Digitex Futures – Commission-Free, Trustless Futures Exchange
What is Digitex Futures Exchange? We asked Steemit users to tell us! We'll be showcasing work from the nearly 250 article submissions we received from the contest. Thanks so much to all who took part!
We’re always on the look-out for top talent and strong writers who can really explain what Digitex Futures does and how we plan to turn futures trading upside down. This month, we teamed up with popular blockchain-powered content platform Steemit to hold a writing contest.
We asked you to tell us what we do in your own words–and to do it better than anyone else. And we’re pleased to feature the winning article on our blog today. A big thanks to @oivas, who managed to really nail down our essence and receive 322 upvotes on Steemit with his article.
Enjoy the great read and thanks very much for taking an interest in Digitex!
How It All Began
“Futures” as a concept came into being in the financial world to address volatility, especially, in commodities or products that have a prominent surge or dip in prices. As an example, wouldn’t the volatile nature of oil prices surging from USD 40 per barrel last year to USD 70 per barrel in just a few months have driven users to de-risk themselves? The answer is yes, and that’s what companies do.
The aviation industry, in particular, relies on oil prices to price tickets and eventually make profits. Hence they are especially interested in prices being stable or, at least, entering into a futures agreement to get oil at a certain price.
Now imagine an airline company had entered a futures agreement three months back to source oil at USD 40 per barrel. Wouldn’t they be happy that they did so now? Of course, the oil supplier may appear to have lost out, but the fact is that a few months back even the oil supplier would have been worried about oil prices falling further. So, in other words, both the airline and the oil supplier attempted to de-risk themselves. In this case, it worked out better for the airline, but futures can go either way, just like markets.
This instrument of the financial world is so effective that such “futures” agreements are entered into to cover almost all known exchangeable assets. They cover products, commodities, stocks, currencies, and even cryptocurrencies. In fact, the futures contract, from our example of the airline, can be traded too. The contract’s worth increased due to the hike in oil prices. So, there’s a whole lot that can happen in the futures market!
Wins and Losses
There are major gains to be made in the futures market. But there are losses as well. Losses are to be expected of course, but not always in the way outlined above. Plenty of futures traders suffer losses on what could have been profitable trading days because of the hefty commission fees involved in futures trading.
Much like commissions in most agreements involving a third party like an exchange or an agent, futures, too, have commissions to be paid. This makes securing a profit difficult for those trading in futures. For example, if the profit margin is thin, the entire profit can be wiped out just by paying the exchange commission.
So, getting into an actual contract for an underlying product is one thing. But to trade such a contract on the exchange is another entirely. Added to this, futures trading in the crypto-world involves de-risking of not only the high volatility (more than most products in the real world) of the underlying cryptocurrency but also the high commission to be paid.
Taking this into account, futures trading in the crypto-world would be a big no-no for most investors. But what if this scenario could be changed?
What if there were no commissions charged at the exchange at all? Wouldn’t that mean that investors then only had to contend with the fluctuations in the price of the cryptocurrencies alone? Yes. And that would also open the futures market up for more possible profits.
Digitex Futures Is Making This Possible
Digitex Futures is the first Futures Exchange which will have zero trading fees, making it lucrative for traders. Furthermore, it provides security by ensuring that the user balance and other details are held in a decentralized manner through a smart contract on the Ethereum blockchain.
If that wasn’t enough, the governance will also be decentralized, allowing users to decide on how many DGTX tokens to be generated in the future. The exchange proposes to cover commission-fee costs by minting a small amount of its native currency, the DGTX, each year.
And if you thought that “commission-free” was all, there’s a whole lot more to Digitex Futures. Keep reading to find out!
1. Commission-Free Futures Trading
The most obvious and important benefit is the formation of a commission-free exchange. The DGTX token is an ERC-223 compatible token on the Ethereum Blockchain which will be the exchange’s native currency. All traders, therefore, will buy the token for trading. All profits, losses, margin requirements, and account balance will be denominated in DGTX tokens.
