For those of you that have followed my articles in the past you'll know I'm a big fan of learning about new things and this article will be no different. One of the benefits of taking part in Publish0x writing competitions is that the subject is chosen for you. While it could be easy to sit back and say to myself "I've not got anything to contribute to this subject area", instead I've found it much more rewarding to throw myself headlong at the challenge and really test my ability to learn and share new information with others. With that in mind I'd say to anyone else looking at doing some research into a project, don't be afraid to push yourself.
In this article I plan on taking a look at the DEX Token, from inception, through current developments and ways to get involved, then onto future goals for the project team as laid out in the team's roadmap. Along the way I hope to be able to digest some technical information, from a deeper dive into the whitepapers (see references), and present this in a way that help offer entry-level understanding to the project and the implications for us, the end users. I don't claim at this stage to be an expert in this project since I only really was introduced this two days ago, I do hope however, through my initial research, I can peak your interest enough that you also take a deeper dive.
How it all Began
My first stop for info was I to go straight to CoinGecko just to get some links to relevant resources and reading. However, upon clicking through to the DEXToken site something caught my eye, a link to another site and what seemed like another over arching project: Flowchain. So, I headed over there and sunk my teeth into the whitepaper hoping to be able to understand how we got from A to B.
The whitepaper, co-authored by Flowchain's CEO Jollen Chen, approaches the concept of implementation of distributed ledger technology from the viewpoint of what is termed "Tokenized Hardware". In combination with the 'Internet-of-things' revolution my understanding of this is that tokenized hardware is:
A marrying of both the traditional hardware ownership model, and issuance of digital tokens.
It is proposed by the Flowchain team that a manufacturers could leverage blockchain technology to offer (along with the actual physical hardware item itself) additional non-physical items such as:
- 1. Access the basic cloud service
- 2. After-sales service
- 3. Purchase discount
All of which can be managed by the use of utility tokens utilzing both private and public blockchains. The paper also goes further into this concept to consider the tokenization of digital assets that can be created as a result of tokenized hardware usage. The example given in the paper is a digital camera, where you have ownership of the camera but also the media created using it. This media could then be shared in a P2P manner with others making use of token issuance for access etc.
You may be wondering how far down this rabbit hole we're going to go before we reach a point, we're almost there. From the concepts and applications of tokenization the paper then leads (albeit briefly) into the exchange of digital assets. For this the team propose another token that can be employed as a payment medium a decentralized exchange of assets token or "DEX Token" for short.
From what I can tell, although not in the current form (as we'll see later), Chen et al. first propose the DEX Token and it's purpose as an alternative currency. What this shows us, I believe, is the first layer of their overall goals. In working to develop real-world blockchain application solutions they identify the very real need for universal transactional mediums that bypass traditional financial systems that are managed autonomously on a device level.
Step 1: Tokens as an alternative payment system and tokenization as way of asset management
The Next Episode
With a real-world blockchain solution in mind it appears, at this stage, that Jollen had his head turned by what was going on over in the the crypto-sphere and in particular what was going on with adoption.
Please don't misinterpret the above image, everyone loves a good meme, in reality it appears that Jollen (without forgetting previous ideas) was interested in investigating the one thing we've seen time-and-again that can be consider one of the main stumbling block for adoption, price volatility. Indeed, with the help of Dung-Cheng Lin and Chuan-Hsiang Han, this volatility was explored through the refinement of previously proposed models. During their analysis the team proposed that volatility could be linked with and theoretically curbed by increased adoption and stable token pricing. I'll not go further into this very technical academic paper, I'll be honest I don't understand all of it though I do believe this is where we reach the second of our key points along the path:
Step 2: Volatility is a barrier to adoption, however adoption has the potential (along with stable pricing) to reduce volatility.
The Gold (Bitcoin) Standard
So if you're still with me for this next section I thank you for sticking with it. As we move onto the current direction of the project we can see, from the roadmap, that this was driven predominantly by the recent market surges in consumer interest for DeFi products.
To understand what the Flowchain team were driven by, in tackling the perceived problem with existing decentralized exchanges we should take a look (as an example) at the king of the hill UNISWAP and the concepts of liquidity and slippage.
Liquidity: Liquidity refers to the ease with which an asset, or security, can be converted into ready cash without affecting its market price.
Slippage: Slippage refers to the difference between the expected price of a trade and the price at which the trade is executed. Slippage can occur at any time but is most prevalent during periods of higher volatility when market orders are used. It can also occur when a large order is executed but there isn't enough volume at the chosen price to maintain the current bid/ask spread.
When individuals provide liquidity to UNISWAP (that ol' 50:50 of ratio assets) you're effectively creating pools of tokens by which trades can be executed. Then as trades occur in one direction the number of tokens in that side of the pool are reduced and the other side is increased. There is always enough in the pool to execute the trade but what happens is the conversion rate slips so that you get less bang for your buck as you move in a direction which imbalances the pool.
In the background while setting token prices (based on centralized exchanges) these imbalances, identified as an arbitrages opportunities, can taken advantage of. The third-party can now add 'overpriced' (under-balanced) token to the pool and remove some of the lower valued tokens for trading on a centralized market platform for a profit. This in general helps maintain the stability of the ecosystem but means that it is a reactionary process one that results from spikes in price movements.
I know I did it again! Time to get back on track and away from a fact finding expedition! So the point is this:
Step 3: Price slippage is a product of volatility. Return to balance can be slow.
