Episode 164- IDEX: The Top Decentralized Crypto Ex

Welcome to Crypto Knights. Will we help you finally make sense of the trending world of cryptocurrencies? So gather your virtual piggy bank and let's get started. Hello, Alex. Welcome back to Crypto Knights. I'm very excited to have you as a guest speaker again on Crypto Knights. So we have been waiting for this because we had an episode with you way back when and when you were

just getting started with iDex and we have seen you grow in many ways successfully now. So welcome back. Thanks. It's great to be here. Really appreciate you. Give me another opportunity to come on the show. Great Alex. So why don't we start off by our audience is getting a little bit about who you want, what your background is and how you came about iDex. My name

is Alex Warren. I'm CEO and one of the co-founders of iDex. Currently the top decentralized exchange on both the Ethereum as well as all across all decentralized exchanges. My background is in software development primarily on the product side. I worked for IBM and their marketing analytics group. Then Stenset Adobe and Amazon as well as a product manager. So came up through the technology but really focused

on that marriage of technology and user experience, which kind of served as the inspiration for what we've created here with iDex, which we think is the most user friendly. We call it a hybrid decentralized exchange. It's really focused on the user experience as well as fun security. How did you come about the idea and can you give us a thumbnail sketch of what has happened, what

are the major events that have happened so far in the life of iDex? Certainly. So it started by looking at the landscape of existing decentralized exchanges. So just to level set it a decentralized exchange goes about the custody problem a little bit differently than your typical cryptocurrency exchange. So if you think about a cryptocurrency exchange, one of the first steps usually is to send your funds

to the exchange in order to trade. That might be a bank wire if you're trying to purchase cryptocurrency or if you're trying to sell cryptocurrency, send to the crypto currency itself. The problem with this is that you've now given custody, you've given control over to that third party. And you're relying on them to keep the cryptocurrency secure throughout the entirety of the transaction. Which as we

continue to see is harder than it would seem and it makes these centralized exchanges a continued kind of target for hackers and thieves. So a decentralized exchange solves this problem by using a blockchain. In this case, a smart contract to manage the custody and trade and settlement of cryptocurrency. So on iDex, when you deposit instead of it going into a wallet that we have the exchange

operators control, it goes into a smart contract that's actually operating. Now this smart contract has limited functions, limited kind of things that can be done with that cryptocurrency. Basically you can withdraw the cryptocurrency or you can trade it for something else. And all of those functions have to be called or authorized by the same wallet that deposited it into the smart contract. So it kind of

diffuses that security risk. And it makes sure that we as exchange operators or any bad actors who can use it, and access to the system don't have access to the funds. The Ethereum network is the one ultimately providing that security. And then it gives the end user the control of the entire process of the positive trading and withdrawing. And what is decentralized or what a decentralized

exchange? So we look at decentralization as a spectrum. So you were asking kind of a little bit about our journey. So the first decentralized exchange is tried to decentralize the entire process, meaning not only the custody of funds, actually depositing and trading via a smart contract, but also the process or the steps of creating orders. So they would create an order and actually write that information

into the blockchain. So that other individuals could look at the blockchain and see what orders were out there. But this was actually a costly and slow way of going about the process because if you need to create an order and then wait for it to get mined. And then you're paying the network to actually tell the world about your order. And too, you have to wait

before anyone can see it and fill it. So that's going to be problematic for really any sort of sophisticated trading strategies. Anything where you're using bots to place and cancel orders as the market moves. So kind of the first innovations were by ether Delta actually to take that process and bring it off the blockchain off chain. So to speak. So you can kind of think of

it as a promise. It says that I'm willing to sell, you know, let's say 10 of these tokens for one ether. And you don't know who's going to be on the other side, but anyone can come along and fill those terms and only those terms of your order. So we looked at this model and now that there were still some drawbacks. Primarily around the coordination of

people can actually be doing that simultaneously. In which case, they're all trying to build the same order. And it's going to be up to the network to determine whose order is successful and whose order fails. In which case, you don't actually get the trade you were trying to match. So this creates race conditions, that many gas work, you will kind of similar to ICOs where people

are trying to get in and be the first there you can actually be the first trying to get the best price order on the books. So we took that piece, the trade matching and kind of dispatched to the network and brought that off chain as well. And that's why we call ourselves a hybrid design. So the two customers that are trying to trade, it will each

sign their side of the trade with their own private key. So that's the critical part that nothing can happen without their explicit authorization. But then instead of one of those two individuals brought gas to the network, that transaction is routed through the exchange so that the exchange can be the one that submits it to the contract. This allows us to coordinate across all of the different

users and ensure that once an order has been kind of marked and filled by an individual that it's pulled from the books and everybody else now sees the next best order. So it kind of enforces that price time priority that's so important for high performance, quality trading experience. While at the same time maintaining the decentralization around custody of funds and trade settlement by using the smart

contract and individual private keys to authorize all transactions. Fantastic. And can you give us an idea about how you have grown since the beginning in terms of pure, can you share some numbers about the number of users, number of trades, total volume, whatever are the numbers that you are allowed to share with the public? So what I just described, I think it's a, it's a company.

