The Battle of DEXs is getting absurd at this point.

Airswap

Kyber

OmegaOne

Ox

Have raised, collectively hundreds of millions of dollars.

Sadly, the hype train hasn’t left the station, but I figured I wanted to work through, for my own justification, why LeverJ shows the most promise. If I’ve learned anything in crypto, it is not who is first or who is loudest, it who actually shows up to the dance with a date or, in this case, who has a working product.

Also, let’s cut this off at the head: I am not a shill. I am not Ian Balina sucking the community dry. I own less than 20 ETH but have enjoyed my purchase of each one of those ETH by saving small amounts from each paycheck. This article is being written mostly for myself to see if I understand LeverJ and to engage in a discussion with the crypto community because this area is probably the most important (especially with the China news) and the most lucrative for whichever team wins!

Moreover, as always, I point out some concerns at the bottom of the article and think these need to be addressed by the team and are definitely items to be thought through over the next month.

What is LeverJ:

A decentralized exchange (a “DEX”) that allows for margin and futures trading for cryptocurrencies.

Unlike other DEXs, LeverJ has two distinctive features: (i) decentralization of the custody of funds and (ii) it will enable margin and futures trading. While I am not big into margin trading, the appeal of futures trading is immense as I have been dying to take long positions on BTC and ETH at various times over the last year.

Also, unlike Airswap or 0x, you also actually get something for having LeverJ’s tokens, called LEV. Instead of a “membership” to participate in the platform or some other random benefit, LEV actually generates something called FEE (which is like GAS/BNB, both of which have independent value and drive the value of the underlying token higher). So, like BNB, if you actually want to trade off the LeverJ platform you can use the FEE you’ve earned to trade or you can trade the FEE itself for LEV and into ETH or whatever crypto you want.

While digging through the thousands of Telegram messages is a pain, below are excerpts of what I found to be the most useful Q&As with the team:

How is LEV different from other DEXs: (Language tweaked for odd spacing and grammar).

“Yes we are in some competition, but we have a differentiated product: leveraged derivatives. Also, we decentralize custody of funds (the most important part of decentralization) while keeping high-computation operations on a central server. So the UX of Leverj will blow away any of these on-chain DEXes”

When will trading open:

“Q1 2018

We will launch on testnet first a month or two after sale. We would like sufficient history of testing and security analysis and audits first. There is some lead time to these things that are out of our control. We will also have bounty programs for folks who test and find issues… so yes before committing users funds, we want to be sure all the ts are crossed i dotted; but testnet should be out much sooner”

Liquidity:

“Good point. ETH/USD is large enough for futures. Most tokens are not designed for trading, let alone for futures trading. In the beginning most token trading is likely to be spot. However, LEV is specifically designed for futures trading and we plan to help new ICOs to design their tokens specifically for futures trading. We have agreements with major blockchain studios to help design their tokens and list them. It’s economic issues that make tokens unsuitable for trading. Gnosis for example, only sold 5% at a very high price. This means the float is so small and held by few people, so it will have poor liquidity.”

Goals:

“We hope to be the NYSE of crypto. We will do that by working very closely with promising, well thought out tokens, guiding their design and making sure trading them is a very smooth experience, which means tight spreads, low or no slippage, etc.”

Comparison v. Airswap re: on-chain matching:

“When you match on-chain, I cant imagine how it could be better than etherdelta. You will have the same problems: You place a buy order, suddenly the network gets congested, the price moves down 20% and your order will be filled at the worst possible price. Back in the day, everything was on-chain. Now many have realized order books on blockchains dont scale and have moved them off0chain but retaining everything else on chain. We are one generation ahead, since we realize that even on-chain matching does not scale. All these protocols work perfectly fine for low speed applications like payment, accounting, id check etc

From Airswap whitepaper: “A cancellation of an order that has already been communicated to a Taker but not yet filled. Called by the Maker of the order. Marks the order as already having been filled on the contract so a subsequent attempt to fill the order will fail. At the successful completion of this function a Canceled event is broadcast to the blockchain.”

Any protocol that requires an on-chain operation to cancel orders is DOA, since 98% of market maker orders are cancelled and the gas cost would make them lose money.”

How can LeverJ prevent the inherent risks of margin trading and having a large percentage of trades overlever and bankrupt themselves (which is why GDAX stopped margin trading)?

“From our work with coinpit, we have mastered precise risk management. We do this by forcing stop orders for every position. Therefore, we do not need an exchange user to take over a losing position. During low liquidity, we terminate a position on the opposing side. We have been running this system since May 2016 without a single systemic risk event.

As far as we know, no one else has this system. This is also why we are the only ones who can do a margin trading thats also non-custodial.”

Will you allow margin trading to US citizens, due to CFTC regulations regarding margin trading, how do you plan to do compliance if you allow margin trading to them?

