Building a Commission-Free Crypto exchange: An Interview with the CEO of Digitex
Written by Urban on November 5, 2018
We talk about innovative Blockchain application with the CEO, Adam Todd of Digitex Exchange which promises commission-free trading. Since commission fees are set arbitrarily by most exchanges, including the big ones, we wanted to delve deeper into how this project promises what others had thought to be unsustainable.
CCN: Let’s start with the fundamentals. What is Digitex Futures all about? How do you manage to allow commission-free trading without paying from your own pocket? How sustainable is your plan?
Digitex Futures is a commission-free futures trading exchange that allows traders to make near real-time trades on futures contracts on Bitcoin, Litecoin, and Ethereum. We’re using the Ethereum blockchain and a custom token, the DGTX as an ERC-223 compatible token.
(The ERC223 token is an improvement oven the ERC20 token and incorporates a mechanism to prevent tokens getting lost due to getting sent to wrong/invalid addresses.)
Instead of charging commission fees, we cover the costs of operating by minting a small number of tokens each year. This system of token issuance is a revolutionary new revenue model for a futures exchange and will be governed autonomously and democratically by all DGTX token owners through Decentralized Governance by Blockchain. This means that DGTX token owners decide on how many new tokens to create each year. The constant demand for tokens from more and more traders seeking commission-free futures trading will offset the single digit inflation rate caused by a small and expected increase in the supply of tokens.
We chose the Ethereum blockchain to build on because one of the key features of our Futures exchange is that we will eventually offer trustless trading through a system of state channels. Through smart contracts, and specifically the Plasma protocol, users will be able to trade on the exchange without having to deposit any funds into the exchange. Traders will not be able to back out of losing trades but at the same time they haven’t handed their private keys over to the exchange and we can’t withhold the trader’s funds against his wishes.
Another advantage of not holding customer funds is that hackers are less likely to target our exchange because there are no funds to steal. This decentralized accounts system will not be released in the first version at the end of this year but will be a major upgrade to the Digitex Futures Exchange in 2019, which is when the Plasma protocol is scheduled to be ready for production.
Despite having decentralized account balances, Digitex will not be a decentralized exchange because they are too slow and cumbersome for real-time futures trading. Traders must be able to place orders instantly and that is not possible on decentralized exchanges because every order must hit the blockchain, which costs time and gas.
Therefore, Digitex will be a hybrid exchange that combines the trustless benefits of decentralized account balances with the speed, stability, and security of a centralized order matching engine.
That means we are using a centralized server to run the matching engine, not the blockchain, allowing traders to buy and sell futures contracts in almost real-time through a one-click ladder interface. A centralized matching engine avoids the problem of Ethereum’s scalability since we can handle hundreds of thousands of users, getting practically instantaneous responses without any gas costs.
Question: How many transactions can your exchange process per second and what is the expected downtime?
Answer: Well, because of our centralized server, we can process hundreds of thousands of transactions per second. We’re confident that we have the best team and tools in place to handle sudden surges in demand as well.
As for downtime, we’re not expecting that to be an issue. We’re aiming for 100 percent uptime (well, I had better say 99.9 percent uptime, in the case of an extremely unforeseen and strange event like a meteor shower or something). But, seriously, we knew that to build an exchange that would allow for instant 24/7 trading, we need to offer a constantly accessible platform.
Finally, in terms of security, we’re following best practices and using experienced consultants to make the exchange as secure as possible. When our Plasma powered accounts system is launched, the exchange will not hold any client funds which will likely deter hackers because there will be no funds to steal.
Question: How will you minimize the gas charges applicable to the transactions on your crypto-exchange?
Answer: The only gas charges will be upon deposit and withdrawal of your DGTX tokens into the exchange because we’re keeping trades off-chain.
Question: What will be the effect of your token getting listed on other crypto-exchanges?