It's a complex kind of technical approach, but the benefits to the users just to kind of bring it up a bit are really one, the fund security. So it maintains that security of a decentralized exchange of using a private key, but two, it's fast. So it feels like you're on a centralized exchange because of that coordination piece that the exchange is doing. So you can actually

buy and sell the same markets back and forth immediately because of the way we're cuing transactions and dispatching the food blockchain. We think that usability piece has been critical to our growth. We've actually recently passed over 200,000 users who've signed up and actually done an action on the platform done either of the positive or trade. We're doing anywhere from, I'll call it five to 15 million

of daily volume. It's somewhat a function of the overall market conditions, but we've seen anywhere from, I think our peak volume day was around 27 million daily volume. We have anywhere from 10 to 25,000 trades a day. And we're currently, there's a, a Dex tracker software that's on either scan that tracks the percentage of transactions of each decentralized exchange is operating on the Ethereum network. And

we're anywhere from 81 to 84% of the Dex tracker volume depending on when you look. So there's a couple of the metrics that we like to tell showing kind of our recent success in the market. Very exciting numbers. And so how is the token economy structured, who makes money, how do they make money with these tokens? Because I remember the last time we spoke, you were

describing the token strategy has implementation gone well. So if you can share a little bit about the two token strategy and what is the purpose behind that and how is, who is it benefiting and how? You absolutely right. So we have two tokens that are associated with the platform. The first one is called IDXM. It stands for IDX membership. We actually sold the supply of these.

We sold 1600 of the total supply of 2000 back in December. So that was when we first spoke, right when we were launching this initiative. The IDXM token gives the token holder free trades on the exchange for a limited period of time through the year 2020. So if you were to get one now, it'd be for the next approximately two and a half years. By that,

I mean, very able to trade unlimited number of times, unlimited amounts, and not pay any of the fees to IDX that we normally charge other customers. The goal of this was really to one kind of bring forward revenue, kind of an alternative revenue model. You can imagine it's kind of like your gym membership as opposed to playing per class. You can just pay an upfront fee

and use the facilities all you want. Same analogy. We just hear with the exchange. And then to help jumpstart liquidity and bring kind of loyalty to the platform. So if you have individuals who have essentially prepaid for these services, you're going to be more likely to bring their trade activity to IDX when they're the token that they're looking to trade is available there. Now the second

token we have is called aura, a URA. And this is the token that's going to power the future version of IDX. So as I mentioned, right now, we have the token that's going to be the future version of IDXM. Right now, we call ourselves a hybrid exchange. And that's because we're using the Ethereum network and an Ethereum smart contract for custody of funds and trade settlement.

But we're using an off chain component servers that we as a company own and operate in order to do all of the other parts that coordinate with this smart contract. So the UI, you see all of the backend infrastructure that allows us to serve up orders, trade history, those other components that go into the exchange. So the solution is to take those off chain components and

put them on their own network. So this will be a proof of stake network in which node operators will actually run various components of the IDX platform. And those node operators will need to stake this token or a consensus mechanism to ensure those node operators, actors, actually. And then for the work that they do in running the network, the node operators will get paid a portion

of the trade fees on IDX. And the goal here is really to use token economics for what it does best, which is to coordinate a group of decentralized actors of unknown actors to all kind of move towards the same goal to row the same direction. In this case, the goal being of growth and operation of this decentralized exchange network. The idea of being that kind of

the more volume on the exchange, the better it is for the node operators and traders. A couple of other things just to mention about the oratoken. So the oratoken is the air dropped it on those members who purchased IDX in back in December to get the initial distribution. And then we give out a portion of the remaining supply every month to those who trade on the

platform. And it's given out proportionally based on the amount of volume that you do. The idea being that the more you trade, the more the oratoken rebate you earn, and the more you're able to kind of share the success of the future version of the platform. That makes a lot of sense. So you're kind of rewarding the biggest most loyal members of the community with oratotans.