An Opportunity and Solution
As far as I can tell the Flowchain team identified an opportunity, they saw the current model and how it is spiky and in some cases slow to react when faced with high volumes of one-sided buy order. They noted that adoption and price stability can reduce trading volatility and therefore by rebuilding a model factoring in the following items:
- Circulating Supply
- User Base (adoption)
- Platform productivity
The end result ideally is to have a predictive model that can make accurate price determination and maintain price stability even in the face of high volume or high buy orders, furthermore it should do this in real-time and adjust the price in what is a time ordered 'price tick' fashion.
They also go so far as to adjust the model to allow for consider both deflationary tokens (STA for example) as well as inflationary tokens (BTC for example). "But what about the liquidity?" I hear you say, where do the funds come from. As I understand it it the process of liquidity will work like this:
- Individuals provide asset liquidity to the 'staking pool'
- Someone comes along to trade
- The price predicting model sets the 'reasonable price' taking into account the order size etc and mitigating the slippage
- Arbitrage opportunities open up for bots/individuals and the pools be quickly put back in balance
If you're struggling to see just how different this is from the traditional process you're not alone. The key point though, I believe, is that the actual trade price is set in a predictive way, so rather than slipping too far in one direction or the other the model is considering the implications of the trade on and setting the price appropriately.
Step 4: More robust 'reasonable' price prediction reduces volatility.
How does the DEXG Token Fit in?
This is a good question it is at this point in the process that I began thinking, where does this new token fit in and why is it on UNISWAP. The short answer that I can seem to find is that rather than just building a platform for connecting tokenized hardware, or fixing the price setting models used in current decentralized exchange the Flowchain team have actually also set their sights on creating the perfect token....I feel like they haven't seen BTC (just kidding we all know it isn't perfect).
DEXG is a governance token right? So that means the goal is for the token holders to contribute in a community driven process of voting on proposals and project direction. OK great, they want the community involved, this is always good. But rather than stopping there it sounds like the team didn't just want to just allow folks to buy the token and release a bunch over time through staking rewards...I know, that would be too simplistic. Nope, the rate of release of the DEXG staking rewards would be determined dynamically.
Point is the plan is to release the tokens and ultimately set the final supply based on the ATH value of the tokens as determined by UNISWAP. Think of it as a sliding scale where the team are attempting, a though a series of staking cycles, to find the sweet spot and determine the best number of tokens to release into the wild and in doing so given them the best chance of maintaining future value.
Starting with a potential 200,000 max supply and allowing 10% of this (20,000) to be the initial liquidity offering by which folks can 'buy in'. With the idea behind the final supply reported being:
With higher numbers of ATH and active addresses, the supply will be considerably less.
Noting that we're currently in the second stage of the staking cycles and it looks like this will finish in January 2021, so if you're interested in being involved in this experiment then it maybe worth considering doing it sooner rather than later.
Step 5: Setting the appropriate token supply based on usage can the token a better chance of holding long-term value
So other than the current staking cycles most of the information above is simply ideas. The model is currently a solid concept but is yet to be applied to a real-world solution and the results of the perfect governance token likely wont be seen until we're knees deep in full on financial system meltdown (with COVID-19, this may be sooner than we think). So what are the teams plans for the future.
Well not that....but kinda close. First off the bat they want to provide us with an exchange and token swap system that utilizes the newly determined model. The goal as I see it is to get themselves a nice slice of that decentralized exchange pie that UNISWAP is so rudely hogging.
However if we take a look at the very end of the whitepaper we see there is more on the Flowchain teams mind than just creating a single solution.
Remember back at the beginning we talked about the IoT, it seems this has never been far from the back of the collective hive-mind. Indeed, their self proclaimed vision will be to link up and provide the Flowchain payment system to back the tokenization of hardware (and associated digital assets) as well as providing solutions and products for more general decentralized finance. These are very very wide ranging long-term goals which it will be a pleasure to watch develop over the years, provided there are no more apocalyptic events before then!
Firstly, thank you again for getting this far. That is a massive amount of information on what seemed at first a simple idea but grew into wide reaching ecosystem view of applying decentralized solutions to current and future problems.
What does all of this mean?
To me the team are saying "We have an idea that could change the world" and not "We've had an idea that has changed the world", this is a really important distinction. It means that when you buy into a project like this you are buying into a promise, which in itself is based on trust and ultimately adds risk to the equation. The team have attempted (which I applaud) a 'Gesture of Goodwill' by locking in tokens to establish liquidity and quell, preemptively, any fears of potential pump-and-dump. This is a good sign as it show that the team mean to follow through on their ideas, and why wouldn't they since they are looking to take a slice of a billion dollar industry that is really now only just coming into its own.
I'll be the first to admit, as I look back at all the info, I don't fully see the big picture and I think at this stage it will be very difficult to do so. For me my involvement with the project will likely look like this. I'm be inclined to test the water by buying in a little to go through these staking cycles, if for nothing else it will be interested to participate. For there it is going to be a trust based system, if the Flowchain Foundation can follow through with their goals/milestones and provide us with better more accurate trading/swapping solutions I'd likely use their products and then who know is a few years time I could be linking up my home devices to the Flowchain Web-of-Things and issuing/consuming tokens for for content autonomously. I guess only time will tell.
Anyway, thanks for reading, I hope this rambling essay didn't lose you somewhere along the lines and I hope you got something out of it. Good luck y'all.