IDEX Stakes Hopes On Total Decentralization
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IDEX is launching a new staking feature, allowing traders to generate a passive income by supporting the exchange. Using the AuroraDAO (AURA) token, staking nodes will decentralize part of the trading process, bringing IDEX closer to its goal of total decentralization. Traders, meanwhile, will get another way to generate an income, which isn’t such a bad deal when the market is trading sideways.
The new feature will go live soon, according to the exchange.
One Step Closer To Decentralization
As a hybrid exchange built on the Ethereum network, IDEX gives traders total control of their own private keys and funds, but with a smart contract component that gives the feel of a centralized exchange. For instance, users gain access to fast and easy trades that are sometimes missing with traditional DEXs, but with the added security that the blockchain has to offer.
By logging into the IDEX platform, traders can see a history of trades that have happened on that market. Until now, IDEX has relied on a centralized server to deliver that data, which is also stored in a smart contract on the blockchain. IDEX was one arbiter of truth for what happened there.
With the new staking feature, AURA staking nodes will replicate the information on the blockchain. Now people will connect to IDEX and the history will be served from another node in the network.
Alex Wearn, who is at the helm of Aurora, the creators of IDEX, told Crypto Briefing:
The goal is to take the exchange and move it to a more decentralized network. You won’t have to question whether the information from IDEX is correct because you’ll be getting it from an independent node.
Staking nodes must meet the token requirement to participate, which at the moment is 10,000 AURA tokens (worth approximately $300 at the current market price). Traders who stake and run a node will share 25% of fees collected by the exchange, in proportion to the number of AURA tokens they are staking.
AURA staking nodes are incentivized to tell the truth, considering they must put up collateral and set up nodes. But if anyone attempts to cheat the system, they’ll be punished. “Early on this means banning people from participating for a period of time. As we start to add pieces to staking, the punishment will become more severe and you can lose collateral,” Wearn said.
All Crypto Exchanges Compete
The ability to add this staking feature distinguishes IDEX from the competition, including centralized exchanges like Coinbase. According to Wearn:
Certainly, we look at all exchanges as competitors. For our long-term aspirations, we look at traditional finance as competitors. We see the eventual tokenization of many financial instruments. When that happens, we aim to be a leader in the space.
Coinbase, for instance, can’t support staking because their trade history exists in a database, not a smart contract. Wearn added:
We have a unique competitive advantage, something to attract more customers, traders and market makers. As that grows, liquidity begets liquidity. With AURA staking, traders on IDEX are able to earn fees by operating part of the system, incentivizing them to help it grow. As they trade more, it makes the platform more attractive, and they tell others which increases the value of what they’re doing.
Despite the differences, DEXs have more in common with centralized exchanges than you might think. For instance, IDEX is in the process of adding KYC standards to the platform.
AURA staking nodes bring IDEX closer to 100% decentralization, but there’s another piece to the puzzle. This is the order book itself, which reflects the orders that traders can sell or buy into. The order book is “phase two” of systematic decentralization and presents a “bigger engineering challenge,” Wearn says, one thatwill “come further down the line.”
IDEX boasts more than 250,000 users and daily trading volume of about $3 million – $5 million since launching in October 2017. Like most crypto exchanges, trading volume has fallen since the crypto market peaked, but the number of users hasn’t trailed off by much.
During the New Year, Wearn joked that the one thing he wished for since launching the exchange is a crypto holiday, given the 24/7/365 nature of the industry. When the bull market returns, the chances for such a day seem increasingly slim.
The author is invested in digital assets, but none mentioned in this article.