“We have spoken to CFTC about offering in the US. They have said that there is some appetite for regulations using blockchain. We pioneered provable compliance using blockchain long before it was a thing. We do have to work getting licenses in many jurisdictions, we will start in friendly jurisdictions like Switzerland, Estonia.”

Tangibles:

LeverJ has:

(1) launched an exchange before (known as “Coinpit”),

(2) is already working with strategic partners to ensure the liquidity of the exchange,

(3) is targeting a coordinated effort of not only having a good exchange but also working with ICOs to be tradable, and

(4) has the most communicative team I have ever seen, with Bharath and team spending hours on Telegram answering questions ranging from the most simple ICO-procedure questions to in-depth questions on order matching, the function of decentralized exchanges, and how liquidity will be generated.

Valuation (because people love MOONing) (thanks to the Airswap paper for posting these numbers in an easily digestible format).

The sale (including pre-sale) is for 115,833 ETH (Hard Cap).

At $300/ETH, that’s a $34.8 million floating market cap. The 115.8k ETH represents 40% of all LEV issued, with the rest reserved for liquidity and allocated to founders and strategic partners.

I would like to thank https://medium.com/@intersectionalaf/why-airswap-ast-is-the-best-ico-of-october-whitelist-registration-starts-tomorrow-public-sale-ab5901991e59 for collecting the below information regarding decentralized exchange returns:

WAVES. ICO: 0.00033-.00037 BTC. Current: 0.00128 BTC (3.5–3.9x)

Omisego. ICO: 0.001 ETH. Current: 0.0343 ETH (~34x)

Kyber. ICO: 0.00167 ETH. Current: 0.00644 ETH (~4x)

ZRX. ICO: 0.000167 ETH. Current: 0.00067 ETH (~4x)

A conservative estimate for the valuation of LEV is at least 2.5x over the ICO price. That would give LEV a floating market cap of $86 mil. Compared to:

WAVES: $490 million

OMG: $912 million

Kyber: $264 million

ZRX: $101 million

AST (assuming 2.5x range): 112.5 million

Range: Who knows! But it certainly looks like there is some room for growth especially considering how successful AST has been in just the whitesale and presale phase (and the sale today!).

Concerns:

1. No matter what the team says, liquidity can’t be proven until the exchange is up and running. I would like to know more about the partnerships they say they are engaged in and how those partnerships will provide liquidity to the exchange.

2. With the new regulatory climate, I would like to know, and have statements from the team’s regulatory counsel, about the team’s specific plans for expansion in each jurisdiction and what work has been done and what work is left to do.

3. I would like to know how the team plans on listing coins to trade to ensure liquidity of the tokens while still being an attractive place to come (as a central hub of trading).

4. I found Bharath’s response about how they will avoid a “GDAX situation” less than expansive. Having “master[ed] precise precise risk management” is nice but how will they go about forcing stop orders for every position? This may be my own lack of knowledge about this space but why wouldn’t something that simple have been tried already, e.g. by GDAX? Perhaps there needs to be rules in place providing that no trade larger than X% of the order book will be permitted to be entered into? After all, that is what caused the GDAX flash crash — someone selling something like $21 million of ETH all at once.

5. ICO Process: Bharath, while being very engaged, does not seem to understand the current state of ICOs. The team is wavering on conducting a full KYC process, which, while not necessary, is a good sign. I am not as worried as other succesful ICOs have gone with KYC (AVT, LINK, etc), but it would have been nice. Also, the team has wavered on the amount of contributions for the whitelist. Specifically, it was originally 25 ETH!!! Thankfully, the team seems to be amenable to decreasing that to 1 ETH.

I think there are positives to take away from LevJ but the team needs to improve on its coordinated communication and act as a unified body.

ICO Info:

Whitelist Registration Period: October 10th — November 1st

October 10th — November 1st Tokens Available for Sale: 250,000,000 LEV

250,000,000 LEV Min/Max Contribution Amount: [25–100 ETH]**May be changed

[25–100 ETH]**May be changed Geographic Restriction: Only non-residents of USA and China and sanctioned countries are allowed to take part in the token sale

Only non-residents of USA and China and sanctioned countries are allowed to take part in the token sale Whitelist participants will have access to the sale 3 days before the start of the public sale.

will have access to the sale 3 days before the start of the public sale. Public Sale: November 7. Will run the shorter of 30 days or until sold out.

Resources

LeverJ Whitepaper: https://leverj.io/#whitepaper LeverJ Technical Paper: https://leverj.io/LeverjProtocol.pdf Cited Medium Article: https://medium.com/@intersectionalaf/why-airswap-ast-is-the-best-ico-of-october-whitelist-registration-starts-tomorrow-public-sale-ab5901991e59 LeverJ Telegram: https://t.me/leverj

Hope you enjoyed reading this! I appreciate your donations

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