NestEx Crypto Exchange - in BETA

[nestex_one]

Announcing the BETA launch of Nestex at https://trade.nestex.one

We welcome traders, new coins and even miners! Check out our proof of reserves and proof of safety - we ensure our data is backed up every step of the way and want our users to feel secure while they are with us.

(Though you should still withdraw coins to a cold wallet once you're done trading, since #notyourkeysNotyourcoins)


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Original post:

Hi everyone,

We're a startup aiming to setup a crypto exchange that doesn't force users to gamble. Also we'd like to be maybe a bit more transparent about what we do and how we function, so there's genuine trust with our users (sort of taking ideas from the open source movement).

Our core team is multi-regional, and we're still a few steps away from doing a soft launch.

So I won't be making a pitch today. We're asking for inputs and perspectives.

Our thoughts:
0. Of course minimum or zero KYC. While we want to do AML compliance (probably using Chainalysis & Elliptic so the crypto sources are not outright dirty), we also wish to have our users feel safe. Big qn: Jurisdiction??
1. Focus on helping the user keep their money safe by offering positive wealth creation methods... Which means avoiding derivatives, minimizing HFT, providing bot-hosting at our own premises for better bot performance, etc.
2. Also pledging/staking would be there and our trading team would leverage those funds - we won't loan out those funds to derivatives traders as many others do.
3. This means we can also aim to get insurance for those funds, because those are then operational stakes and not simply 'deposits'.
4. We would only do crypto to crypto. No on/off ramping; we might tie up with a ramp service for this but let's see.
5. While we're using cloudflare and crypto-friendly servers, is there anything else we can do to keep things safe? For our users and for us of course.
6. We have a few investors currently, and while they've committed decent funds in both cash and crypto, we're told more funds will be required. Naturally we are putting in 100% of our own crypto and a large chunk of our own cash reserves. The investor's role here would be to give us liquidity for crypto movement and hard cash for the company's operations.
7. There are some liquidity providers we've spoken with, however most of them are very fussy on kyc. We will handle that at our end and ideally not expose our users' kyc at all. There are a few who jump directly to 'show me the money' without any talks on kyc so not sure how genuine they are.

I asked chatgpt about some of these things but the darn thing keeps rambling on and on... sheesh.

Anyways inputs would be greatly appreciated. I may edit this post to to request further inputs.

PS: If you'd like to check out our prelaunch site, its https://nestex.one - happy to receive feedback on the site as well!

Other notes:
- Some of our fees have changed over a period of time, unfortunately it appears we could not adequately function with a 'sell-side-only fee'. The updated fees have been notified on the 'fees' page.
- We have an additional constraint imposed by our legal team, involving high risk users. Situations that would trigger an SAR (Suspicious Activity Reporting) in a KYC'd platform scenario, would in our case result in a platform ban.

[Maslate]

We're a startup aiming to setup a crypto exchange that doesn't force users to gamble.

Could you elaborate on this part further?

[nestex_one]

We're a startup aiming to setup a crypto exchange that doesn't force users to gamble.

Could you elaborate on this part further?

So, the average crypto exchange these days tries to get their user to risk more. To 'play' more, right.

Derivatives (futures/options) is one such, where the potential for loss is as magnificent as the potential upside. Or then new coin offers like on the SOL chain where people end up spending money and maybe a few lucky ones hit an upside.

We're not 'against' any of the above per se, it's just that we'd like to be free of that and stick to a baseline that ensures no loss of principal (if entrusted to us) or minimal loss of principal (if used for spot trading). That's the direction we're thinking in.

Would love to hear your perspective too.

[Maslate]

We're a startup aiming to setup a crypto exchange that doesn't force users to gamble.

Could you elaborate on this part further?

So, the average crypto exchange these days tries to get their user to risk more. To 'play' more, right.

Derivatives (futures/options) is one such, where the potential for loss is as magnificent as the potential upside. Or then new coin offers like on the SOL chain where people end up spending money and maybe a few lucky ones hit an upside.

We're not 'against' any of the above per se, it's just that we'd like to be free of that and stick to a baseline that ensures no loss of principal (if entrusted to us) or minimal loss of principal (if used for spot trading). That's the direction we're thinking in.

Would love to hear your perspective too.

Thanks for the clarification.. However, big exchanges like Binance, Bybit, and KuCoin offer derivatives trading, so it seems like you’re not following the current trend in terms of services. But if that’s the direction you’re aiming for, fair enough. Since your exchange hasn’t launched yet, there’s always the possibility that your focus could shift in the future to align more with market demands.

[nestex_one]

... big exchanges like Binance, Bybit, and KuCoin offer derivatives trading, so it seems like you’re not following the current trend in terms of services. But if that’s the direction you’re aiming for, fair enough. Since your exchange hasn’t launched yet, there’s always the possibility that your focus could shift in the future to align more with market demands.

I won't deny that, it's fair enough as we also aim to run a profitable business. However there are such posts coming up over the past 2-3 years now, after the mainstream exchanges started implementing derivatives and other engagement / attractor gamification methodologies.... And making it accessible at a button click

https://www.reddit.com/r/binance/comments/x4jkof/be_careful_i_lost_my_life_savings_to_binance/

https://www.reddit.com/r/binance/comments/xdc2u5/i_lost_money_even_with_a_stoploss/

Not saying they're bad - but there's a reason derivatives in the stock market are locked behind multiple doors in most places. In our case, our perspective is on the lines that we won't enable it by default....

Ok that apart, any inputs on the other points? Or the queries I'd raised. It would help to have expert opinion which is why we posted here in the first place 🙂

[Upgrade00]

Also we'd like to be maybe a bit more transparent about what we do and how we function, so there's genuine trust with our users (sort of taking ideas from the open source movement).

Can you explain more on this? Do you plan to be open source, decentralized, P2P or a combination of these?

If the answer to the above is yes, how do you plan to combine that with staking which may requires some sort of custody granted to the exchange?

[nestex_one]

Also we'd like to be maybe a bit more transparent about what we do and how we function, so there's genuine trust with our users (sort of taking ideas from the open source movement).

Can you explain more on this? Do you plan to be open source, decentralized, P2P or a combination of these?

If the answer to the above is yes, how do you plan to combine that with staking which may requires some sort of custody granted to the exchange?

Open source is indeed a part of the plan, from a software standpoint. While we don't want to directly engage in P2P, we wanted to explore integrating P2P on/off ramps like bisq or suchlike. Privacy/kyc sensitive ones.

In addition, from a proof of reserves standpoint we were thinking of exposing public keys as a part of the audit. Also the utilization pattern of the staked funds pool would be informed to the user.

You're right that Decentralized trading (p2p crypto transaction) will not exactly fit the staking model; but if there are services that can be decentralized (like with the p2p ramps) we'll try to enable that for some of our users at least. Launchpads or auctions maybe - but this is not part of our initial launch (our investor suggested adding automatic market makers for those on our launchpad). Synthetic assets maybe. cross-exchange swaps maybe. The "maybes" here are things we discussed within our team but we're not completely committed to that path so it's not on our list of promises.

There are more features we're thinking though. For the first launch it'll be a simple spot CEX, but even in that we'd like to offer prospective users the option to 'pledge' without actually making an immediate payment - as a trust offering where we take the liability of the user's commitment prelaunch

Thanks for helping us identify potential holes in the thought process! I mean that's kinda what we're here for 😅

[Darker45]

So, which is which, minimum or zero KYC? Minimum and zero aren't synonymous. Asking for complete name and contact number is minimal KYC. But that isn't zero. I'm clarifying because your preference is actually to comply with AML regulations. Do you agree with Chainalysis and Elliptic's arbitrary labelling of the cleanliness of coins?

Your focus is on helping users "keep their money safe"? Well, in the first place, yours is an exchange, not a cold wallet. But more than that, how is "our trading team would leverage those funds" a method of keeping your users' money safe?

[nestex_one]

So, which is which, minimum or zero KYC? Minimum and zero aren't synonymous. Asking for complete name and contact number is minimal KYC. But that isn't zero. I'm clarifying because your preference is actually to comply with AML regulations. Do you agree with Chainalysis and Elliptic's arbitrary labelling of the cleanliness of coins?

Your focus is on helping users "keep their money safe"? Well, in the first place, yours is an exchange, not a cold wallet. But more than that, how is "our trading team would leverage those funds" a method of keeping your users' money safe?

Objectively we want zero kyc. However we will end up asking for information / getting information from a client which relates to their existance, for example wallets they deposit money from, or maybe a name during support interactions. Definitely an email ID or a phone number for 2FA. And that's why we're saying minimum. There is a regulatory risk for larger one-off transactions which we bear, so for 5BTC+ transactions we may need to perform additional KYC.

