Investment Thesis:

Ænigma has a bullish outlook on Republic Protocol for three reasons. First, the number of dark pools in the digital asset realm will accelerate as institutional investors enter the market and seek to buy and sell in large blocks. Second, Republic Protocol’s liquidity provider incentive program encourages OTC desks to use the protocol and build dark pools on top of its platform. Third, RenEx, Republic Protocol’s proprietary exchange, is the only dark pool exchange that is both decentralized and possesses the technology to ensure anonymous user identity and order detail at all layers of a transaction.

The use of Shamir’s Secret Sharing algorithm and zero-knowledge proofs creates an environment where only the transacting parties have access to their own identity, order size, and coin pairing. Traders will never have to trust their funds to an exchange, as all transactions are executed by atomic swap after darknodes privately match their orders. Compared to centralized alternatives such as Kraken’s dark pool, Republic Protocol will offer higher coin security with atomic swap architecture, lower fees, lower minimum order size, and more crypto pairings for its users.

Dark pools have played a crucial role in traditional equity markets since the 1980s by giving institutional players a private outlet to trade large blocks while avoiding significant slippage and market impact. In 2016, Cowen ATM estimated that dark pools account for approximately 15.0% of all volume in equity markets, with the average trade approximately 200 shares in size. Compared to equity markets, the nascent crypto market offers little liquidity on lit exchanges and could experience higher demand for OTC trading and dark pools. In fact, the TABB Group recently released a study claiming that the OTC crypto market receives 2–3 times as much bitcoin volume as traditional exchanges. With its decentralized dark pool protocol, Republic Protocol is the first player in the space with the technological infrastructure to address this highly profitable market need.

While Republic Protocol stands as a competitor to established OTC desks, it also has the unique ability to leverage these brokers as liquidity partners. Republic Protocol’s relationship with OTC brokers may comprise any combination of the following: 1) Republic Protocol competes directly with OTC brokers and captures a percentage of their market cap, 2) Republic Protocol partners with OTC brokers to pool liquidity on RenEx and open fiat-to-crypto pairings to new investors, or 3) OTC brokers create their own exchanges using Republic Protocol. Each option is a net positive for Republic Protocol, with options 2) and 3) presenting the largest potential upside. Per its recently announced partnership with Wyre, Republic Protocol has already begun executing strategic alliances with OTC trading desks. Wyre will migrate trading to Republic Protocol as available currency pairs permit. As an added benefit, Wyre will also implement its KYC compliance on RenEx. In return, Wyre will receive a share to be determined of the liquidity partners’ incentive (0.08% of RenEx’s total volume).

Republic Protocol is backed by a lineup of heavy-hitting investors that includes FGB Capital, Polychain Capital, and Kenetic Capital. But its headlining investor is crypto giant Huobi, which this past July launched its own Huobi Cloud platform for OTC desks. These investor partnerships with Republic Protocol could signal an intention to use large block or high frequency trading (HFT) as a source of corporate liquidity in the future. As exchanges on Republic Protocol grow in volume, new OTC brokers will have an incentive to pool liquidity and open additional crypto pairings for their customers.

Investment Catalysts:

Following an impressive testnet, RenEx’s Mainnet Beta launched at the end of September 2018. Republic Protocol’s 200 testnet darknodes earned an estimated $21,700 in fees in just over two months. Republic Protocol has also released an update which significantly lowers gas costs for matching orders.

REN, the Republic Protocol token, has just been listed to Huobi and The Ocean, enhancing its liquidity profile.

After the public mainnet is launched, Republic Protocol will work toward adding compatibility with additional chains such as LTC.

Investment Concerns: