Interview/Written by: Karen Wang, Data Scientist, Blockdynamics

Proofreading: Max Song, Founder of Blockdynamics

From 2009 to today, the birth of digital assets has created a new value system and also created a demand for digital asset transactions. Exchanges play an important core role in the industry, but at the same time there are some hidden dangers. For digital assets, security is always the most important, because in the field of cryptocurrency, assets are manipulated through encrypted keys, and losing keys also means losing assets, and there is no possibility of recovery.

Digital asset exchanges are currently giants in the industry, but most of the exchanges in the industry are centralized systems with low operating barriers and good user experience. They only need to register and KYC in a few steps, so they are very popular. But their success has attracted many attacks and thefts by hackers. In addition, some users have discovered that black-box operations may occur in centralized exchanges. There was no product on the market that could prevent this from happening, until the emergence of decentralized exchanges (DEX).

The concept of a decentralized exchange has been discussed by the cryptocurrency community since 2014. At that time, the industry giant exchange MtGox once accounted for 70% of the total transaction volume of Bitcoin in the world, but by the end of the year, the exchange was reported to be worth billions of dollars of bitcoins were stolen and MtGox ceased operations within days. This incident brought a huge blow to the entire industry, and also made many people reflect on the ecology of decentralized assets. Exchanges will bring potential hidden dangers of centralization.

Phil Wearn, who was still studying at Virginia Tech at the time, was already thinking about this question. Phil Wearn bought Bitcoin early on, but saw his assets gobbled up by MtGox hackers and decided to find a solution.

In 2015, the white paper of Ethereum was published for the first time. While reading Ethereum's smart contracts, Phil Wearn realized that a decentralized trading experience could be created through smart contracts. In 2018, Phil Wearn and his brother Alex Wearn began trying to establish IDEX, a decentralized exchange based on Ethereum.

For the past three years, the decentralized exchange IDEX founded by the two brothers has been occupying an industry-leading position. At the end of October 2019, IDEX announced the launch of version 2.0, the "Layer 2 Optimized Optimistic Rollup (02 Rollup) expansion plan".

At the same time that IDEX version 2.0 was announced, the IDEX team visited China and made its public debut in China. Entrusted by Lianwen, Karen Wang of Blockdynamics, a blockchain data analysis company, conducted an exclusive interview with Phil Wearn and Alex Wearn, founders of IDEX. The two brothers shared their entrepreneurial stories, business philosophy and future development direction of IDEX.

The following is a transcript of the interview, which has been abridged without affecting the original meaning.

Q：Karen Wang

Phil: Phil Wearn, co-founder of IDEX

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Talking about starting a business: dropping out of school, resigning, brothers starting a business

Q: Can you briefly introduce the current development status of IDEX?

Phil: After three years of operation and further study, we are honored to have gained a good reputation and user trust in the ecosystem. IDEX has become the number one Ethereum decentralized exchange since it was listed in 2018, and it has remained so until now. Up to now, IDEX has completed a total of 4.5 million transaction transactions, with a total transaction volume of 260 million US dollars, and there has been no security incident.

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Source: IDEX Traction

Q: When talking about decentralized exchanges today, IDEX cannot be avoided. Can you please talk about how it started in the first place? I heard that Phil persuaded Alex to resign from Amazon and start a business?

Phil: I majored in aerospace engineering when I was in college, but later I found out that my interest was not in it. At that time, I learned a little about Bitcoin and started self-study, and then dropped out of school to start a business. I started to share some of my thoughts on cryptocurrency and blockchain with Alex. Of course, it took a long time to convince Alex that he is a very serious person.

Alex: Yes, I did software and product development at Amazon, Adobe, IBM, and then went to Northwestern University for an MBA. At first, I heard Phil tell me about his research on cryptocurrency and blockchain, and then I started to participate in it myself. We started exploring decentralized exchanges in 2018, accumulating users and communities little by little. You can see our answers to each question on Telegram, Reddit.

Q: How is your team composed?

Phil: We have about 20 people in many countries, including Vietnam, some European countries, the United States, and Canada. Some of our members were recruited from Telegram, and some people in the group were very active in helping us solve many user problems. Of course, this is a less common way of recruiting.

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Talking about decentralization: IDEX has been solving the most important problems: matching speed, transaction depth, transaction price

Q: At present, many centralized exchanges have begun to do decentralized exchanges, such as Binance DEX of Binance. What is the biggest difference between IDEX and other decentralized exchanges?

Alex: On centralized exchanges, users need a certain reserve fund before trading, but this also entrusts the property to the exchange, which is vulnerable to hacker attacks and almost impossible to recover. What IDEX has to do is to ensure security through non-custodial assets, and can improve transaction speed to the level of centralized exchanges.

Our transaction speed is very fast. Some customers have reported that there are too many bots (machine traders) on IDEX. In fact, it is not, that is, we are using the mechanism of taker (active taker)-maker (pending order) to quickly match Transactions, avoiding transaction conflicts and being forced to cancel transaction orders, and can achieve almost real-time transactions. Unlike other centralized exchanges, it is free to cancel transactions on IDEX, and no gas fees will be charged. The user experience has always been very good.

Q: Who is your biggest competitor?

Alex: We always feel that centralized exchanges are our biggest opponents. Centralized exchanges often charge users very high fees, and some even charge for routine operations such as placing orders and canceling them. Moreover, centralized exchanges have many hidden operations to earn profits from customers. The transaction process is opaque and can be perfectly cheated. Users are at risk of being hacked at any time. We believe that future exchanges must tend to be decentralized.

Q: Let me ask an old question, what is the core difference of decentralized exchanges?

