Crypto exchanges with leverage are sketchy. BitMEX requires no KYC, has an unofficial kill switch and is already so illegal that they could disappear with all of your money and still have the same amount of GTA wanted stars.
In an Unchained interview today with Laura Shin, Kain Warwick, Founder of Synthetix, had an interesting answer about new features on the exchange. He described upcoming Synthetix futures products as being comparable to BitMEX leveraged perpetual swaps.
“Essentially it (Synthetix) will be a decentralized BitMEX or Derebit or any futures exchange. You’ll be able to take a leveraged position on something like Bitcoin or Eth and open that position and it will be a perpetual future,” said Warwick.
Synthetix has already gained huge traction in the decentralized finance (DeFi) world, with the second most Ethereum locked right next to Maker. Warwick said that people were attracted to Synthetix because it’s the only place where you can exchange Bitcoin for gold, and then back to USD with no slippage.
They aren’t the only decentralized platform hoping to take on BitMEX though. A BitDEX whitepaper was released a few months ago that uses priceless contracts and no centralized oracle. Synthetix still uses a centralized oracle, which determines prices of assets, but has been manipulated by a trader before who created 2 million dollars of debt in the system and had to be bribed to revert the trade.
Warwick mentioned that they are working with Chainlink to resolve some issues that they have had with oracles, but it still will have lag compared to live price, which people will always be able to take advantage of.
DeFi’s biggest disadvantage when it comes to trading features and liquidity. With Synthetix having infinite liquidity, they could be at a huge advantage against competition as long as users are able to short, set stop losses and limit orders. Decentralized exchanges also benefit from having less regulations to comply with because FinCen sees them as a forum to match orders as they don’t hold users funds. This means that they might not need to enforce KYC in the United States.
“If a CVC trading platform only provides a forum where buyers and sellers of CVC post their bids and offers (with or without automatic matching of counterparties), and the parties themselves settle any matched transactions through an outside venue (either through individual wallets or other wallets not hosted by the trading platform), the trading platform does not qualify as a money transmitter under FinCEN regulations.” – FinCen
There is no literature that explains how Synthetix will go about implementing their leveraged perpetual swaps. After we inquired on their Discord, it seems like other people are anxious to read the technicals as well. This may be the first time Synthetix has made a direct comparison and provided a description of plans.
A new eye catching whitepaper has been floating around Twitter recently. BitDEX wants to “build a decentralized BitMEX using priceless financial contracts,” but does the execution live up to its name?
Why do people even want decentralized margin?
Because transactions on decentralized exchanges are matched through an outside venue, (your wallet) FinCEN doesn’t recognize it as a traditional exchange. This means that a protocol can be overcome regulatory scrutiny in the U.S. when it comes to KYC (Know Your Customer) and margin limits.
It’s no question that margin trading is trendy, and Americans feel left out. Right now there are many traders who use VPNs to access crypto exchanges that allow high margin. The dream for those people would be to have access to margin while not feeling like they have to hide.
This obviously isn’t the only appeal to decentralized exchanges, but this project in particular is an example of the demand for access to an exchange like BitMEX.
How would BitDEX work?
“Alice and Bob need to agree on how much margin they each should have. If Alice and Bob agree that they are properly margined, they don’t need a centralized operator to agree with them.”
Basically, the protocol matches two people who want to go long and short for the same amount of money. The two parties then agree upon what type of margin they want to us. If that margin runs out, they will deposit more if they want to stay in the trade, much like BitMEX’s cross leveraging feature.
There is no centralized price feed, so parties margin requirements being maintained are audited by themselves and the system. If one feels like the other isn’t meeting margin requirements, they can dispute it through an oracle. There is a penalty that goes against the losing side of the dispute.
If a trader wanted to close their long position, they would have to enter an offsetting short position. After this, they can close both positions, transferring the party who opposed their long to the original person who had a long position against them. This means that when one party closes a position, it doesn’t mean that they both have to.
Why can’t we just use lending pools?
Right now, there are decentralized margin platforms like dYdX and Fulcrum that are plugged into aggregated liquidity protocols. This is where they have the ability to lend for margin trading and improve liquidity on their pairs.
