Decred Introduces a Dex Devoid of Blockchain
Digital coins are decentralized currencies stored in most cases centralized depositories called exchanges. These exchanges have time and again proven to be unsafe since they are always exposed to hackers. Point in case is the Mt.Gox exchange that was hacked and billions worth of bitcoins stolen.
Despite this apparent risk, traders still prefer to leave their coins in the exchanges. In most cases, it is just a matter of laziness going through the process of setting up a wallet and transferring the coins to those wallets. However, for day traders, having the coins within the exchanges is a necessity. Day traders need to access their coins instantly to keep up with the fast-moving markets when trading. making profits or loses depends on speed significantly. Another reason they prefer to have their coins on the exchanges is to minimize mining and exchange fees. It would be costly for traders to keep moving coins from the wallets to the exchanges when buying or selling.
It is for these reasons that we still have the central points of failure that have always failed at one point or another. The bitcoin ecosystem still requires them despite the danger they expose to the digital currencies. Recently, another exchange called Coinrail in South Korea was hacked and lost about $30 million worth of various altcoins.
Developers have been working hard to find a solution by they keep hitting a snag. Currently, there are a few decentralized exchanges, but are marred with challenges key among them being slow transaction speed and problems with pairing orders.
Following the need to have a decentralized exchange, Decred proposes a solution to the numerous challenges facing the centralized exchanges. The proposed solution goes beyond the Atomic-Swap system that decentralized exchanges use.
Features in Decred’s proposal.
- It will facilitate exchange between digital currencies only. Fiat currencies are out of the equation at the moment.
- It is designed to connect just the client and the server without any corresponding blockchain or token.
- The server operators do not have any control of the clients’ coins
- It will use on-chain transactions to complete orders and enforce regulations and rules.
- There will be no fees collected by server operators to match orders
- Including coins support will simply involve adding corresponding atomic swap support.
- Clients and server will enforce rules to internally regulate all orders placed on the exchange
- It will be possible for external services such as wallets to access simple client API from the server that will provide a data feed, allow users to place order among other functions.
- It enables servers to connect through a mesh network enabling cross-server order matching.
- Order matching will occur randomly and pseudonymously.
- Off-chain LN-based network that utilizes atomic swaps will enable near instant trading for small orders.
- Market orders will be routed from client-to-client, while the client will broadcast limit orders and cancels through the server.
- The size of orders on both buy and sell side of any trading pair will have standardized lot sizes.
- There will be a reputation system based on Politeia that will expose malicious clients
- Creating a client account will come with cost a fee to discourage malicious users.
The system aims to use a client-server system to match orders instead of using an Ethereum token to enable Atomic-Swap trades. In this system, users will create their min-exchanges on the Politeia registry. It is on this exchange that traders will enter into a smart contract that will keep the funds safe from both parties. The contract will only release the funds when its conditions are met.
During trading, any suspicious behavior will be recorded on the participants blockchains and on the Politeia registry. Coupled with the small sign-up fee, developers expect this move to discourage malicious traders. They expect to use the proceedings to maintain and run the Dex server.
Ideally, this system will work more or less like the file-sharing software, Hotline Connect. The system allowed users to create their personal file repositories, and set their own rules governing the use of the system. Users controlled who could access what in the system. Servers could be in centralized list, but each server was on itself. This ensured that if one server collapsed, it could have insignificant effect on the system as a whole. The Dex system works in more or less the same manner, but the servers in this can match orders and communicate with each other.
This system eliminates the need for a trusted third party. It decentralizes the overseeing role to the crowd and ensures fast transactions by reducing the burden of unnecessary blockchain.
Despite the promising features this system presents to users, there are bound to be problems as with any other development. Being an open-source software makes this system good since arising challenges can be met head on by a multitude of users. As long different users can access the source code, they can propose solutions to help make the system better even if the solutions are different from Decred’s proposals. There is at least some hope for a fast decentralized exchange since the existing ones have not solved the challenges posed by the centralized platforms.