Alex: Exchanges based on different chains are different, but the most important difference compared with centralized exchanges is that decentralized exchanges use smart contract accounts to ensure that the trading platform cannot do evil. , the user always holds the ownership of the asset. There are many voices saying that security, cost, and experience of decentralized exchanges cannot be achieved at the same time, but this has been proved to be achievable in IDEX products.

Although there is still a certain traffic scale gap with the top-ranked centralized exchanges in the world, with the development of cross-chain technology, greater value transfer can be realized between public chains, and the processing speed of cross-chain contracts is much faster For others, more mainstream digital currencies will appear on decentralized exchanges, and users will increase.

Q: Tell me about your user composition.

Phil: Our users come from 215 countries and regions, more than the number of member states of the United Nations, and some countries and regions that we have never heard of are also on our user list. The United States, Europe, Thailand, Vietnam, Indonesia, and Turkey are some of the larger markets.

Alex: The United States is our largest market, accounting for about 12%; Turkey, Russia, and Indonesia also have a large proportion.

Q: Are there any interesting projects on IDEX 1.0? What kind of projects can be listed on IDEX?

Alex: There is a very interesting project called Flexa. In the United States, gift cards are a very commonly used online payment tool, and many people spend by purchasing gift cards of a certain denomination. Its model has many similarities with cryptocurrency. In order to use the balance in the card for consumption, you need to enter a card number and password similar to public and private keys. You can check the balance and then use the balance, and the balance can be resold of. Some gift card security precautions are not perfect, and there will be the same risk of double payment as cryptocurrency.

A team in Chicago designed a solution to track the balance through the blockchain without changing the original payment system. This project is now trading well on IDEX. It is a typical example of using blockchain technology to solve pain points in real-world application scenarios. It is much smarter than many methods of looking for application scenarios starting from technology.

Phil: Our project review will become more and more strict. We have to check the code of the project so that it cannot affect the IDEX system, and we also need to do due diligence on the project to see if they are really doing what they say.

Q: IDEX is a smart contract trading platform, and it is also the initial exchange of many ERC-20 tokens. However, based on the development of Ethereum, the types of tokens that can be accepted are also limited. Do you have plans to expand other types of tokens in the future?

Alex: Our goal is that every cryptocurrency in the future can be traded on a non-custodial trading platform like IDEX. There are several considerations in the design based on Ethereum. First, the design based on Ethereum allows the transaction of smart contract tokens. In addition, many excellent projects have been developed on Ethereum, such as CryptoKitties, and we can see that many innovations are still based on Ethereum. We have plans to expand in the future, and we hope that we can minimize transaction costs for users.

Q: What other decentralized trading models do you think are good?

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Talk about IDEX 2.0 and self-innovation: be the technology that understands users best

Q: Can you introduce the trading mechanism of IDEX 1.0 first?

Alex: IDEX 1.0 adopts the off-chain order book model. After the user transfers tokens to the exchange address, all transactions are matched off-chain, traded in order, and finally the results are published on the chain. Due to the design of the smart contract, users need to deposit funds into the exchange address, only in this way, IDEX has the right to submit signed transactions to Ethereum, but IDEX will not access the user's key. These two mechanisms give IDEX 1.0 advantages in speed and security.

Q: What are the specific improvements between IDEX 2.0 and IDEX 1.0?

Phil: In IDEX 2.0, we canceled transaction fees and increased the achievable transaction size. A core limitation of public chains like Ethereum is that every transaction must be processed by every node in the network, which imposes fundamental limitations on throughput and transaction costs. IDEX 2.0 uses the second-layer solution and off-chain transaction matching, without changing the underlying protocol, packaging and merging multiple transactions into one block for batch calculation, and then putting them on the chain. Although there will be a small gas fee for the step of going to the chain, this part will be lower than the current single transaction fee of IDEX, and this gas fee will be borne by the IDEX team.

At the same time, there will be an intermediate verification node (Validator Node) to verify the block, improve accuracy and reduce the risk of theft. In 2019, we issued a total of more than 1,000 ETH to verification nodes. Most exchanges rewarded platform tokens. Although we also have a platform token with the same name as IDEX, we have always sent ETH to verification nodes.

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Core of IDEX 2.0

Q: I heard that many other teams offered to help build IDEX 2.0 technology, but why did you decide to do it yourself?

Alex: Yes, we feel that their technology is not up to our expectations. Relatively speaking, although many encryption technologies have been invented for a long time, they have not been tested for a long time. It is also not very smart for us to entrust our project to a third-party team, which increases the risk for the customer. We understand the needs of users best, and the problem we want to solve is large-scale and fast decentralized transactions. We don’t think this is what others can do for us.

Q: From IDEX 1.0 to IDEX 2.0, do users need to migrate?

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Talking about capital: capital is not a shortcut for the blockchain industry

Q: IDEX’s competitors almost all have tens of millions of dollars in funding. From its inception to the present, why did IDEX choose to conduct its first financing at this time?

Alex: There are indeed many projects in the market that start to raise funds from the market before reaching a certain user scale and traffic, but in fact the project development has not produced outstanding performance. We have focused on technology from day one of our company. For decentralized exchanges, nothing is more important than security, traffic and transaction speed, and all the data also prove that our investment is worthwhile.

I chose to raise funds at this point in time because based on our current user traffic, capital injection can help me iterate products as quickly as possible, develop new users and markets, and at the same time be able to return investors. We were at Devcon in Osaka, and we saw a lot of interest in decentralized exchanges and decentralized finance, which made us believe in the potential and future of what we are doing.

This article is authorized by Traction and does not constitute any investment advice. Traction is an organization that transmits insights into the technology industry between Silicon Valley, Europe and China. Through in-depth analysis and dialogue with industry leaders, it mines the development of global head data and blockchain projects as well as digital cases of traditional industries. This article also thanks to the Blockdynamics team: Wei, Chloe, Huaizhong for their contributions.