An elaboration on the DEX and what it means for us

The APEX DEX is a very interesting and unique feature that has intrigued quite a few community members who understand its potential. We would therefore like to shed more light on how we now, a year into the process, envision the DEX being used in the future. As Richard touched upon in his article the DEX is in principle quite easy to build, but it is also actually an ecosystem in and of its own, with moving parts that create certain challenges when putting it together for real use.

The main challenge is that before we get economies of scale there is no easy way to calculate the exchange ratio between the different enterprise assets. Like Richard alluded to we’d be likely to bump into some problems with the protocol regarding calculation of liquidity pools and exchange ratios of different assets by forcing the process too early. Considering this, we need to bring on a number of enterprises, as well as their ecosystem of users, to be in a position to test this more accurately in practise. As an example, let’s say that the enterprise tokens themselves represent loyalty points for the enterprises. Without actual exchanging of assets between the customer bases of these enterprises, it’s hard to perfect the DEX protocol. It’s a kind of chicken and egg problem, but it can definitely be solved by approaching it from the right angle.

In terms of priority, and considering what we mentioned above, the DEX protocol will naturally come after everything else on the roadmap, to get those moving parts in place first. It would come after the VM and after certain pilots have been completed. Once we have multiple pilots in production mode, it will make more sense to start testing the DEX protocol.

Another aspect regarding the DEX is that it needs to pass the proof of concept stage first. Some other players have tried and failed to execute similar ideas, and thus we will need to prove to the enterprises that we stand out from the rest in being able to actually solve the challenges involved. Regarding the PoC stage, it is likely that the first production use case of the DEX will be on a private blockchain level. This would be one of our enterprise customers that is already using APEX blockchain tech within its own corporation including its subsidiaries. A realistic case that we have already discussed with some enterprises is that they want sub brand and sub companies within the enterprise to be able to interchange their assets, and a case like that would likely be the quickest route to find a corporation willing to pilot the DEX functionality.

For transparency, there are potential regulatory aspects that we need to be aware of and clarify during exploration of DEX use cases as well, and which is currently a grey area without clearly defined rules. Currently, in the greater China region, making loyalty points and similar assets tradeable carries a certain risk of having it fall into the category of financial instruments. This would naturally increase the chance of regulatory scrutiny, and is something we will make sure to stay on the right side of. It’s not much of an issue when providing interchangeability within the same corporation, but cross company and on the open market is a different scenario which requires careful consideration before implementation.

“The DEX opens up a lot more opportunities for the enterprises, and will be among the unique differentiators for APEX Network.”

Our ultimate goal is of course to see the DEX protocol in operation in a public environment. The reasoning behind this is simple: With more interchangeable assets available within the network, we reach economies of scale providing network effects that make it increasingly more valuable. It also opens up a lot more opportunities for the enterprises, and will be among the unique differentiators for APEX Network.

Like we mentioned earlier, once we have around 10–15 enterprises that are extensively using the mainnet, the DEX will be viable because these enterprises are all consumer facing, and the initial geographic regions of the first production use cases are also overlapping. This also means that the consumer base will likely be overlapping to a large extend as well, which is part of the prerequisites for the DEX to make sense. As an example, say you have 10 enterprises live on the mainnet with their own assets and applications. The number of possible different connections that could occur between those assets can be expressed as n(n-1)/2. Achieving the full set of possible connections is not realistic of course, as there will be some companies that are not willing to work with each other. To illustrate this point, some of the companies that are signed up for the pilot are electric car companies. None of these are likely to be willing to swap assets with each other as they are in direct competition with each other. Other enterprises however can derive synergistic effects from engaging with this functionality, and once we have a couple of enterprises live that are willing to work together, the DEX’s use case is viable. What this boils down to is; If we can achieve that milestone in 2020, APEX Network will be one of the blockchains with the most solid real life use cases out there — and in production mode.