This is a *maybe* and it's something highlighted to us by our lawyer. As I said zero kyc is our intent. Again analyzing the origin / destination public key would also qualify as 'knowing' your customer (technically KYT but there is customer path info revealed onchain like fund path etc).

Screening using chainalysis/elliptic: It's not perfect but we need to try and keep ourselves safe as well 🤷

Chainalysis: They give a SANCTIONED / NOT SANCTIONED flag. It's not a 'cleanness' flag as you say - its like that wallet is marked as outright dangerous...
Elliptic: They also give details about WHY the sanction was placed. It's pretty detailed actually...


"Keeping their money safe": There are 2 ways we want to do this:
1. crypto insurance, something like Canopius. Assets held in our hands would be insured. There are legalese around this that we're yet to work through.
2. users' deposits become part of the exchange's liquidity on any exchange. beyond that if the exchange needs to aim for some returns, the funds need to be used in some manner. we plan to run bots that focus on zero loss and a floating return. scalping or arbitrage or suchlike. Here's an actual snap of one of our bots in operation - https://twitter.com/NestEx_one/status/1864061131163390222 - it's basically a scalper type bot, but generates some cashflow.

No we're not a cold wallet, we're an exchange. The way in which we keep the user's crypto safe would naturally be different given that... However your point is well taken, as an exchange we should also perhaps aim for 'profit' and not 'status quo'. We'll discuss this and add our learnings to the action plan.

Thanks! Let me know if I've addressed everything

[examplens]

"Keeping their money safe": There are 2 ways we want to do this:
1. crypto insurance, something like Canopius. Assets held in our hands would be insured. There are legalese around this that we're yet to work through.
2. users' deposits become part of the exchange's liquidity on any exchange. beyond that if the exchange needs to aim for some returns, the funds need to be used in some manner. we plan to run bots that focus on zero loss and a floating return. scalping or arbitrage or suchlike. Here's an actual snap of one of our bots in operation - https://twitter.com/NestEx_one/status/1864061131163390222 - it's basically a scalper type bot, but generates some cashflow.

You explain everything quite vaguely, but as far as I understand, the idea is an exchange that will have some kind of bots in charge of protecting user funds. I'm not sure this seems convincing to me.

Also, the examples you cite refer to someone who was careless and took additional risks. Like taking care of a gambler who gambled away everything and blamed it on the casino.

[nestex_one]

You explain everything quite vaguely, but as far as I understand, the idea is an exchange that will have some kind of bots in charge of protecting user funds. I'm not sure this seems convincing to me.

Also, the examples you cite refer to someone who was careless and took additional risks. Like taking care of a gambler who gambled away everything and blamed it on the casino.

Hi thanks for taking the time!

I agree there are some things that were vague.... My responses are only vague when it comes to the points we don't have complete clarity on. Which is why we're here asking for feedback.

Things that were NOT vague:
- no KYC up to 5BTC and our intention to extend that to larger values
- the fact that we're privacy sensitive, for our users and ourselves both
- the fact that we're building a CEX (have built, and are testing during the prelaunch)
- the fact that we're starting with Spot trading
- that we're charging fees on sell only, not on buy
- the fact that we're doing crypto-to-crypto only, no fiat
- the commitment from our investors and the founders (which is also noted on the POR page of the site)
- the AML part with chainalysis and elliptic
- the fact that we're asking for a pledge and not a payment at pre-launch
- that we have a lawyer with crypto & financial services domain knowledge
... so that's the core of our offering anyways. The other points on which my responses were vague are ones where we don't have a finalized answer, but I think I've addressed how we aim to cover those? Let me know if I've missed anything or left anything un-addressed.

Do you know of any exchange that does not use bots? I'm unclear why that point would be a cause of concern. Outsourcing liquidity would also involve automation as would many other things.

[nestex_one]

Also, the examples you cite refer to someone who was careless and took additional risks. Like taking care of a gambler who gambled away everything and blamed it on the casino.

The examples, yes. The examples I cite are of exchanges that glorify the things they know are gambling to encourage profit. I'm not saying they're bad but I'm saying we'll take a different approach.

Whether the user (gambler?) blames them or not isn't the concern here. The point is that the same user may blame our exchange as being boring - but we will focus on a conservative path.

As @Maslate pointed out earlier we may at some later point of time add derivatives etc. However I believe firmly that we don't make that a hyped mainstream product that targets all our users.

