CRYPTANALYSIS - HOUSE VIEW ON KEY ALTCOINS

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32.DECENTRALIZED EXCHANGES (Published: 26th Jul, 2017)
Overview
Decentralised exchanges (DEX) are one of the most prevailing concepts in these two years. DEX aim to eradicate the role of a centralized authority in case of assets transactions while maintaining safety and privacy at the same time. By manipulating the technology of blockchain, a peer-to-peer network can be formed on those platforms and no registration nor deposit is needed.Privacy is ensured and the possibility of identity theft is removed. People can hold their fund all the time and hacking activities are prevented due to the lack of a central server. DEX is offering another option for investors by taking away the disadvantages of centralized exchanges and providing a safer choice.

(Source: cryptoccompare.com)

Yet, DEX are facing obstacles during their expansions as many of them fail to be user-friendly. The mechanisms are complicated and people who lack the technology background may find it hard to use the platforms, not to mention the one who is completely new to cryptocurrencies.  ‘Safety’ and ‘Privacy’ are the words these DEX used the most to promote their platforms, but those are not powerful as ‘Speed’ and ‘User-friendly’. When considering investment, investors prefer prompt transactions and convenient applications as they have to grasp the opportunities at the right timings. Investors seldom spend time to learn to use a brand new platform when they are already using a great and reputable one. Therefore, DEX like Bitsquare is facing a low volume despite the advanced technology behind. 

Bitsquare
Bitsquare offers a decentralized exchange platform for cryptocurrencies and national currencies transactions. It is safe as it is a P2P network which allows you to hold your fund without depositing into the exchange platform. Hacking activities will be prevented because of the lack of a central server. There is also an arbitrator system for solving trade disputes and the arbitrators can ensure smooth transactions despite the lack of a central authority. Privacy can be secured since registration is not required. All users’ data is encrypted and signed in case of transactions. 
However, there are a few for Bitsquare. Firstly, users must stay online to make the transactions possible. Disconnection will lead to the cancellation of the orders and the trade will never be done. On top of that, advanced features like margin trading is not available on the platform. Also, the problem of chargeback risks is yet to be solved by the platform. Concerning transactions involving national currencies, people can require chargebacks after the trade and the platform fails to provide a resolution to prevent losses of altcoins in this process. Together with other technological terms and complicated arbitration processes, people are kept away from using Bitsquare, which leads to an extremely low transaction volume.

Bitshares
Bitshares shares similar properties with Bitsquare as a DEX. Yet, in case of national currencies and assets like gold, Bitshares proposes the concept of smartcoin and BTS. For smartcoin, it is a cryptocurrency whose value is pegged to another asset like USD and gold. While Smartcoins have their value backed by Bitshares’ core currency BTS, and they are guaranteed to worth at least their face value no matter when. Under this circumstance, the aforementioned chargeback problem can be prevented and this reduces the risks of transactions. BTS is ranked 13th in terms of market capitalization and thus it can assure the value of the smartcoins like USDT. 
However, the trading volume of the platform remains at a low level compared with centralized platforms like Poloniex and Bitfinex. In fact, the decentralized structure of Bitshares somehow delay their decision making processes. The shareholder system of the company shall make their expansion slower. Yet, the platform is growing gradually and a larger volume is expected in the future.

DEX and ICO
Apart from the existing DEX available in the market, many organizations are planning to build their own DEX in the future. Numerous of them are getting their funding from the initial coin offering (ICO), such as the OpenANX, NVO and OmiseGo. They share similar ideas concerning the DEX while having their uniqueness at the same time. For instance, OpenANX calls themselves a semi-decentralized platform, as they think some functions require centralized components to attract traders. To tackle the low trading volume at the beginning stage of the platform, OpenANX will move the original users at ANXPro to the new platform, which ensures the user base at the very beginning. The OpenANX project eventually raised USD$18 M at the ICO and its prototype will be released in the second quarter of next year. Apart from the people’s craze about ICO, we can also observe people’s wishes of having an all-rounded DEX in the future.

Future of DEX in the coming years
The number of DEX in the market is expected to grow rapidly in the near future. On one hand, people start realizing the power of blockchain and are willing to use it in applications, on the other hand, there are more hacking activities recently and people wish for a safe platform to conduct transactions. There are dozens of DEX platforms available now and all of them have a organically growing user base. The founder of Bitsquare Manfred Karrer has also mentioned a growth in successful trades on his platform, with Monero, the euro and the US dollar being the most traded currencies. After some time, those platforms will have larger volume, and more platforms will be presented to the market after their ICO this year. It is expected that there will be a boom in DEX in the coming years and then investors will have more options in the cryptocurrency market.

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