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At one point in late 2017, the cryptocurrency market was well on its way to reach a cumulative market capitalization of $1 Trillion. Several months later, even though the market’s upward momentum has stopped almost entirely, public interest has not faded at all. Naturally, this has led to an even further influx of investor capital and interest from institutional investors around the world. However, with fraud and scams becoming commonplace and centralized exchanges succumbing to security breaches, the discussion around crypto security has also become more relevant than ever.
To that end, DAEX or Digital Assets Exchange is a startup that believes that a discrete clearing system is the best way to guarantee trade security and reliability. The company is essentially proposing that cryptocurrency trading, clearing and settlement be split and handled by separate entities, with the latter two handled by its own infrastructure based on distributed ledger technology.
In finance, clearing refers to the process by which an organization executes orders between transacting parties and ensures delivery of assets, securities or money on both ends. The procedure takes place after a trade has been matched, and before a settlement is reached. In the equity and securities industry, most trades take place between separate financial institutions or banks. Thus, third party clearing houses are generally the one to facilitate communication between the two. The sole responsibility of these organizations is to establish delivery of orders between the buying and selling parties or entities.
However, even though the concept of clearing houses is well established in the world of institutional finance, the same cannot be said for the digital currency market. That is, until now at least.
Decentralized Clearing Infrastructure
Since a clearing service such as Digital Assets Exchange does not actually have any provisions for introducing buyers and sellers, the aspect of trading and user identification is still handled by conventional cryptocurrency exchanges. Once an order has been matched though, Digital Assets Exchange takes over to eventually settle the transaction between the users’ wallets on the clearing blockchain. Similar to the current system, the process is entirely automatic, thanks to Digital Assets Exchange’s unique consensus mechanism termed Accumulated Signature Proof of Stake (ASPoS).
According to the white paper, the Digital Assets Exchange ecosystem includes two components. The first involves its clearing blockchain and will be offered as a service to exchanges and traders. The company has termed this ‘CaaS’ or Clearing as a Service. The second component is the Digital Assets Exchange Wallet, which will have support for multiple digital currencies and is central to carrying out transactions on the clearing chain.
Given that Digital Assets Exchange is now the one responsible for executing and securing trades, users do not have to deposit their assets with any particular digital currency exchange. Instead, they can maintain ownership of their funds and private keys by using the Digital Assets Exchange Wallet. The latter point is key here, as it was previously impossible for one to retain ownership of their cryptocurrency while using a cryptocurrency exchange.
This way, users do not have to trust one singular custodian with their funds, which would be a cryptocurrency exchange in this case. Conversely, exchanges will no longer be vulnerable to outside attacks as they do not store the cumulative wealth of its users. Another advantage is that users will no longer be limited to one trading platform, as the Digital Assets Exchange clearing service is universal.
In short, Digital Assets Exchange manages to retain the best aspects of centralized exchanges, while adding a layer of security that is pretty much unprecedented in the industry. The advantages of this approach include but are not limited to, user ownership of private keys, the ability to move funds between personal wallets, high liquidity, and regulatory compliance.
Token Economics and Future Roadmap
The Digital Assets Exchange ecosystem will use the Digital Assets Exchange token to settle platform-specific fees for either clearing, settlement, exchange trade matching or derivatives clearing. Based on the Ethereum ERC-20 token standard, Digital Assets Exchange will also be issued as an incentive for users that link their wallet to a public node and bear witness to transactions on the clearing blockchain.
According to the company’s roadmap, Digital Assets Exchange plans to begin testing its platform with the launch of a beta sometime in the fourth quarter of 2018. Once that is successfully concluded, an official release is expected to take place in 2019.
So far, Digital Assets Exchange has announced strategic partnerships with a number of centralized exchanges, including Tokenomy, Allcoin, Indodax, BCEX, and Lbank. The next step for the company is to secure funding through its initial coin offering (ICO) that is scheduled to run between September 9 and 14. Early investors looking to purchase tokens in the ICO will have to complete a standard KYC process to become eligible for the sale.