Crosswise Finance: Balancing Accountability and Decentralization in DeFi

With extensive experience as an electrical/software/coding engineer along with having a diverse financial background, Thomas Wettermann’s areas of interests include Machine Learning (ML), artificial intelligence (AI), and Financial Technology (FinTech). For the past few years, Thomas Wettermann has focused on the underlying technologies that support and promote all phases of cryptocurrency ecosystems. 

Introduction

According to Block Research, Decentralized Exchanges (DEXs) tallied more than $1 trillion in trading volumes in the year 2021. This represents an unbelievable 860% increase over 2020 DEX trading volumes. And this trend is expected to continue in 2022. Of course, along with such explosive growth, naturally comes a certain amount of growing pains and enhanced accountabilities on the part of these DEXs.

What Is a Decentralized Cryptocurrency Exchange (DEX)?

A “centralized” cryptocurrency exchange (CEX) allows buyers and sellers to exchange cryptocurrencies. CEXs are “centralized” because they rely on a middleman or third party to process and manage buyer and seller transactions. If there is a problem with a transaction or a question regarding a trade, the investor can reach out to CEX customer service.

Not so with a typical DEX.

Unlike a CEX, a “decentralized” exchange (DEX) avoids the third party or middleman altogether. A DEX establishes a buyer-to-seller or a peer-to-peer trading platform that enables the exchange of one type of token (Bitcoin) for another type of token (Ethereum). With a typical DEX, there is no customer service.

Increased Growth Means Increased Responsibilities

There are many advantages of DEXs over CEXs. But along with providing these advantages, DEXs must remain accountable to their existing users, their community, and potential new users.

For example, a DEX must be vigilant in providing a secure, efficient, and scalable trading platform. Given the expected growth of DEXs, this platform must not remain static but dynamically grow and mature as its customer base continues to grow and mature.

Below, a number of DEX challenges are identified where a DEX and its growing community must decide on how they must remain true and responsible to their growing user base.

Security

Security is absolutely paramount for a DEX, especially since a DEX is unregulated. On the one hand, decentralization reduces the security risk of a rogue third party or an external centralized attack. However, in a DEX, each P2P user is responsible for his or her funds and transactions but yet the DEX must still remain responsible for the security of its platform.

With a CEX, there is an organization responsible for the exchange’s operation and one which may be called upon to provide recompense in the event of a breach or exploit. With a DEX, such mechanisms may not be in place, making security more vital. Indeed, DEX security breaches are well documented.

For example, Crosswise Financial experienced a series of exploits earlier this year. Taking its client responsibilities in earnest, Crosswise responded with immediacy. For example, its actions included re-building and scaling a new design team, re-evaluating the entire code base, reimbursing its customers, creating new smart contracts, improvements to mitigate flash loan attacks/deter front-running, and seeking at least two comprehensive code audits.

Through good times and bad, DEX owners need to remain accountable to their users and community. This is exactly how Crosswise has responded to these exploits.

Scalability

The ability to scale and provide acceptable levels of transactions per second is critical to order processing. However, DEXs can be slower than most CEXs since pending trades must first be sent to the network and then verified before they are ultimately processed. These delays oftentimes mean that a DEX can potentially fail to execute a transaction due to changes in the value of the cryptocurrencies exchanged, resulting in “price shifts” or slippage.

But these DEXs must be held accountable to their users in providing a platform that is structured to enhance the speed of transactions but yet one that has been vetted or “battle-tested.” Yes, decentralization is important, but if the DEX cannot offer fast transaction times to its user to secure a timely trade, it will be providing a disservice to users.

For example, DeFi developers are looking for alternatives to Ethereum, which is experiencing some difficulties. Ethereum, once the dominant blockchain with most DeFi developers, is starting to lose its market share dominance. What was once 100% of the DeFi market, Ethereum’s market share has now fallen to around 70%.

