SWITCHEO EXCHANGE: WHAT IS IT AND HOW DOES IT WORK?
One of the long-standing issues of concern in the cryptocurrency world is the fact that cryptocurrency exchanges are not decentralised. While the entire crypto community aims for varying degrees of decentralisation and “giving the power to the people”, when it comes to platforms that are responsible for connecting the supply and demand of cryptocurrencies, the power is not exactly where it was originally envisioned by Satoshi.
There are numerous advantages that come with using decentralised exchanges:
Anonymity: your information is not stored on a centralised exchange server, which means you can retain it. There is also no risk of that data being compromised in the event of a hack.
Fair: A major issue with centralised exchanges is price manipulation. Many times we hear how an exchange is using bots or insider trading to control prices. Binance has been accused of this quite a bit; recently a post was made on Reddit claiming how the entire crypto market is the result of insider trading. While this is (probably) not true, a centralised exchange can manipulate markets. Decentralised exchanges have no insider information and therefore it is impossible to manipulate trading on them.
There is no single point of failure: The network does not support a centralised system of nodes. Instead, nodes are spread around the world and if one of those nodes goes down, there are many waiting in line to take over its functions.
Availability: Anyone, anywhere, anytime can access the exchange and use its services.
Immediate listing of tokens: In a centralised model, the tokens a user receives during an ICO are not immediately tradable, as exchanges must list them first. With decentralised exchanges it is possible to exchange your tokens immediately.
Ease of transfer: Centralised exchanges suffer from inability to offer microtransaction services to their users, as the fees are simply too high. A decentralised exchange allows users to trade at much lower fees, as there are no costs associated with storing and securing user funds.
Performance: Centralised exchanges act as a natural bottleneck, sometimes causing slowdowns in performance. The problems experienced by these exchanges with customer service and transaction times are well noted and even industry “flagships” such as Coinbase could not avoid them. Decentralised exchanges will bring better performance.
The topic has been talked about for a long time and, as a result, a number of decentralised exchanges have hit the markets. One such exchange is Switcheo.
Switcheo is a decentralised exchange (DEX) built on the NEO platform that allows the exchange of NEP-5 tokens. Its addition will be welcome, as NEO and NEO-based tokens are not exchanged in many places. The reasons for this can be explained by a general lack of trust in Chinese tokens, which is where NEO is being developed from, and by the fact that much of what NEO is doing is reminiscent of Ethereum. Switcheo follows a similar formula of copying Ethereum and implementing competitors’ best solutions on its own network. Similar exchanges (namely EtherDelta and Radar Relay) have been built for Ethereum’s ERC tokens and Switcheo has a lot in common with them.
A big problem with centralised exchanges is the security of user funds. These are generally stored in centralised locations that are prone to a single point of failure, in case the exchange servers are breached or the exchange’s private keys are lost. These failures are completely beyond the control of the individual user who deposited the funds. You are forced to trust the exchange to behave rationally and carefully with your funds. Switcheo Exchange will allow its users to trade securely by allowing them to maintain control over their tokens at all times. Based on NEO smart contracts, Switcheo will only carry out the trade settlement part of a transaction. This means that the responsibility for your funds will be in your hands alone; situations like Mt. Gox or the more recent hack of a Bitgrail, another large centralised exchange simply cannot happen.
While DEXs clearly offer many upgrades over centralised exchanges, such as security and control of funds, immediate token listing, lower fees, etc., Switcheo aims to overcome the shortcomings of existing DEXs:
DEX are currently experiencing a lot of problems related to order errors, incorrect operations and wrong clicks are the hallmarks that can negatively affect the user experience. The team behind Switcheo believes that their well thought out UI and UX can help with this. Switcheo’s DEX allows for partial filling of offers, automatic retrying of failed orders and batch processing of orders within a single transaction. Therefore, the customer can maintain control while within the constraints of the smart contract, providing the experience of a traditional exchange without delegating any key components (such as order matching) to an off-chain service where unseen shenanigans can occur, thus compromising the integrity of the entire exchange. However, this means that if any errors occur, users cannot blame the exchange and are forced to take responsibility for their actions.