In other words, the operational costs of the exchange can be covered by creating new tokens instead of charging transaction fees. In doing so, the commissions on trade can be eliminated.
The entire model enters a closed cycle, as the demand for DGTX tokens increases with more and more traders wanting to join the commission-free futures trading revolution. This, in turn, further allows creating new tokens to fund costs and meet future demand.
2. Hybrid Futures Exchange
The dependence on a decentralized-only exchange or centralized-only exchange has its own challenges. They are explained below:
These are points which have been looked at by the Digitex Team to reach a hybrid model where the benefits of both systems are built-on and the negatives are eliminated.
Digitex Futures, therefore, will provide an intelligent combination of the speed and reliability of centralized servers with the trustless security of decentralized smart contracts.
The Central Matching Engine and Order Book are held on central servers and the exchange interacts with smart contracts to update user details. So, user details like balance, margin liability, profits, and losses are decentralized and under the individual’s control.
The exchange does not have physical control of the funds and hence, no wrong-doing is possible by the exchange, assuring privacy and security.
The Key Advantages of This Are:
- Digitex does not have control of individual funds and hence cannot get involved in nefarious activities, either through external pressure or internal leaks.
- Digitex does not hold private keys and is hence not a hacking target. Neither does it run the risk of giving out individual information, in the unlikely circumstance of being hacked.
- The matching and book orders on the central servers allow real-time trading.
- Scaling up of the central servers with more traders coming in can also be accommodated.
- Only when a user wants to withdraw his or her balance will the smart contract check with central servers, updated balance, and other details. This way, the gas costs, because of the on-chain transaction, can also be reduced.
- The above point is the only potential for a hack, but this is undone by the smart contract computing a person’s trade from scratch for the matched trades and then updating the balance.
3. Decentralized Governance
Much like the account updates on the blockchain, Digitex also brings the governance to the blockchain. New token issuance is managed democratically through rules and voting systems that are built into the smart contracts and enabled by the DGTX token owners.
The Impact of Giving Users Control
The biggest assumption in allowing users and owners of DGTX to control the new token release is that users will act in self-interest, leading to the success of the exchange. It also brings in the added aspect of adaptability as the owners will decide the increase or decrease in token issuance based on market conditions.
The expectation is that users will provide a well-thought-out proposal on issuance of tokens taking care of inflation costs, development and operational costs of the exchange, and additional demand for tokens by new users. It’s this demand by new users that will balance out the temporary decrease in the value of the tokens upon issuance of new ones.
The owners can also decide to delegate their voting power if they are unable to actively participate and vote for the issuance. The delegation can be done by a trusted party who the user believes will act responsibly in taking the correct call on the issuance of tokens.
This, in a nutshell, talks about Digitex as a commission-free Futures Exchange.
Great Concept but Do Users Really Gain from a No-Fee Structure?
This can be only understood if we compare the trades with the existing fees from other exchanges. In the beginning, Digitex will allow for BTC/USD, ETH/USD and LTC/USD futures contracts.
Let’s assume that we have a trader Alex who trades on Digitex Futures Exchange, Cryptofacilites.com and GDAX.com. Similar transactions are done on all three exchanges to reach the computation. The explanation is provided below:
As we can see, the same example of buying BTC has resulted in differing profits (in fact, a loss too) at different exchanges. The aspect of zero–fees is beneficial to the users on the Digitex platform. Not only this, but users should also know that the minimum balance required to trade is the least with Digitex, while the balance is held by the smart contract and not by the exchange.
A Summary of the Features of Digitex Futures
Zero Trading Fees
We’ve already seen the reason for zero trading fees and how it allows traders to profit on the platform. This forms the single biggest advantage of the Digitex Platform.
Decentralized Account Balances
Since the users hold their funds through a smart contract, there is absolute privacy and security in transactions. Besides, all the risks associated with the balance being held by exchanges are mitigated.
One-Click Trading Platform
The Digitex Futures Markets are displayed on an intuitive ladder interface allowing traders to buy and sell with a single click. The idea is to reduce the need for a mouse or keyboard inputs as much as possible to enable faster trading.
