We have decided to build an interface to the decentralized exchange “DutchX” developed by Gnosis. Integrating exchanges in Midas is crucial in order to provide an attractive investment experience. Hence, we want to contribute value to the crypto exchange landscape. We are building an exchange interface that stands out through usability/ease of use and gives our future users a glimpse on our design approach while waiting for the Midas app.

Today’s exchanges: centralized vs. decentralized

The headlines about multimillion dollar thefts on centralized exchanges seem to capture a unsolvable problem in the crypto space. After drastic incidents like Mt.Gox ($400 million stolen in 2014) or Coincheck ($530 million stolen in early 2018), just this week hackers intruded another exchange named Bithumb and stole about $31 million. In the face of these incidents it seems obscure to store decentralization-based values like crypto currencies in a central place and thereby create huge honeypot for thieves.

While decentralized exchanges are appreciated for solving the security issues, their large spread and highly variable prices make them unattractive for many crypto investors. While an order book-based exchange is simply not optimal for illiquid markets, most segments of the overall crypto market can be considered illiquid, at least for the moment. On top of this comes the problem of front-running as miners are more or less free to manipulate the order of transactions on an exchange.

Here comes the DutchX

The decentralized exchange and information market provider Gnosis came up with a new old concept that guarantees security of funds through decentralization while also sorting liquidity and front-running issues. The DutchX is based on the Dutch Auction, a mechanism that has its roots in the 17th century Dutch flower market. The Dutch Auction typically begins with a high asking price and lowers until a participant accepts the price. This mechanism is an efficient way of determining a fair market price for fungible goods.

In case of the DutchX sellers deposit the tokens they want to sell before the start of the auction. When an auction for a token-pairing starts, the initial price falls according to a decreasing function. During the auction, buyers submit their bid at the point in time where the current price reflects their maximum willingness to pay. They can only submit their bids until the auction closes. An auction closes when the price clears the quantity of tokens sold and bought. (If that was too fast just check out this explanatory series about the DutchX by Gnosis)

Why do we get involved

As software for trading and investing in various tokens, the question of which exchanges to integrate is a major topic for Midas. Hence, we want to actively shape the crypto exchange infrastructure and contribute in a way that will bring benefits to Midas users. Focussing on retail investors, we believe that the DutchX comes with a crucial benefit: it guarantees a fair price. While the auction model makes the exchange not instantaneous (funds can’t immediately be withdrawn), which makes fast trading impossible, it is automatically finding a fair price.

Looking at today’s exchange landscape the different options can be confusing. Often, the interfaces are not lucid and non-professional investors have difficulties to understand what’s going on. The Midas mission is to bring usability to the blockchain space. This is how we build the DutchX interface. We build software that is self-explanatory and lets people do what they want: easily exchanging their tokens at the right price.

Ultimately, Midas plans to integrate prediction markets with Gnosis in order to provide a new world of retail assets. The trading of outcome tokens will be hard in the beginning as the markets are likely to start with low liquidity. The DutchX has the potential to become the place for trading prediction market tokens.

Soon, more.