A bit of history
Everyone is well aware of the Great Depression of 1920, the so-called “jazz age”. In that period banks and politicians influenced the rules of the market. This still happens since money is not people’s money but comes from the central banks that grant a certain sum of money to governments.
For this reason, decentralized finance is needed with decentralized exchanges to allow a greater grade of independence from banks.
Although decentralized finance was born on the basis of the free market, there are still possibilities of "manipulating" trends: have you ever heard of "whales"? The so called "whales" are the holders of a large amount of money who can change the price of any asset as they wish, simply by selling or buying, hunting orders from retail traders and creating liquidity where and when needed.
We can define this behavior as over-speculation: if you have a lot of Tokens and you decide to make the price fall, it is enough to sell them all: the price will begin to fall and adding fear from small investors that will sell too to limit losses, creating a domino effect.
With the lower price you can buy a lot more coins than before and the game resumes!
This creates enormous price volatility.
In addition to the "whales", the volatility of the price in the free market is also given by trading on arbitrage.
In the crypto environment, the first study aimed at limiting the volatility of cryptocurrencies dates back to 2016 and Tether (currently with more than 13B $ dollars capitalization) described how it was possible to create a fiat currency on the Blockchain. Tether is a Token of the Ethereum blockchain that is pegged to the United States Dollar with a ratio of 1: 1. Since the price is bound to the dollar, the price is not supposed change: this is how the first Stable-coin was born and many more came in the last years with USDJ, BUSD, PAX, GEMINI and more to come.
The philosophy of the DEXToken Protocol is based on these foundations: limiting the volatility of the crypto market achieving the possibility to define the price of a Token in a decentralized manner, without whales and without other Stable-coins.
Everything is developed on the studies of the Flowchain foundation, which has established a strong correlation between the native Blockchain of the token and the exchange price.
The protocol consists of 2 subsets, the DEXToken and the off-chain issue. Everything must be supported by a Governance Token, the so-called DEXG.
This token brings benefits in terms of profit to the holders since they will have a reward as a percentage of the profits derived from trading the DexToken.
A sort of Staking, something also similar to what Bankera is trying to do with its own Exchange.
The profits of the DEXG Stakers originate from the fees of the Speculative AMM.
But to make this principle feasible, how did they plan to proceed?
They decided to exploit some typical stock market dynamics, first of all the Automated Market Markers which is used to contain the volatility of a stock.
DEXToken renamed it Automated Market Markers Speculative
Automated Market Markers are nothing more than smart-contracts that create a liquidity pool of ERC-20 Tokens that are automatically exchanged by an algorithm instead of an order book.
This effectively replaces an order book with a price limit and assets can be automatically exchanged with the last price in the pool.
For this purpose, the DEXToken team has set up the speculative AMM
As it is easy to guess, through this procedure a reliable token price can be obtained only if the smart-contracts are on-chain and on a public BC. Furthermore, since a Smart-contract controls and manages the protocol, the price range is always controlled in case there are unjustified large sales volumes.
The DexToken ecosystem is based on 6 points:
1 - Universal price.
The Universal Price introduces two revolutionary concepts: the User Base and the Mathematical model of the Universal Price.
The User Base is the result of the correlation of 3 variables: the number of miners, the total number of transactions and the registered wallet addresses. This variable, called Nt, will contribute to the calculation in the mathematical model of the Universal Price.
The mathematical model of the Universal Price is the result of studies carried out by the Flowchain Foundation, where a formula has been defined where we can find the following variables:
We call Pt the universal price of the token;
Nt the number of users (User Base);
St the number of transactions;
At the production of the platform;
M circulating coins.
It follows that the price is:
As you can see, the formula contains an inaccuracy: the total supply does not actually indicate how many coins are in circulation at a given time, so it is more correct to replace the total supply with the total circulating tokens, which we will call Ct.
It follows that:
2 - Speculative ADM.
The Speculative AMM through the formula of the universal price regulates the price in a well-defined range, also with the help of trading on arbitrage and keeping the tokens produced by staking under control.
3 - Off-Chain Token
A unique feature of the DEXToken ecosystem in the world is the possibility of also processing off-chain tokens: once the token is received, a smart-contract undertakes to provide its validation and then pass it on-chain on the DEX Blockchain. A sort of double layer to increase speed and reduce costs of transactions.
4 - AMM for the calculation of the universal price of off-chain tokens
Once the token is on-chain, the speculative AMM can proceed with the application of the formula for calculating the universal price.
5 - Staking
As I explained above, governance tokens (DEXG) bring profits to the owners, through the transaction fees; they can also contribute to the evolution of the Mutual.
In the image below we can understand how staking works and above all how the price remains controlled even if there is an over mining production: the system will simply proceed with a burn.
But beware, the innovation is right here: the burn is not carried out once a quantity ‘x’ of exceeding coins will be placed on the market.
Everything is managed by an algorithm that intervenes by eliminating only the surplus tokens in the following staking cycle; in this way, the following cycle cannot undermine more than the previous one and if this were to happen it takes as a basis the mine of the previous cycle.
Consequently, the excess is destroyed by burn.
In this way you have the complete management of every situation. I dare to say brilliant !!!
6 - Products
Flowchain, with this protocol will make available the following products:
- Token swap exchange;
- Decentralized Exchange;
- Staking pool.
An important project, definitely ambitious, but to be followed with some attention!
DEXTokenDeFined