Highly Liquid Futures Market
As the commissions are removed, traders will find Digitex as an ideal place to trade for both short-term and long-term. This ensures liquidity in the exchange. Also, added liquidity comes in the form of Automated Market Makers.
Digitex Native Cryptocurrency
We have seen how the use of the DGTX currency allows the exchange to do away with commissions. This is the model which will continue to be used and will ensure the growth of the exchange further.
Token Issuance Revenue Model
As users are involved in the voting of new token issuance, the model automatically forms a great balance of managing inflationary cost, development and operational cost of managing the platform, and meeting demand from new traders with the right quantity of tokens to be issued, ensuring that there is no deterioration in the value of the DGTX tokens.
Large Tick Sizes
The large tick size is a distinctive feature of the Digitex Platform. The tick size defines the minimum price differential that a futures contract can move to. The large size like that of $5 for BTC/USD, ensures that the noise and volatility are handled and the prices are displayed in a user-friendly manner rather than disappearing from the top or bottom.
Automated Market Makers
This is one of the features that enhances the Digitex Exchange’s ability to stay liquid. The market makers are trading algorithms that are programmed to break-even. With 20% of supply available with them along with a really active trading strategy, the market makers ensure liquidity and allow traders to enter and exit easily.
Decentralized Governance by Blockchain
This facility, as we initially discussed, allows the continuity of the Digitex exchange by its users. The continuity stems from the fact that its users will be concerned with their self-interest and hence ensure the success of the Exchange.
Off-Chain Negotiation and On-Chain Settlement
Being a Hybrid Exchange, Digitex builds on centralized trade servers interacting with decentralized trader accounts through the Exchange. This ensures that real-time speed of trading, as well as security of the blockchain, is available to the users.
Bitcoin, Ethereum and Litecoin Futures
Digitex has three futures markets of BTC/USD, ETH/USD and LTC/USD with large tick sizes.
High Leverage Futures Trading
Digitex offers high leverage to traders, nearly 100 times, from relatively small price movements. Also, unlike other exchanges which may cancel a winning trade to protect itself if the counter-party was too highly leveraged, Digitex does not interfere with trade.
Digitex is built on the Erlang/OTP Stack, the same programming language as WhatsApp, so that it can be fast for real-time updates and handle spikes, with little or no latency. The Digitex order matching engine matches trade in less than 1 millisecond and has the ability to scale up to handle potentially millions of concurrent users.
Digitex leverages blockchain for the known advantages of decentralization, storing of balance information through smart contract, and the most important function of governance through the voting of its members.
The key point here is that the balances and other details are in the smart contract and nothing of the user is stored on the exchange. This means that, even in the unlikely scenario of being hacked, the Exchange does not risk giving out user details.
No Auto Deleveraging
Digitex will never cancel out a winning position to protect itself, as most Bitcoin exchanges do. It is not the winning parties’ fault if the counter-party is highly leveraged. This should make it a trustable trustless Exchange.
Digitex from Now into the Future
Unlike the futures market of the real world, the crypto-world is quite nascent in comparison. We are comparing nearly six to eight decades of real-world futures markets with not even half a decade of the crypto-world futures market. This only means that there is a huge potential here and many traders and investors are yet to discover the crypto-world futures exchanges. The good part is that traders at least understand the futures market because of real-world trading.
Now the known issues with the current crypto-exchanges are undone by the Digitex Exchange. The best of all being zero trading fees. This makes the proposition extremely lucrative as even the “real world” hasn’t figured a way to do away with commissions!
So, it’s obvious that user adoption is going to be exponential. In addition, Digitex is already listed on four exchanges, and the adoption of Plasma technology to improve Ethereum’s scaling issues and an innovative governance structure, all point towards its success.
Moreover, the Digitex ICO sold out in just 17 minutes and the price had risen by 272% in August (as per CoinMarketCap). This talks a lot about investors’ mood. If all these developments are to go by then we can expect a rock-solid growth from now into the future.