[terrific]

Our thoughts:
0. Of course minimum or zero KYC. While we want to do AML compliance (probably using Chainalysis & Elliptic so the crypto sources are not outright dirty), we also wish to have our users feel safe. Big qn: Jurisdiction??

Even if you'll want to implement zero KYC, you'll still be asked by the regulators to do your own part by asking your users to start doing compliance with their identity. I hate to admit it but the days for having zero kyc is about to be gone anytime soon. We still have some exchanges that don't ask with that but that's the direction where everyone is headed. So, no matter what happens if ever you'll be able to make to the top and manage to stick onto that rule into having zero kyc, that's gonna be a great consistency for you guys.

[nestex_one]

Our thoughts:
0. Of course minimum or zero KYC. While we want to do AML compliance (probably using Chainalysis & Elliptic so the crypto sources are not outright dirty), we also wish to have our users feel safe. Big qn: Jurisdiction??

Even if you'll want to implement zero KYC, you'll still be asked by the regulators to do your own part by asking your users to start doing compliance with their identity. I hate to admit it but the days for having zero kyc is about to be gone anytime soon. We still have some exchanges that don't ask with that but that's the direction where everyone is headed. So, no matter what happens if ever you'll be able to make to the top and manage to stick onto that rule into having zero kyc, that's gonna be a great consistency for you guys.

Thanks! You're right that the AML will keep changing depending on global/regulatory cues.

Currently our lawyer will identify jurisdictions (in the coming week, we have a call on the 10th) that can be adaptive about small value kyc as long as
1. volume is below a certain threshold
2. the sending wallets are not outright blacklisted
3. we report any issues immediately (not too complicated, but they've not said what happens IF there's a problem)
4. we do periodic compliance reporting (which is easy enough if the data is in the system)

For 5+ BTC I don't think it'll be possible without sans KYC anywhere, and if the sending wallets are blacklisted it's going to be crazy.

btw - just noticed - it says you're 'terrific' 🤭 (sorry couldn't resist that)

gambler who gambled away everything and blamed it on the casino.

https://twitter.com/BTCTN/status/1864803075203977338

1.08 Billion USD was lost in a gamble by these gamblers yesterday. Of course it's true they only have themselves to blame, but there will also be people in that list that will go into debt because of this. I know that's how the thing is, so just sharing because it resonates with this topic

[moderator's note: consecutive posts merged]

[hugeblack]

Without having a reserve balance from which to make the swap, you cannot set low AML/KYC requirements or even not/request data from users.
Therefore, if you do not have a reserve balance, it is better to provide a free AML check service and make the service low-KYC service.
The most important thing now is the fees, the exchange rate, the speed of the support team's response and promises of the possibility of refund if the deposit is high-risk.

[Botnake]

So, which is which, minimum or zero KYC? Minimum and zero aren't synonymous.

I don’t think there’s such a thing as “minimum KYC.” When an exchange acquires a license, the rules for KYC procedures are very specific. It’s unlikely that a license provider would allow one exchange to implement minimum KYC while being strict with others. The implementation of KYC is typically uniform across the board. That’s why I doubt that exchanges claiming to have “minimum” or “zero” KYC truly mean it. It’s more likely just a marketing tactic, as they still need to comply with regulations.

[nestex_one]

Without having a reserve balance from which to make the swap, you cannot set low AML/KYC requirements or even not/request data from users.
Therefore, if you do not have a reserve balance, it is better to provide a free AML check service and make the service low-KYC service.
The most important thing now is the fees, the exchange rate, the speed of the support team's response and promises of the possibility of refund if the deposit is high-risk.

reserve balance - point duly noted. I will bring this up in my discussions with the team during the week. We had planned for some reserves but it's around ~10BTC (founders liquidity) at present which I think is far from enough.

fees:
- deposit fees: none
- withdrawal fees: 20% of the transfer fee (so if the transfer fee is 100 sats we will retain 120 sats)
- joinmarket fees: this may be expensive around 0.5% of the withdrawal value over and above the regular withdrawal fees

- trading fees: none for the 'buy' side, 0.05% - 0.15% for the sell side depending on the liquidity provider for the order

- speed of team's response: I wanted to do a live chat / telegram / realtime, but our lawyer says using a support ticket system is better. weighing pros and cons. If we disagree I will likely defer to the lawyer and only offer live chat for some kind of premium user (i.e. where users pay a monthly live support fee)

- refundability of high-risk deposits: our lawyer has said high-risk and blacklisted deposits should be frozen and the concerned party told to connect with the designated legal counsel.