Even with those features, there isn’t enough liquidity for people trading with thousands of dollars to have a tight spread. Since BitDEX uses priceless financial contracts, as long as someone can find a long to their short, spread will be non-existent. It’s basically an agreement that lets two parties bet and observe the price of an asset from a distance.
With that being said, the ability and frequency of matching orders depends on the usage of that specific protocol. The idea is in an early stage, but it’s nice to see more innovation in the space, and build upon our idea that decentralized margin trading will be there when BitMEX isn’t.
This morning, BitMex doxxed around 30,000 users emails today in a leak. It happened because they forgot to hide addresses while sending messages en mass. There are two reasons that this could end up very bad for those doxxed.
BitMEX just doxxed its users in the most outrageously incompetent way imaginable: forgetting to use blind copy on mass email. Someone must be cleaning out their desk already. https://t.co/KmARzImxnk
— Jake Chervinsky (@jchervinsky) November 1, 2019
The dox will help U.S. regulators go after BitMex
One, is because certain countries are restricted from using BitMex, and apparently, many people are using their fist and last name in their email addresses. U.S. regulators mostly care about BitMex providing access to citizens, and not citizens using the site, but some people might still not want their names associated with a site that’s supposed to be anonymous.
This can also be used as evidence against BitMex, who historically hasn’t made their user base public. Regulators are already investigating BitMex regarding allowing U.S. users on their site, and this will almost definitely be used against them. BitMex is currently located in Hong-Kong, not under U.S. jurisdiction, so they likely have not been forced to give information to U.S. authorities.
It’s easy to match BitMex e-mails with already leaked password databases
Total mails+pass found: 229
Im going to get me a coffee now(15min) and i will start the mass personalized email sending to everyone with a leaked pass.
The leaked passwords i found will be included in the mail for each one of you.
— TheMask (@TheCrypt0Mask) November 1, 2019
Everyone knows that emails and passwords are sold on the darkweb. It’s relevant here because it can be pretty easy for someone who has a database as such match the leaked emails to the leaked ones they own. This means that if someone uses the same password for everything, including their BitMex account, it would grant people with those databases access to their BitMex account and funds.
If someone is able to access a BitMex account this way, they will only be able to change the password if they can also access the email associated with it. Lucky, BitMex only allows withdrawals once per day, and that already happened at 8 a.m. central time.
As long as people aren’t using the same password for their e-mail and bitmex account, they have until 8 a.m. to secure their account and funds.
This week, DDEX released an updated version of their exchange that includes 5x margin and stop limit orders. Because of the additions, DDEX has more trading features than any major decentralized margin platform.
DyDx and Fulcrum are arguably the two most well known margin platforms in the DEX world. What now puts DDEX ahead of them is the ability to use a stop loss and limit order. DyDx allows limit orders on certain pairs, but no stop loss and Fulcrum only allows market orders.
Right now, there are no fees to trade on DDEX, but in the future it looks like there might be .1% taken per transaction. DyDx beats them in this area with no fees whatsoever. BitMex charges .075% for market orders, which is not a significant difference, but still notable.
DDEX is built off of the Hydro protocol which allows centralized platforms to bridge liquidity into the DEX marketplace. Liquidity has always been an issue for DEX trading, especially using leverage. Unfortunately, there is no slippage calculator included on the platform.
Why it matters
The bottom line is stop losses and limit orders are essential features of an exchange that keeps speculative traders from embracing DEX. Leverage on the exchange is still way lower than centralized competition, but respectable in general. In order to use that high of leverage in the U.S. stock market, an account has to qualify for portfolio margin.
Some margin DEX creators have been looking to appeal to market makers who don’t need these types of features. After selling positions to takers, they can use what the capitol that is left to hedge risk using leverage. Their entry is more dependent on when the takers purchased from them than an ideal price.
Decentralized Exchanges haven’t been able to fulfill market makers needs because of the lack of liquidity. Retail traders typically trade with less volume, so finding out how to take them away from centralized exchanges could help DEX’s appeal in the long run.
Scott Winges, Director at DDEX clarified to us on Reddit that the fee may not be .1%.
“We may or may not ever implement the 0.1% trading fee mentioned in the article. The reason we have it designed with the fee crossed out is that our legacy ddex used that trading fee, so we wanted old users to be very aware that there is NO fee now.”