Hana Zhang, co-founder of DAEX, took part in a Q&A with delegates of aSSIST Business School (based in Korea) at the DAEX office in Shanghai, China. Hana first presented the DAEX project to the attendees — all of which were entrepreneurs, blockchain experts and professors — who were interested in potential cooperation. Below is a transcript of the Q&A that was translated from Chinese to English.

1. Could Ms. Zhang explain more details on clearing and how important it is for an exchange?

After trading in an exchange, the finance department will conduct financial accounting to ensure that each wallet address can acquire the correct amount of the transfer. This is how they do clearing internally. After clearing, the next process is settlement. The settlement process in digital asset trading is completed on a public blockchain of the cryptocurrency (such as Bitcoin, Ethereum etc.) being traded, whereas in the stock market it is completed by a centralized stock registration and settlement institution. When the settlement of a digital asset takes place on a public blockchain, the process involves mining, and the user sending the transfer will reward a mining fee to the miner as a kind of “salary” for completing the settlement service. The clearing exists after the trade is matched, but before settlement takes place. The goal of DAEX is to separate the custody and clearing processes (finance department functions) away from the centralized exchange entities, so that the assets can be managed by a third-party custodian on a secure blockchain system (DAEX’s public chain). This will serve as a more professional and independent solution for asset management and storage, and will reduce the burden on centralized exchanges who are currently doing this internally. The exchanges who take part in the DAEX ecosystem will have improved efficiency of financial processing, as the clearing will be generated in a more automatic and intelligent way.

The solution will save time for traders using the exchange, whilst protecting the assets belonging to traders and exchanges. This will encourage a revolution in the digital asset trading industry.

2. So how can centralized exchanges solve their current problems?

To solve this problem requires professionalism, which is letting experts apply their expertise. As far as I’m concerned, within two years the “custodian banks” will officially enter the blockchain trading field to undertake the obligation of being a professional asset custodian. However, just like the safes and security systems used by bank nowadays, digital assets also require a specialized “safe and security system”, and DAEX’s distributed clearing solution is a perfect product for this.

3. So how many exchanges does DAEX support? What services are available?

DAEX currently supports five Asia-Pacific based exchanges, including LBank and Seadex, and we will launch the DAEX Cross-Chain Clearing Wallet and the supporting financial and risk control solutions in July. This is the world’s first enterprise-level wallet that will be launched, and it is designed for various exchanges and organizations, as they will be the main users of our wallet. When the DAEX main network comes online, the wallet and exchanges will be able to fully access the DAEX clearing ecosystem. This is when full transparency and security of assets through a clearing public chain will be guaranteed. By the end of 2018, DAEX aims to establish more than 50 exchange partners. They will share the resources and advantages of the clearing ecosystem, with faster transfer rates, lower fees and a safer asset storage system.

4. The technical requirements for a secure exchange is quite high. Will DAEX provide technical and system support to newly established exchanges?

DAEX provides a two-part system for partnered exchanges. The first part is a mapping system for transactions, which is equivalent to the matching transaction mechanism that is a function of the technical department within the exchange. The second part is a wallet and risk control system, which is usually a function served by a financial department in an exchange. Using these support services, exchanges can quickly setup their own system within a month, while ensuring security and high concurrency.

In general, the establishment of such a system would cost a lot in advanced research and development, with the cost amounting to millions to tens of millions or so. Whereas with the support from DAEX, these costs can be significantly reduced, while the liquidity problem that is difficult to break through at an early stage can also be solved by DAEX.

We hope to grow with our partners via the technical support we provide, and we hope to incubate a group of the best and most distinctive exchanges in the industry.

5. In the future, many companies and government sectors are likely to issue digital currencies. How does an exchange weigh the value and stability of a digital currency to be listed?

First, we will have a reviewing committee composed of outsiders and insiders. External members will include law firms, accounting firms, security and code auditing companies. It will also include investment funds, media and public chain communities with the abundant investment experience. The internal members are mainly DD teams, investment managers, partners and shareholders.

The committee will review the following aspects of an exchange:

1. The technology behind the project.

2. The sufficient prospects related to digital currencies from the project side.

3. The background of the project team, including their fields and technical experience.

4. The legality of the entity according to the country and region it is based, including the legal documents provided by law firms.

5. Frequent checks on the project side to determine what exchange the currency will be listed on, including the secondary market performance of the currency.

6. Have you considered expanding into the Korean market?

Yes. First, I want to establish a laboratory with Korean universities with financial technology as our main research direction. For example, how to implement the latest technology into the current industry. Secondly, I want to establish emerging trading markets. If Korea’s policies are ideal and tax revenues are reasonable, I would prefer to establish a legal currency trading market there.

7. In regards of the Korean market and Korean partners, what business opportunities are you most interested in?

I want to establish an exchange in Korea. However, I am still looking for the most suitable partner who would mainly be responsible for the promotion and operation of the exchange, while I provide technical and risk control support. The exchange would support the DAEX Cross-Chain Clearing Wallet and access the clearing ecosystem. I will also work with partners in investment funds to find and invest in local projects in Korea.

8. At present, hackers often attack centralized exchanges, and the interests of investors are damaged consequently. What should be done to safeguard the security of them to the greatest extent?

This requires the partners to work with different departments.

1. To ensure the security of traditional internet technology.

We are now working with many traditional internet security companies such as BugX, Knowsec and other security community companies to ensure a secure environment.

2. To ensure the security at the business and quality level.

With the experience of running exchanges, setting up a reasonable business structure internally is necessary. For example, an independent department of risk control and trading, or putting large amounts of assets in a cold wallet or giving it to a third-party trustworthy custodian.

3. To ensure the security at the contract code level.

By frequently scanning and reviewing internal code, while scanning and reviewing external programmer communities. In case of external risk events and potential risk points, business departments should take immediate measures such as shutting down the trading system etc.