QN to everyone reading: Does this kind of AML thing happen often? Has anyone come across a situation where your btc was known to be clean but got flagged by chainalysis or elliptic? Reddit and this forum both have mixed perspectives

So, which is which, minimum or zero KYC? Minimum and zero aren't synonymous.

I don’t think there’s such a thing as “minimum KYC.” When an exchange acquires a license, the rules for KYC procedures are very specific. It’s unlikely that a license provider would allow one exchange to implement minimum KYC while being strict with others. The implementation of KYC is typically uniform across the board. That’s why I doubt that exchanges claiming to have “minimum” or “zero” KYC truly mean it. It’s more likely just a marketing tactic, as they still need to comply with regulations.

So the licensing methodology seems to vary a lot across jurisdictions. Some require customer onboarding KYC (before they add money), some require KYC when fiat is first touched, some need the KYC documents only if there's a problem (but they say we need to collect it else if they audit and find we don't have the documents we're in trouble).

As I mentioned earlier in the thread this is an expression of our INTENT, but I do see where you're coming from. It can be written off as marketing, can't complain about that.

Our lawyer has committed to removing this ambiguity in our talk in the coming week. I will post the excepts here.

[joniboini]

- withdrawal fees: 20% of the transfer fee (so if the transfer fee is 100 sats we will retain 120 sats)

Are you processing each withdrawal individually, or will you process it in batches? Which transfer fees will you use to determine the fees? Will this affect how fast or slow the withdrawal process will be?

Based on my experience dealing with exchanges, most of them process withdrawals in batches. I'm happy to get a cheaper BTC withdrawal instead of the usual 0.0005 BTC withdrawal.

[nestex_one]

- withdrawal fees: 20% of the transfer fee (so if the transfer fee is 100 sats we will retain 120 sats)

Are you processing each withdrawal individually, or will you process it in batches? Which transfer fees will you use to determine the fees? Will this affect how fast or slow the withdrawal process will be?

Based on my experience dealing with exchanges, most of them process withdrawals in batches. I'm happy to get a cheaper BTC withdrawal instead of the usual 0.0005 BTC withdrawal.

Batching: Yes we'll batch transfers. It's cheaper that way. Also since the fees are congestion based we'll aim for a time congestion is low, or send it after checking the congestion on mempool.space

Speed: It won't be instant. There will be an option for urgent withdrawals which will be charged a premium, but otherwise it will be a bit on the slower side.
 - Also, since we're offering coinjoins at withdrawal there may be a speed + cost penalty with that option

Also using Segwit is cheaper so not sure if that's affecting your fee? Many people use legacy instead and just grin & bear the higher fees....

[terrific]

Our thoughts:
0. Of course minimum or zero KYC. While we want to do AML compliance (probably using Chainalysis & Elliptic so the crypto sources are not outright dirty), we also wish to have our users feel safe. Big qn: Jurisdiction??

Even if you'll want to implement zero KYC, you'll still be asked by the regulators to do your own part by asking your users to start doing compliance with their identity. I hate to admit it but the days for having zero kyc is about to be gone anytime soon. We still have some exchanges that don't ask with that but that's the direction where everyone is headed. So, no matter what happens if ever you'll be able to make to the top and manage to stick onto that rule into having zero kyc, that's gonna be a great consistency for you guys.

Thanks! You're right that the AML will keep changing depending on global/regulatory cues.

Currently our lawyer will identify jurisdictions (in the coming week, we have a call on the 10th) that can be adaptive about small value kyc as long as
1. volume is below a certain threshold
2. the sending wallets are not outright blacklisted
3. we report any issues immediately (not too complicated, but they've not said what happens IF there's a problem)
4. we do periodic compliance reporting (which is easy enough if the data is in the system)

For 5+ BTC I don't think it'll be possible without sans KYC anywhere, and if the sending wallets are blacklisted it's going to be crazy.

btw - just noticed - it says you're 'terrific' 🤭 (sorry couldn't resist that)

Haha, thanks for noticing my username. 
That's my thought about exchanges that want to fully implement zero kyc. I mean, it's very optimistic and helpful to everyone but we cannot stop the regulators into pursuing what they want to place upon you guys, the exchanges. They cannot resist that and so you have to obey whatever rules they tell you to do.