As DerivaDEX gets closer and closer to its’ main-net launch, there needs to be some discussion regarding what to do once it actually arrives. Since DerivaDEX is going to be a DAO on Day 1, thorough advanced planning is vital to a more smooth launching experience. This post isn’t going to be a proposal but more so some ideas and things to consider, that can be referenced when making a proposal.
The listing process.
How does the DerivaDEX DAO want to go about listing assets on the exchange? This is a massive question as there are many factors to consider. First and foremost, does the DAO want to list securities (Howey Test)? On one hand, that would provide more liquidity and volume, while on the other hand, this would make DerivaDEX an unlicensed exchange that mediates the trading of unlicensed securities. This could lead to the DAO being threatened to cease operations from nations that don’t allow that. For example, the SEC, among many other government organizations. I would assume that the position most people will take is that the exchange should not list securities, at least not right away. I think it is optimal for the long term success of the exchange to play it rather safe on initial listings, but still not too safe. If only a few trading pairs are offered at launch, it could turn away potential users. I would consider most assets with high value market caps and/or large volume, to be relatively safe pairings for launch.
Here are some assets that I would recommend supporting off of launch:
USD Coin (USDC)
Binance USD (BUSD)
There are plenty more high cap and high volume assets that could be considered safe additions to the platform, that is for the DAO to decide, these are just starting recommendations. Obviously, you would do pairs of these however the DAO seeks fit, just keep in mind that there are a lot of combinations and liquidity concerns. For example, an AAVE/XMR pair is likely going to have very little liquidity and volume, while a XMR / USDT and AAVE / USDT would have much higher liquidity and volumes respectively.
What do you guys think about what tests and scrutiny should be applied for the listing of an asset on the exchange, and what assets should be trade-able at launch? Remember, this is just the start of a very important discussion!
Forgot the most important asset “DDX” be added to that list. I do agree we should stay away from securities and should have in place a list of requirements for tokens to be added to the DEX. For example, minimum monthly volume, activity of team, making sure it’s not a scam, popularity of token are some I came up with on the spot.
To add to this valuable conversation from a technical perspective…
Should the DAO secure agreements with marketmakers as part of an asset listing proposal?
Assets that have very low liquidity or very high volatility may be more likely to result in insurance fund drawdowns. Should there be some requirement for risk modeling using the exchange’s benchmarking to ensure some risk threshold for the insurance fund?
What metrics should the DAO look at to establish (reliable) volume metrics for proposed assets? Centralized exchanges can be difficult to parse because of wash trading etc. But there are very few decentralized derivatives exchanges that can be used as benchmarking for these assets. (DyDx has a different implementation of MMR for each asset, AFAIK, meaning their insurance fund has a different risk profile. Not to mention it’s also not DAO controlled.)
I am sure there’s more to add here so glad the conversation is getting started.
I’m sure we don’t need a headache with the SEC. Let’s take an example with dy/dx. They entered the auction through airdrop to early users, then the tokens are distributed through liquidity mining or trading rewards. At the same time, the token has more than enough trading pairs.
I think the main complaint from SEC last week was on insider trading issue from a former Coinbase employee. The secondary complaint was on 9 unregistered securities from SEC’s viewpoint. Basically, SEC called every crypto was an unregistered security except BTC as a commodity in 2021. The important thing for DDX to launch mainnet is to acquire regulation approval from local and Federal government agencies. As long as DDX can obtain license to launch mainnet, SEC should not have an issue with DDX.
The claim of unregistered security from SEC means this trick below that played many times in crypto market in 2021 and for some stocks in stock market in the past. Let me give you some bad examples and DDX does not have such issue.
ICP had less than 2% circulating supply during launch week on Coinbase, Binance, Huobi, etc in May 2021 and price soared to $550-$750 on different exchanges. But after that, the developer dumped much more tokens to the market that dramatically lowered the price to below $15 in July 2021 in such a short timeframe. This is not common in most cryptos on creditable exchanges.
BTRST had less than 1% circulating supply during launch week on Coinbase only in Q3 2021 and priced soared from $10 to $40 on listing day. But after that, the developer dumped over 20% circulating supply in less than a month that significantly dropped the price to $8 per BTRST.
You all know why LUNA crashed within 5 days in May 2022, because trillions of tokens got dumped to the market from the Korea lab mainly due to UST depeg to U.S. dollar.
Crypto price does go up and down due to macro economic factors, such as financial environment and government policies as a whole. However, the problem of unregistered securities above was mainly due to manipulated token circulation to the market in less than 3 months to drop token price signficantly without regulation approval. That might be some insider trading issues involved for a very small number of users in BTRST, ICP, and LUNA but the majority investors like the public are victims from such significant token dump in such short time frames. That’s what SEC and other government agencies do not tolerate.
DDX did not have such issue in the past and should comply with government regulations to launch mainnet successfully.
You should not list AMP, ICP, BTRST, LUNA, UST on your exchange when mainnet is ready to launch. AMP has been delisted from Binance US today. I think that’s because it has circulated much more tokens into the market since its listing days on major exchanges that caused SEC’s concern on unregistered security. The DDX community is smaller than many other cryptos on Coinbase so marketing should be expanded to promote mainnet launch. Thank you.
Quick note on pairs: supporting pairs with collateral ASIDE from USDC requires some engineering, i.e., support of “multicollateral” throughout the exchange. So I’d recommend proposing trading pairs against USDC, as that’s the only kind that can be added with the current architecture. Multicollateral should be a separate project/discussion, IMO.