Rather than rely on Ethereum, Crosswise has elected to host on the battle-tested and proven Binance Smart Chain (BSC). BSC was initially chosen because of its fully developed and stable platform, low gas fees, high throughput, and rapid block times. Even though it is slower in transaction speeds than some blockchains (e.g., Solana), it has been vetted and is battle-tested.

Once validated, Crosswise will consider implementing Solana, a unique and powerful DEX that is strategically positioned to further erode Ethereum’s DeFi market share.

Ease of Use/User Experience

Working with a DEX has the advantage of no intermediary to process or assist with transactions. However, without a middleman assisting with transactions, there oftentimes is a lack of how a DEX can provide education and enhanced customer support.

This makes it a challenge for DEXs to attract new or novice users/traders who may be familiar with the hand holding of a CEX. So on the one hand, exchanges that are decentralized gain the advantage of enhanced security, while on the other hand, they may struggle with potentially inadequate customer education or customer service and support.

Crosswise has a solution to this customer service challenge.

First, Crosswise uses Quick Swap which utilizes an easy-to-use swap exchange to quickly execute token swaps with the lowest fees and slippage.

In addition, Crosswise also offers Advanced Swap. With this service, users can toggle to an advanced exchange interface to use trading tools like limit orders.

Liquidity/Performance

A DEX will sometimes struggle with its liquidity since, unlike a CEX, its liquidity is dependent upon the number of users actively trading on its platform. Issues related to availability and trade volume make users of the latter prone to low liquidity. Therefore, a DEX is continually challenged to maintain high liquidity while continuing to attract more and more users. But a DEX must be vigilant as to how it maintains its liquidity and not sacrifice its commitment to its users in providing a secure, low-cost trading platform.

One way to draw more users to the platform and increase liquidity is to establish a springboard for new ventures and projects. Some DEXs allow ventures and projects of all shapes and sizes, without any type of vetting process. This can lead to increasing listings and perhaps increased liquidity, but can also become a fertile ground for rug pulls, scams, pump & pulls, and other fraudulent activities.

Crosswise is taking a more judicious approach with its Crosswise Launchpad service. As an additional service to its customers, Crosswise offers a project incubator that allows new projects to raise funds and issue their tokens on the Crosswise exchange. New projects will issue new tokens and these new tokens will help drive up the platform’s liquidity.

But again, attracting new projects is important for Crosswise but Crosswise will do so while maintaining a secure and reliable platform for all its users. Therefore, the Launchpad is not like most DEXs where all new projects will be supported. Rather, in a continuing effort to provide its users with a safe and secure ecosystem, Crosswise will only support tokens that have been fully vetted by Crosswise’s vetting process. Essentially, Crosswise will support new projects but at the same time continue to act as a watchdog on behalf of its community.

Governance

And this community is vitally important to Crosswise’s success. Crosswise seeks an active community, one that can also be held accountable for the ecosystem's actions.

For example, the community will be involved in making important decisions including new token listings, marketing partnerships, platform or rate changes, feature upgrades, and more. Users will be able to submit proposals and put them to a community vote. Voting rights will be based on holdings, but not necessarily in a proportional way. Such an active community will help Crosswise grow in a decentralized manner.

All the views expressed on this site are those of Thomas Wettermann and do not represent the opinions of any entity whatsoever with which Thomas Wettermann has been, is currently, or will be affiliated.

Trading digital financial assets such as cryptocurrencies can carry a high level of risk, and may not be suitable for all investors. Before deciding to invest, purchase, and/or trade cryptocurrency you should carefully consider your investment objectives, level of experience, adversity to risk and volatilities. The possibility exists that you may sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with cryptocurrency trading, and seek advice from a qualified and independent financial advisor.

Thomas Wettermann is not an independent financial advisor. Any opinions, news, research, analyses, prices, or other information contained on this website is provided as general market commentary of Thomas Wettermann, and does not constitute investment advice. Thomas Wettermann will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from the use of or reliance on such information. All opinions expressed on this site are owned by Thomas Wettermann and should never be considered as advice in any form.