And orat will power the future of IDX because those people will be able to use the proof of stake consensus mechanism that you have in order to conduct settle the transactions and run the notes. So am I getting that right? Some somewhat. Yeah, that's exactly right. So we're going to be approaching the staking process in pieces, but you can kind of think of it as the

functionality that we do today. We're going to offload onto this network. So that's serving up order history, serving up the order books themselves. And then that coordination process of getting those trades to the network to mine in the correct order. And really, like you said, it's all about rewarding those who participate more heavily and encouraging them to continue to participate in the future. So the more

you trade, the more of these you earn, the more you're able to earn through the staking node operating process. And then hopefully you're incentivized to tell your friends, right, bring bring more liquidity. If you're a market maker, we want you to bring more of your assets over to IDX and make the books deeper and the spreads tighter. Really, how do you incentivize and get that kind

of community owned and operated decentralized exchange, which we think is something novel that we haven't seen yet? I see. So, so who is doing that settlement process right now? So in terms of settling the transactions, that's done by the Ethereum network. And just to clarify, so there's the kind of distinction between our exchange and others has to do with the ordering in which trades are dispatched

to the network. So whenever a trade is matched, it's routed through IDX and dispatched to the network. With what's called, there's part of the transaction that's known as a nonce. And this is basically a number that's assigned to the transaction. And the Ethereum network will ensure that all transactions dispatched from one address, mine in the proper order based on that nonce. So you can imagine if

you have some ether and you used it to buy some tokens and then 30 seconds later you sell those same tokens. Maybe the market moved up a little bit and you want to capture some gains. We will dispatch those transactions in the correct order so that the network makes sure your buy goes through before yourself. So this way the contract always stays aligned with what we've

displayed to users within our database. So in some sense, tell me if I'm getting this right. With the auto tokens, you're making it even more decentralized. Is that kind of where you're heading? That's the exact goal. That's the exact goal. So, you know, today there's still some drawbacks that all decentralized exchanges face. So for example, all of them, and again, this is why I say it's

a spectrum because the centralized exchange is not a thing yet. You know, if any people don't get that, like so they think a decentralization is zero or one. Your centralizer decentralized, I said nothing, there's nothing like that. It's a degree of decentralization. I'm so glad you have your explanation. Go ahead. Exactly. So, for example, on all of these, you access it via a website. That website

is using a DNS lookup. So, for example, my ether wallet had recently an issue where their DNS was hijacked through Amazon, the DNS provider, and routed to a different website. So that's one of the things we want to try to protect with with this new design. Instead of connecting to a website, you'll download a client and that client will connect to a network. So that removes

one attacker vector because you can't intercept someone's traffic between the client and the network. That's just one example of how moving towards this decentralized network helps improve the resiliency of the platform, as well as reduce the opportunity for others to insert themselves into the trading process. So, people will be running nodes. Each node is almost like a mini exchange. It sounds like right. You can, can

I view each node operator as running a mini exchange? It's kind of a way to think about it, right? They're taking turns playing I'd X so to speak. Yeah. And we're, you know, we're currently, you know, we're currently, you know, we're currently running the same node. We're currently, we're thinking that it's going to be rolled out in phases because we kind of look at it as

similar to other level two solutions as the term. The idea is that if you're dealing with either smaller transactions or maybe something that isn't actually writing a change to the main blockchain, then you can have lower security requirements and focus more on speed and throughput. So one example would be the trade history. There's little incentive for someone to try and manipulate the trade history versus trying

to get you to sign an incorrect transaction where you're actually giving them all your funds. Right. So those are two different levels where decentralization on the first point provides, you know, less, I guess, more redundancy. Right. You can have more servers that you're connecting to to make sure there's always someone out there serving you the history, but there's less opportunity for profit for someone to behave

dishonestly in that case. So we kind of think of the different components. So the exchange and how do they have different security requirements when we're kind of approaching this further decentralization of the platform. Great. Makes makes a lot of sense. So the idea is because you're, you're going to be profit sharing with these nodes, right. That's the whole idea. So they'll be an incentive for people

to do a lot of things, plus to earn or are token by trading more frequently on the current platform. And then using those tokens to control or run the nodes because you're probably potentially a profit making entity at the point in time. Yeah. And so we're thinking it's not a profit sharing per se, but more they're providing a service to the network and getting paid by

the platform itself. So you can think of it to something like the Ethereum network where miners are in the future going to be staking their tokens. And for that, they're going to be earning the gas fees paid by those who want to send transactions on that network. Similarly, these people will be staking their oratocons and getting paid by those who want to trade and use that

network to facilitate the trade of tokens. Makes sense. So and they'll be getting a portion of the gas and tie them up. So we're starting with 50% of the fees going to the Stakers. The end goal is to have 100% of the revenue flow back some way to those who are running and operating the platform. We're still trying to figure out the right way to ensure

