Below is an article that was written by Dr. Victor Sun, a cryptographic algorithm engineer at DAEX. The text was translated from Mandarin Chinese into English.

It is clear that digital assets are here to stay. With their rapid development and adoption around the world, these virtual commodities have come to represent an entirely new financial paradigm. Compared to their counterparts in the traditional financial sector, whose relatively slow development in turn meant a relatively slow path to widespread adoption, the digital assets market has rapidly exploded in trading volume. However, despite the speed with which digital assets have come to prominence, the lack of robust digital asset trading ecosystems has plunged the industry into chaos. The numerous hacks of exchanges and the resulting loss of their customers’ digital assets, a lack of complete clearing solutions and a lack of trusted custodian institutions have all contributed to this problem. The DAEX project aims to solve all of these issues with a unique, blockchain-based solution.

Drawing on lessons learned from the traditional asset trading industry, the DAEX solution will remove total control from digital asset exchanges by separating digital asset transactions into five basic steps: identity authentication, asset registration, trade matching, asset clearing and asset settlement. While exchanges will still retain their traditional role of matching trades, all other steps will be facilitated by the distributed clearing and settlement ecosystem that DAEX plans to build.

The Clearing Chain, also known as the DAEX Blockchain, is the basic core chain of the DAEX ecosystem. When the system is implemented, the Clearing Chain will store transaction data of all user assets in the ecosystem. This means transactions will be open and transparent, allowing all participants in the ecosystem to witness value. All transactions in the DAEX ecosystem will be completed through the DAEX Wallet. This wallet is capable of storing multiple digital assets.

Before participating in the DAEX clearing ecosystem, users will need to complete an identity authentication process on the Identity Chain. The Identity Chain is essentially a distributed identity authentication center. After authentication, registered users will hold their actual digital assets in the Asset Registration & Custody Center. The Asset Registration & Custody Center will then generate corresponding mapped assets for users in their mapped asset accounts on the Clearing Chain. Users will also be able to convert these mapped assets back into actual digital assets in real time. The Asset Registration & Custody Center is designed based on traditional asset registration and custody institutions, while at the same time keeping the unique nature of digital assets in mind. With its in-built data and personal privacy protection features, the number one priority of this system is and always will be the security of assets in custody.

The personal multi-asset DAEX Wallet will be the sole entry point for individuals to participate in the digital asset clearing process, providing a secure environment for the storage and use of a large number of digital assets. In order to prevent users’ assets from being lost or stolen, the DAEX Wallet will save user keys in segments. Each user’s personal wallet will contain a complete copy of their key, while another copy is split into two segments, which will be stored on the DAEX Wallet server and the custodian institution respectively.

The Clearing Chain uses the ASPoS (Accumulated Signature Proof of Stake) consensus mechanism. In this system, any user can become a regular node on the Clearing Chain and participate in the creation of new blocks. Each node’s stake is calculated based on its deposit amount, participation levels and activity levels. ASPoS uses a VRF function to generate a random source number which is then used in combination with nodes’ stake ratios to select which node will create a new block. The randomness of the source number guarantees the unpredictability of which node will create the next block. This prevents DoS attacks. Each new recognized block must accumulate the signatures of a certain number of nodes and the accumulated stake of these nodes must reach a certain threshold. Nodes will obtain rewards for participating in this block verification process. At the same time, idle and malicious behavior on the part of nodes is also be incorporated into the participation and value factors of the system. This ensures both rewards and punishments are distributed fairly.