I'm still trying to fully understand the openANX model.
As I understand it, you are improving on the Decentralized Exchange model by adding features to enhance liquidity as well as adding a DAO Governance model. To enhance liquidity, you are proposing to bridge the Centralized Exchanges and their liquidity to the openANX exchange. Why would the centralized exchanges want to bridge their liquidity to a DEX and essentially erode their own userbase & business model? What incentive do they have to send liquidity to your DEX?
It looks like you really want to target credit markets (ie:/ Credit Default Swaps; Collateralized Debt Obligations), as well as OTC markets. You plan on bridging the fiat & crypto markets with a focus on serving the credit/debt markets on a large scale. Is this correct? What do you see as the potential $$$ market (trade volumes) for these types of asset classes?
So your governance model and smart contracts will assess the credit worthiness of companies and institutions that want to trade assets through openANX (like Credit Default Swaps; CDO's; Bonds). So you'll also be acting like an S&P or Moody's Rating agency on these collateralized companies/mkt participants at the same time. Correct?
So openANX is proposing to mitigate counterparty risks with their collateralized smart contracts. If so, how much collateral are mkt participants required to allocate to the smart contracts?
Regarding the tokens. Their functionality provides membership & voting privileges (Access & Voting rights). In other words, all openANX market participants are required to obtain ANX tokens to transact on the exchange. Correct? The more tokens purchased the more rights and privileges a participant has on the openANX system. Correct?
Do the tokens have any other functionality (ie. Fees; profit share)?
Any clarification on these topics would be greatly appreciated. Thanks!
Hi JWH007 (and janpec1000 who upvoted) sorry for the delay coming back to you, I had to check some details with . a few guys on the team who were travelling over the weekend. It's more than one question, so I'll answer them below in order. If I miss something, please tell me and I will come back to it in a follow up post.
In the case of exchanges eroding their user base, it's a valid point. The first thing to keep in mind is that we think the system is better, and here's why....In the centralized model you relinquish custody to all your assets, in the case of openANX you don't surrender your keys to your ERC20/ETH tokens at all.
Second, We aim to build a consortium of exchanges and we've had initial discussions with a number of them. From the outset, it will probably be tier 2 (regional exchanges) and other decentralized exchanges that join first as they stand to benefit the most initially. Centralized exchanges will want to support a gateway to hedge their risk: decentralized matching is clearly the future.Small exchanges get to utilize a top notch matching engine (rather than attempting to build their own, and they get access our initial liquidity, or exchanges that don't do a full range of tokens can add those to their existing clients.
It's then that aggregation becomes exponential. Once we have 4-5 exchanges then we become attractive for other reasons. Credit provides consumer protection, and our liquidity now looks attractive to even larger exchanges who can use it only in instances when their own order book can't provide the trade volume they need. So, initially we believe big exchanges will use us to fill gaps in their own books, maybe only running 5-10% of their own business through us. Over time, they will see that if they provide better service in terms of customer service and banking expertise, being part of a bigger ecosystem works because they have access to a larger group of potential clients.
Lastly on this point, the barrier to entry for new gateways drops to near zero. By providing the Matching Engine and the infrastructure solution, it becomes simple for new service providers to become asset gateways, as long as they are able to post collateral.
This drives competition and aggregates liquidity across the platform. As liquidity grows the centralized exchange legacy revenue from opaque matching will become less material.
I'll answer credit markets in the next post.
It's a good question, you've jumped a few steps though. CDO's and CDS's will certainly develop, but at a basic level, credit is about having the information to accurately determine risk of default.
ExampleIf Gateway A and Gateway B both trade in BTC:ETH why choose one over the other? There are a host of reasons.
1) Better Pricing
2) Reputational variation
3) Speed and Service
In the cryptocurrency space, we see plenty of examples of 1) and 3) in practice, in fact variations in price drive much of what traders do. However, there is no objective yardstick to 2.
There's plenty of forums devoted to opinion and sentiment, and these are valuable, but there is no way to measure exposure or market sentiment in a numeric form. That's the first thing to understand. By providing the following information, we benefit the user
Gateway A - 75% collateralized in ETH in Smart Contract
Gateway B - 20% collateralized in ETH in a Smart Contract
What does that tell a user? Well, nothing directly. But then consider that Gateway A is pricing BTC at $3,009 and Gateway B at $2,950, then it is clear that you can purchase on B and make a saving but the risk is higher. This puts the power back in the users hands.
Another exampleA certain large exchange that we all know recently lost the ability to on and off chain fiat. If you were holding tokens from them and needed cash very quickly, you could liquidate your tokens on the credit market at a price reflected in what people were prepared to pay. Is it worth taking the hit on the credit market, or should you move your assets out through a wallet and deal somewhere else? a Collateralized credit system give you some numeric understanding of how people are pricing this risk, and helps you make informed decisions.
In terms of complex credit offerings (CDO's etc) we don't plan on offering those, our plan is to simply open up the credit market and allow 3rd party providers to offer services they want, as long as they meet the requirements for a TP membership. In terms of junks bonds, CDO's, CDS's and mortgage pools, the credit market dwarfs the equity space, It seems likely that there is at least some potential for that in the crypto space.
Essentially
Regards governance model on credit risk, we want to establish an ecosystem in which credit risk specialists and ratings agencies can flourish and compete, rather than providing those services ourself. Counter party credit risk and amounts of collateral pledged will be a function of the marker rather than standard dictated by the foundation or any central planning body.
openANX would not ff the rating agencies that make the assessment. But the platform would be open to service providers who use data mining and other tools to evaluate credit based on available information. The pricing of these gateway tokens not only also provide a market view on their credits, but also enable a credit holder to decrease his exposure if so desired.
Last part on this point,
The level of collateral posted is up to the gateway. A company with a strong brand and reputation may choose to post very little. Our sovereign entity may choose to most a de minimis amount and rely on their country bond => rating. => ultimately this is about transparency and choice for all participants.
Ultimately we want to implement the function, then let the market decide how to work with it. Going back to our earlier example
Gateway A has a business model that avoids fractional reserves, focuses on good service and a great reputation.
Gateway B focuses on bringing the best pricing and speedy settlement as their model, both of these models can exist, by providing a collateral concept we provider a simple metric for users to comparatively "shop" in these markets.
Hope this answers your question. I'll post the final piece on the tokens shortly.