that there is enough available for the team to continue to develop the software. And this also has some legal components as well. We're kind of exploring how other projects set themselves up. The Ethereum Foundation, for example, that set themselves up. I think they granted themselves some ether which they have been selling over time in order to fund continued development. So it's one model that we might

follow in order to make sure that we have continued funds to continue the software decide in terms of continuing to develop in order to release updates to the network. Got it. That's smart. So that's going to be continuous. You're kind of designing it as you go forward. And are you guys also doing some kind of mini testing to make sure that things pan out as you

intend them to? Absolutely. So we hope to release a prototype here shortly of one of our kind of staking and decentralization components. So we plan to do kind of the gamut of bug bounty. It's to make sure that everything is behaving as expected. And then you're right. We are kind of approaching it in stages. We think there's a couple pieces here. There's the technology component. So

decentralizing the actual operations, there's governance component as well. I do. We eventually just become similar to again the Ethereum of the Bitcoin network. Where we're creating software changes, but there are essentially proposals to the network. And upgrade to. So what does that transition look like? Those are the kind of questions we're trying to answer as we move forward and try to execute on this vision. Okay.

So let's pretend for a minute that somebody listening to this episode and they're thinking what is a path to profit? Right. So somebody let's call him John Smith is listening to this and John besides. Oh, this looks very exciting. I can see this becoming very big. There's a huge potential here for me to collect the revenues by being a part of this network running a node

and all of that. So what is the what are the step by step things that you would recommend John to do from now? Well, I don't want to be giving any any investment advice, but I would say no, I'm glad you brought it up. Yeah, we don't either. And that's a great disclaimer to put in at this time that this is none of this is investment

advice. None of I mean, we are not recommending it. Anything to you. I'm not a registered financial advisor either. Yeah, all the disamous in pace. But the reason I mentioned that is more from a functionality angle. Just think of me as somebody that likes decentralized exchange of water supported and what heck, you know, I want to figure out some some path to profit. There's nothing wrong

with that. But what what would I do now? What would be the steps that I need to follow function? So let's say just keep a close eye on everything we're releasing. So we've been careful so far to not give any requirements in terms of either amount of tokens required to stake or any hardware requirements. We've seen how when other projects give any sort of estimate that's

often latched on to and treated as as dogma or gospel. I think the Ethereum proof of stake ether requirements came from like a comment from Vitalik in a Reddit thread two years ago. Maybe not a year ago and everybody's been told to it since. So with that in mind, I can say that we're trying to make it democratic in the sense that we want. We want

everybody to, you know, to try and be able to participate in this. So that's another reason that we're thinking of the functionality in pieces. Because there may be some things that are easier to do on lower lower end hardware with lower security requirements than in other components. So it may be kind of a stratified system. But I'd say the best way to to know what next

is just to stay up to date on our various medium posts, our blog posts. You can join our discord where we discuss things about the project. And just keep an eye on the developments. We're, you know, trying to communicate frequently with the community and we'll have more information to share soon. So I could technically become a part of my next right now and start trading a

lot so that I can start earning a lot of token, so to speak and prepare myself in some way shape or form to be ready for your more decentralized system and it comes out. It's exactly right. Great. And what is the way forward? Can you, I know you're telling me some, we had a mini discussion before starting this podcast. You're telling me that you had some

things that you had installed for the future. All the things that you can share with us that you're planning to release and any timelines. Yes. So the main focus has really been, like you said, on that further decentralization, getting to the point where it's individual. And then we're going to talk about the tools instead of going to a website, they're downloading a client and connecting directly

to a network that interfaces with all these smart contracts. We're also looking at other smart contract blockchains. So we think that while Ethereum is clearly the leader at the moment, there's a lot of competing platforms that are either just released or in the process of about to be released. We think that we'll see projects. You already have seen some and we'll see projects popping up on

those other platforms and that they're well suited for us. And it's kind of porting our architecture over there. You can think of it as the off chain components are fundamentally the same. They're just interacting with a different blockchain network. A different smart contract, but the end goal being that speed and security that I'd access been known for. But now operating on multiple smart contract platforms. Yeah.

So you actually see operating on multiple platforms simultaneously? Yes. So for the time being, the plan is to have them be separate components within the application. The end goal would be to actually bridge those blockchains together. So there's been a lot of good research on bridges or two way pegs, a couple of different names for them. The basic idea of being, how can you bring assets

from one blockchain and represent them on another. So in this case, you can imagine everything being bridged to one primary smart contract blockchain, all the trading occurring there. So you have that real time trading experience plus the security of the blockchain. When you want to withdraw, that's when it goes back from that smart contract blockchain to the main chain. That could be achieved by either operating

on a specific blockchain or by doing our own side chain, in which case we fork one of these primary technologies and have our own side chain that's kind of dedicated to the trading components of Idaqs. Yeah. That makes sense. I'll ask you this question, Alex. Over the last six months or so, what were the major challenges that you faced? I'm sure there were numerous of them.