Answer: Well, getting listed on other cryptocurrency exchanges has no effect on how the futures exchange will operate. That doesn’t really affect traders. We launched the DGTX token in our ICO at $0.01 and today the DGTX token is trading ten times higher than that at $0.095. Today, we are in the top-100 of all coins trading. Ever since our ICO sold out in 17 minutes, there is a serious demand and plenty of traders just ready and waiting to get started. Getting listed on other exchanges will probably add to the value of the DGTX.
Question: You’re allowing the trading of securities. Did that lead you to regulatory concerns?
AT: Regulation is a possible concern for any blockchain company. Although, any legitimate blockchain company actually welcomes a clear set of guidelines on how they can and can’t operate. The securities issue has been largely limited to the United States so far.
In Switzerland and Germany, they’re using existing laws to provide different distinctions of securities. In Malta, they’ve created new legislation that shows a deep understanding of cryptocurrencies and blockchain technologies. Tokens at one end of the scale can be utilities and at the other, securities, and they can also be a hybrid.
Digitex is based in Seychelles and we are fully compliant with all legislation in this jurisdiction. Digitex Futures Exchange will commence operations with BTC/USD, ETH/USD and LTC/USD futures contracts and later add other pairs.
Question: Tell us something about your technology backend. How many modules do you have? How does your matching engine match a high number of transactions in real-time?
There is a high-performance event cache within the system which can update millions of clients in near real-time with events generated in the order matching system. The entire back end is dynamically scalable using a variety of techniques appropriate to the component and/or the tier on which it is deployed.
AWS auto-scaling is a major component in the web layer with a proprietary scaling solution for the order matching engine which allows us to prioritize busier markets or indices. The database/account uses a sharding data model design which will allow for seamless expansion of account performance in the future as the population grows.
Question: Why did you decide to list BTC, ETH and LTC futures, and what possible pairs will you list in the future? Do you have a process for deciding which to list on the exchange?
Answer: We went with the main ones to start with in order to focus liquidity on a small number of markets. We may introduce new futures contracts but currently, there is no official process for deciding that. We will decide on a case by case basis and also listen to the demands of the Digitex community and our traders.
Question: You have reserved 20% of your tokens for Market Makers. What is the rationale behind that?
Answer: Active market makers will be the catalyst for creating highly liquid markets. By reserving 20% of the total supply of DGTX tokens for market making and liquidity, traders will enjoy low slippage as well as no fees on trades. For those who don’t know, slippage is another major cost of trading so this will attract longer-term traders who may not be that interested in commission-free trading but who will like the ability to enter and exit large positions with little to no slippage costs.
We’re thinking on a massive scale here and not after just one group of traders. We believe that we can come up with a highly liquid exchange and attract short-term traders, long-term traders, and token holders alike.
Question: What are the steps that you have taken to ensure that the exchange resists hacking attempts?
Answer: When our Plasma powered accounts are ready next year, Digitex will not be a target for hackingbecause we won’t hold traders funds. Traders can buy and sell futures contracts without needing to trust our exchange with their money because we are using a series of state channels to decentralize account balances.
Question: What are the challenges that lie ahead and do predictions of Ethereum losing value pose any major issues for you?
Answer: There will always be challenges on the road ahead, but it would be boring otherwise! We’re working really hard every day to bring this product to the market and provide traders with the first commission free futures exchange.
Plasma is largely untested in battle conditions because it’s so new. There will be challenges implementing this, but we’ll be instrumental in figuring out how to implement this exciting new technology into a modern exchange.
Really, the price of Ethereum for us is irrelevant, and I think, to most legitimate blockchain companies. There may be less interest than there was a few months ago in cryptocurrency in general, but that serves as a market correction, leaving serious companies to get on with their work.
That said, we’re bullish on Ethereum and believe that the prices will go back up very soon. But for now, it doesn’t really affect us or our investors. In fact, bear markets make futures exchanges even more relevant since we will allow traders to go short and make money on margin and leverage trading–without commission fees wiping out their profits.
Question: Anything else you would like to add?
Answer: Just that we’re really thankful to the Digitex community so far and to all our team. We’re building an exchange that really will be a game changer. The futures industry is now worth over $30 trillion, and we believe that we are set to be a huge player in the space.