital exchanges start to control your funds. If they suspect that you did something wrong or the source of your crypto is doubtful, they simply freeze your account. After you send them support ticket it may take up to half a year for your funds to be released to you. Yes, it is that painful, especially now when there are simply too many people on exchanges, Poloniex doesn’t have enough staff to accommodate the growing number of traders. At some point I was also affected by this deposit freeze on Poloniex and it felt like a really desperate situation. That’s why I wouldn’t trust any exchange with my cryptocurrency anymore.
After this, we also have a very lengthy and annoying KNOW YOUR CUSTOMER (KYC) process which eats a lot of your time. Exchanges are very sneaky in this regard. They let you deposit $10.000 worth of cryptocurrencies but give you only $2.000 withdrawal limit. So, you want to up your withdrawal limit to withdraw your own money? Feed their legal department with more of your private information!
Governments can easily ban exchanges, arrest exchanges’ property. In the beginning of September, China enforced a nationwide ban on Bitcoin and cryptocurrency exchanges, forcing BTCC, OKCoin, and Huobi to shut down they services. Also, some of BTC-e holdings were seized by US government in July 2017.
Centralized exchanges generate millions of dollars in fees every day. The bitcoin trade is at all-time high, but there is no change to exchanges’ fee policy. Traders currently overpay exchanges. Fees are too damn high.
Increasing government intrusion into cryptocurrency exchanges will bring KYC and AML rules to absurd levels. I don’t really want cryptocurrencies to be as traceable as governments want them to be. This is why I am going to use decentralized exchanges.
Let’s try to summarize the main facts about Decentralized exchanges.
Decentralized exchange is completely automatic, there is no need for human interference. There is no need for intermediaries because everything is done with the help of smart contracts and state channels.
It cannot freeze your funds, code is open source. If something changes about this, you will be the first to know. If Decentralized exchange can freeze your funds, it is not decentralized.
You can deposit/withdraw any number of tokens. Decentralized exchange doesn’t care. There are no limits on withdrawals and deposits. Deposit any amount, withdraw any amount.
By the way, did you know that existing Decentralized exchange, Etherdelta, had only $500.000 of cumulative trade volume from September 2016 to March 2017? Do you know its current numbers?
Currently, there is more than $4.000.000 trade volume on Etherdelta DAILY.
On this slide we will shortly summarize the main facts about 0x project and AIRSWAP.
0x project is an open protocol that facilitates trustless exchange of Ethereum-based tokens. Basically, it is foundation for building decentralized exchanges, but they have their own exchange called “0x portal”.
Other projects can build exchanges on top of 0x protocol. This protocol will be used by many high-quality teams for exchange needs like Chronobank, Melonport, Augur, Maker, and others.
It uses off-chain solutions to massively reduce costs for market makers.
Airswap introduced Swap protocol to facilitate p2p trading of tokens. These protocols are intended to become a foundation for the asset trading ecosystem and to accelerate Ethereum ecosystem growth.
Airswap is based on off-chain negotiation and on-chain settlement mechanisms. All decentralized exchanges are aiming to use off-chain solutions to increase efficiency.
While using Airswap, costs dramatically decrease with only a few messages passed between counterparties.
What is the difference between the two main decentralized exchange projects? Let’s start by comparing the initial coin offering results.
Funds collected during crowdsale
• 0x protocol - $24 000 000
• Airswap - $30 000 000
Supply of tokens
• 0x project – 1bln ZRX
• Airswap – 500mln AST
Investors’ share in token supply
• 0x project – 50%
• Airswap – 30%
Market capitalization. Also, do not forget that Airswap crowdsale ended recently, so I simply divided amount of collected funds on the investors’ share in token supply.
• 0x project - $98.632.000
• Airswap - $150.000.000
What are the conceptual and technical differences between Airswap and 0x project?
Method of exchange and what is posted
• 0x project uses Order Book, which keeps track of orders. Order books can be public or private, and traders can choose the order books they want to trade on. Because the orders involve no additional step to finalize, 0x’s approach favors speed and can accommodate automated trading.
• Airswap uses Indexer to solicit token exchanges. Makers and takers only submit their intent to trade. Only later they are matched and Airswap forces both parties no negotiate the details of exchange.
Cost to makers and takers
• 0x project relies on so-called “relayers”. Basically, relayers are decentralized exchanges of other projects that adopted 0x protocol. To cover the costs of maintaining order books, relayers can require transaction fees from both makers and takers. 0x requires fee payments in ZRX tokens for transactions. When trade is completed, maker and taker pay the fee. It is important for ZRX tokens to be cheap so the exchange will be also cheap.
• Airswap doesn’t depend on other parties in this context. Instead of transactional fee, the Airswap takes fees for accessing its ecosystem. Basically, if you want to become a trader/seller you need to pay for that in AST tokens. It is also important to note that Airswap will probably “lock up” used AST tokens and return some amount later.
Other token utility
• 0x protocol tokens will be used to update the platform. It will be a form of decentralized governance.
• In Airswap, governance is weighted in voter’s AST holdings. The more tokens you have, the more weight you have on the Airswap.
(By the way, I want to say thanks to Stamford Hwang for outlining those differences on his medium blog, please, check it out https://medium.com/@stamfordhwang/0x-project-vs-airswap-io-bee324025a0a )