But if you were to kind of highlight a couple of the bigger challenges that you've overcame and you're super proud of. And by that, I'm alluding to some of the challenges with gas prices and congestion on the Ethereum network. So, kiddies. This was something before CryptoKiddies came out. We never even thought of, you'd send the transaction off and it would mind a few minutes later. And

then CryptoKiddies came in and changed the game. And now I've said that you had 50,000 ending transactions and we were some of those. And so we had to figure out, you know, how do we optimize? To make sure that transactions continue to get through at a reasonable pace, you know, with our design, your, for example, if you're trying to process it with draw in order to

take advantage of an arbitrage opportunity, that withdrawal might still be dependent on a trade that hasn't yet mind on the blockchain. So we need to make sure that everything moves through pretty quickly so that people can get in and out of Idaqs at a reasonable rate. And so we've had to figure out how to, you know, kind of monitor the network, make sure that things are

moving forward. So we're moving through with the right gas price. If gas prices accelerate faster than we're able to respond to be able to rebroad fast transactions to push them through with a higher gas price so that they continue to mind. So it's been an engineering challenge that was unanticipated before CryptoKiddies, but one of the ones that we're really proud of haven't worked through the games.

Congratulations. So, I mean, I think Ethereum has more crypto transactions per second. Stellar is 15,000 and US is 100,000. I don't know if I got the numbers more. Really light, but to those numbers mean that you will be exploring other alternatives. That's exactly one of the appealing attributes of the alternatives, as you said, right? Is the transaction throughput. So, you know, we hear that there's other

applications that are also waiting for a more high throughput blockchain. So, I think it's a very important thing in order to release their product. And then I think it'll be interesting to learn more about how the charging for the network resources works on these other blockchains as well. Because gas is always a point of confusion with some of our users where they want to know where

this extra fee came from. And we have to explain that, you know, this is the cost to the Ethereum network. And we're just kind of passing it on to our users. But it's the fact that its dynamic makes it challenging to communicate with the network. So, we're just going to communicate in a little harder to understand. Yeah, that's nice. Okay. And how does your... I know

that you talked about how you're planning to make sure that the team remains funded and so on and so forth. But as the founders and as an initial team that gets this whole thing, how does the team make money? So, we charge a transaction fee on all of the trades. So, those fees are currently going back to the company. So, we're able to pay. We're able

to pay developers, R-A-W-S bills, CloudFlair, all of those pieces. In terms of additional compensation, there was as part of the oratoken, some of those were granted to employees and early founders. And then we have a pool that we've reserved for new hires as well. But we want to continue to be able to attract talent to the project in addition to just paying people, you know, a

fair wage for joining the team. And that's, you know, we took a relatively compared to other projects. We took a relatively conservative approach, conservative approach in terms of our token distribution. One of the interesting things is, unlike a traditional startup, and for listeners who aren't familiar, for traditional startups, you generally do multiple rounds of financing. And in each round of financing, you actually create new equity.

And that's the equity that's sold. And you can then pull a piece of that equity and set it aside for new hires such that as you continue to grow, you can grow both. Kind of the size of the company in terms of employees, as well as the pool of equity in terms of granting it to new investors or granting it to new hires. Dealing in this

environment where everyone wants a cap supply of tokens, it's been a little tricky to kind of think through this. You know, how do you both incentivize people today, while keeping an eye towards the future, knowing that this is a, potentially a finite asset. So we've been relatively conservative on that front. Knowing that this, you know, if you do it right, the token and token economics can

be one of the most valuable components of the project and making sure that, like I said earlier, everybody comes together and moves towards the same common goal. Makes sense. So, I think I covered a lot, but are there, are there points I want to miss? Are there some key other key components or key points you want to communicate to the audience? No, I think we had

a great chance to dive into most everything that we're currently working on at the moment. So, if you're interested in learning more, as I mentioned, we have a Discord group. Come check us out. The website is iDex.market. If you'll see links to the Discord there. And if you haven't given it a shot already, please come and trade and let us know what you think. We'd love

to hear your feedback. Fantastic. Thank you very much Alex for joining us again. And we wish you the very best until the next time. Thanks, Colin. Thanks for listening to the Crypto Knights. Never miss an episode. Subscribe now at www.crypto Knights.com. Thanks for watching! lt's gonna be valuable.