Time and time again, we have always been reminded of the weaknesses of centralized exchanges (CEX). While they play an important part in the cryptocurrency ecosystem, the risks associated with using them are far too great of a deal just to ignore. Since the inception of bitcoin and the emergence of blockchain technology, the crypto community has been troubled by the security challenges of CEXs. From the 2014 Mt. Gox hack to the recent Fcoin bankruptcy we are constantly reminded that no exchange is 100% secure. The only way to be truly safe is to never let go of custody of your digital assets.
What happened to FCoin?
To fully understand where the problem lies, let us take a closer look at the recent FCoin insolvency problem. According to Zhang Jian, the former Huobi CTO and founder of Fcoin, the CEX is unable to process users’ withdrawal demands as Fcoin’s asset reserves have fallen short of its liability having a gap between 7,000 to 13,000 bitcoin (BTC). The problem stems from its controversial “Trans-fee mining” business model where it rewards its users for making trades in their exchange. It turns out that they have been rewarding its users more than they should have earned.
Transaction Mining Rewards
Trans-fee mining rewards are distributed to its users via its own native utility token called FT which has seen its price falling continuously throughout 2019. In an effort to save its FT from total collapse Zhang and his management team decided to start buying back FTs from the secondary market, which proved to be a fatal decision. The failure of the CEX to set up a complete back-end auditing system to properly manage its treasury and its failed attempt to artificially increase its token price gave the opportunity to a large number of users to sell and withdraw more than what they should have been on their balance.
This epic failure in accounting and “bad” business decisions forced Fcoin to suspend its entire platform, halting withdrawals and thus effectively cutting the access of users to their own funds, funds that have been entrusted unto them by their customers. While Zhang has promised to personally and manually process users’ withdrawal requests, one would wonder how will he raise enough money to cover the 130 Million USD shortage. Now users are furious about not having access to their own funds and more so with the prospect of having to lose all their funds due to the deficit.
The heart problem of CEX: users lose custody of their assets
This latest controversy highlights one of the primary concerns in using CEXs— having to lose custody of your digital assets. To aggravate the situation CEX usually lump all deposits in few wallets accounts which become honeypots that are often targeted by hackers and also by wayward exchange insiders. Contrary to the CEXs, decentralized exchange (DEX) users don’t need to deposit their digital assets into the exchange address. Their assets sit securely inside their own non-custodial wallets up to the moment when the users themselves initiates and authorizes direct transaction between the DEXs order books and their personal wallet.
The Advantage of DEX
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The power of Decentralized Exchanges are non-custodianship. They give users total control of their digital assets by allowing them to manage by themselves their own private keys and trigger transactions by their own accord. Transactions are initiated and consummated on-chain which means transactions are guaranteed to push-through, final and irreversible. Transaction in DEXs can be likened to bitcoin transactions that are protected and secured by blockchain technology. In many instances, pundits in the industry, including leaders of Centralized Exchanges have acknowledged DEXs as the next evolutionary step in decentralized trading venues.
Concerns on DEX
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Despite its obvious superiority in terms of securing user’s digital assets, they have their own unique challenges. DEX transactions are executed on-chain using specific blockchains, thus limiting the availability of trading pairs that can be created by DEX operators. Since trading pairs are limited, liquidity is also an issue. Another source of concern in using DEXs are the transaction fees associated when using them. Some blockchains charge an exorbitant amount of fees when their network is congested. Lastly, DEXs are bound by the scalability limits of the blockchains they support.
Not all DEXs are created equal, and there are DEXs who are willing to take up the challenge to address prevailing problems and provide solutions that will generate more value for its customers. Newdex is a perfect example of a DEX that is in the right path of advancing decentralized trading by providing vertically integrated products and services that enables its users to fully leverage blockchain technology. Furthermore, it was able to address most of the prevailing challenges in the DEX space. Read on to discover how it was able to do so.
A Perfect Example of A DEX
Newdex is the largest DEX on the EOS blockchain. It does have a user account system which means users are not required to withdraw and deposit their digital asset, hence users take full custody of their assets. Newdex customers never lose custody of their digital assets up to the moment when they trigger a transaction where it then uses the DEX’s smart contract matching and settlement on-chain. This means all transactions made in the DEX are secured leveraging blockchain technology of EOS and other supported blockchain.
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Being the first DEX to deploy on EOS, it has gained a first-mover advantage in the EOS DEX industry. As a result, it was able to garner many high profile partnerships early on enabling them to offer the most comprehensive list of EOS-based token trading pairs. As part of their expansion strategy, Newdex launched TRON blockchain trading as well as supporting the different sister chains of EOS— Bos, Telos, Meetone, Wax, and Lynx. As Newdex continues to explore “multi-chain” functionality on its platform we can expect more trading pairs to appear in the near future.
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Aside from offering “multi-chain” functionality, Newdex also has a cross-chain feature on its platform. Its USDT “cross-chain” conversion gateway allows holders of USDT ETH, USDT EOS and USDT TRON to seamlessly convert their USDT assets to their blockchain of choice. This greatly expands the flexibility of its users to move from one blockchain to another. It may even give us a hint on what other blockchains the Newdex team is planning to expand to as it continues its research and development in multi-chain functionality. “Multi-chain” and “Cross-chain” functionality is Newdex’s answer to the liquidity problem in DEXs.
Scalable, Fast, Transparent and Better Security
Newdex wants to build the safest, fastest and most transparent decentralized trading platform. These are the primary reasons why they built Newdex on highly scalable blockchains like EOS which offers fee-less transactions. Unlike other blockchains EOS (including its sister chains) and TRON enable users to make transactions without having to pay transaction fees. Newdex also offers its users limited daily CPU-less transactions on its platform. The concept is quite simple, each user in the Newdex platform is allowed a limited number of CPU-less transactions daily.
Newdex is truly a class of its own with many innovative solutions putting it well ahead of many DEXs. It currently offers other value-adding services such as its over-the-counter (OTC). It enables its users with a fast and easy way for fiat and digital exchanges, it serves as an effective fiat gateway for those seeking ways to trade crypto using their fiat currency directly. By doing so it captures a wider range of audiences coming from traditional finance as well as breaking down barriers that may hinder newcomers from going into cryptocurrencies.
The Future of Decentralized Trading
DEXs like Newdex are leading the way for decentralized trading. They are indeed more secure trading venues where users are in complete control of their digital assets. Since traders never lose custody of their digital assets they are not exposed to the similar risks that hound Centralized Exchanges such as hacks, exit scams, insolvency, loss of private keys or access restrictions to one’s own digital assets. DEXs are the next evolutionary step on a more inclusive, safer and transparent decentralized trading, and Newdex shows the industry how it is done effectively through its innovative value-added products and services.
If you have not tried decentralized trading before consider looking into Newdex one of the best- decentralized exchanges in the industry offering the widest selection of digital trading pairs in the space and supporting several high-performance blockchains for the best trading experience. If you want to learn more about Newdex you may follow them on their Website, Twitter and Medium.