Table of contents:
Smart contract security
Switcheo ICO details
Smart contract security
The security of a DEX is only as good as the security of the smart contract behind it. The Switcheo team plans to run an aggressive bug bounty campaign for a minimum of 2 weeks in addition to external audits, to minimise the possibility of critical errors in your smart contract.
As KYC/AML laws and requirements have become an industry standard in addition to securities trading regulations, the Switcheo team will implement D-KYC whitelisting on its exchange so that users can trade on it in compliance with all relevant legislations.
The funds that Switcheo raises during their ICO will mainly be channelled into marketing campaigns and partnerships. Hopefully, this should help them overcome the problem of low liquidity/exchange volume by building a credible and strong brand and market presence.
As expected, Switcheo is built on the NEO platform and wants to create a decentralised trading solution that is expected to attract a lot of attention from NEO owners and enthusiasts. The purpose of this project is to manage the entire trading experience on-chain, which should provide a similar experience to centralised exchanges without the need to rely on third parties.
Trading fees in Switcheo are set between 0% and 0.5% for both market makers and takers, depending on specific market conditions. If this structure is maintained it will obviously be more than fair than those charged by some centralised entities.
Like Binance and Kucoin, Switcheo Network has its own token. The Switcheo Token is a NEP-5 token built on the NEO blockchain and was launched during a public sale held on 16 March 2018. This token will be used for cross-chain exchange and will be used as a “gas” for all transactions on the network. There will also be an additional base trading pair linked to SWH, which should improve its overall liquidity. Using the SWH token for trading will come with a 50% discount on fees.
The coinmarketcap data looks very mediocre, but some sources suggest that there is a circulating public supply of 750 million Switcheo tokens (listed under the token SWH), with a total supply of 1 billion tokens. That is a very high supply that could result in the price of the token being somewhat lower. However, if the exchange picks up in user base and activity, expect the utility and token price to follow suit.
SWITCHEO ICO DETAILS
The data on this ICO is all over the place. Some sources claim that only 10% was available during the token sale, others report numbers as high as 20%. The price of SWH tokens was set at a rate of around 1 SWH = 0.016 USD.
The worrying part is that a very high amount of tokens were reserved for strategic partnerships and the Switcheo team. One wonders how an exchange that prides itself on offering a decentralised service can be so centralised when it comes to its funding.
Once the ICO ended, all suitable nep-5 coins were automatically listed in this trading protocol. This was achieved through Switcheo’s Dynamic Call function. Whether or not the inclusion of ICO tokens in a decentralised exchange so quickly is a good idea is yet to be determined. Currently Switcheo does not offer any non-NEO tokens; however, they plan to expand their coin palette, initially with Qtum-based tokens and later with unspecified ones.
The support section of their website is very poor and offers very little instruction or data. It focuses mainly on how to create a proper NEO wallet and how to claim your SWH tokens. Of course, the exchange is still in its infancy and its user base is very small, which means that there have not been many opportunities for user-related issues to arise.
For more information about Switcheo, visit Switcheo.Network or follow its Twitter, Telegram or Reddit.
The Switcheo team is made up of some veteran blockchain developers and advisors. The developers include Ivan Poon (Blockchain Developer), Henry Chua (Frontend Developer), Sng Ping Chiang (Backend Developer) and Jack Yeu (Business Development). The advisors are Steven Pang and Yingyu Wang. Steven has a strong background in blockchain and cryptocurrency investment / advisory. Yingyu has a strong legal background, so these two complement each other well and should prove beneficial to the project. You can check out their profiles on the projects website for more information.
There is still a lot of work to be done to bring this decentralised exchange to its full potential. The testnet and mainnet launches were completed successfully and the native token is active. QRC20 token trading will go live in Q2 this year, with ERC20 tokens to be added in Q3. Inter-chain trading will not happen until the end of 2018. Much depends on the growth of NEO and its potential to be “the Chinese Ethereum”. Currently, the focus of the networks is on resolving issues and building awareness of their token and exchange.
Switcheo Network is a promising project. NEO needs a DEX to support its NEP-5 tokens and Switcheo will have a first mover advantage. By being a DEX, it will offer its users all the positive aspects that a centralised exchange never could. If they can iron out the kinks and if the NEO network starts to grow as expected (there are plenty of NEP-5 tokens in the works for 2018) we could be looking at a very valuable token in the future.