IDEX's unique approach to scaling decentralized exchanges

Messari hosted a public AMA with Alex Wearn, CEO of IDEX, in the Messari community group. Below is a transcript of the conversation.

You can find all of Messari's historical AMA's here

Messari: Hello everyone - We're going to get started with the scheduled AMA. I’d like to welcome Alex Wearn, CEO of the decentralized exchange IDEX.

Alex: Thanks @jackpurdy , hello everyone!

Messari: We’ve received a lot of great questions from the community but before we get started could you give a brief background on yourself and how you got started with IDEX?

Alex: Sounds good. I've spent my career in software development, primarily in product management roles, at Amazon, Adobe, and IBM. This product background has shaped how we've approached creating blockchain based products like IDEX (heavy emphasis on the customer).

I first found out about Bitcoin in 2011, in a wired article titled the rise and fall of bitcoin. It went up to $28 and back down to $2. II bought a little bit on the run up in 2013, but didn't really get involved until the launch of Ethereum. My co-founder and I were excited by the possibilities enabled by smart contracts. We worked on a few different ideas before hitting the idea for IDEX, a hybrid decentralized exchange with off-chain order books and execution and on-chain custody and settlement. We launched in Oct of 2017, and it's been a great ride ever since.

Messari: That focus is much needed in an industry notorious for less than stellar UI/UX. To start with the community questions - here is a more general one and maybe you could also dig into how IDEX differs from some of the other DEXs out there

• Who does IDEX see as their target market?

Alex: Yes some of the issues come from the fact that it's often engineers designing for other engineers. But other issues, such as private key management, are just very difficult problems and likely something that will never be suitable for all users.

The current version of IDEX (1.0) had a lot of success by focusing on new projects. We became known as the place for projects to list first, largely thanks to the operational advantage we had for listing new assets. Over the past few years we've seen this decline, and in late 2018 we identified a need to focus on higher volume, more established markets, and derivatives on these markets.

The challenge with serving those markets is that they are already well served by centralized exchanges. We realized that the current design couldn't compete to attract significant liquidity and volume. This is what our focus is with IDEX 2.0, to address the scalability issues and enable further growth in these markets. The goal is to peel off customers who like the centralized exchange trading experience, but don't want to risk their funds.

This is very different than many of the other DEXs, in particular the swap DEXs, that are focused on tight integrations with other DeFi projects.

Messari: Interesting, so in short you're focusing on growing liquidity+volume rather than composability with other projects

Alex: Yes at least for the time being. Composability is best served when an application can interact directly with another smart contract. Our hybrid design, which allows us to get a better UX for our central limit orderbook, inherently means that a lot of the information necessary to complete a trade is stored off-chain. This makes it more difficult for applications to interact directly. This isn't unique to IDEX, but is rather a challenge that all layer-2 order-book DEXs will have grapple with.

We've had some interesting discussions with other teams on how to solve this, but there is no obvious solution. So our primary focus is on shipping our new version, after which we'll start to dig deeper into possible integrations.

Messari: That makes sense thanks the added color. So you mentioned the focus of IDEX 2.0, could you briefly explain some of the major design changes there?

And while I know you probably don't have the answer everyone wants I'd be remiss if I didn't include the most upvoted question we received

• What is the release date for IDEX 2.0?

Alex: There are three major changes. The first is changing the way we settle transactions to the Ethereum network. IDEX 1.0 users have paid over $5M in gas fees to the Ethereum network to settle their trades. In the new version we'll be using our layer-2 roll-up to settle transactions in batches, reducing settlement costs by over 99%. This makes it as affordable as trading on centralized exchanges and removes the underlying network as a bottleneck for growth.

The second change is to the UI/UX. Our current version was designed in 2016, and exchanges have changed quite a bit since then. IDEX 2.0 has an industry leading design, with an optimized mobile version, as well as specific touches that are based on our insights from operating IDEX over the past three years. For example, on DEXs like IDEX you have to sign every transaction, often with a third-party tool like metamask or ledger. This is a different experience than a centralized exchange where they hold your funds and nothing settles on-chain.

The third is changing our backend to have a higher performance and throughput. This, along with the update front-end, will make it truly feel like trading on a centralized exchange, all with the benefit of being non-custodial.

In terms of timing, we're careful to not give exact dates as there are a ton of moving parts. We're also engaging in cutting edge R&D, and security is extremely important, so we don't want to rush it. That said we believe we're a few months away from launch of the new version. The system is working end-to-end, and you can check out a testnet demo by going to demo.idex.io. We'll be releasing more updates to the demo, including our new API and staking system, as we get closer to mainnet launch.

Messari: Great thanks! Speaking of the reduced fees we had a question related to the impact on Stakers

• When v2 has much lower fees, isn't that bad for IDEX stakers, at least at the beginning? How does staking change at all, because there is no recent update in the repo

Alex: Good question and an important clarification. The reduction in fees refers to gas fees, not trade fees. Today trader pay both a trade fee to the exchange and a settlement fee to miners, but only the exchange fee flows back to stakers. The new version will eliminate the network settlement fees, making it overall cheaper to trade but keeping the staking reward in place.

In terms of upgrades to staking, there is quite a bit that will change, in particular involving stakers in the validation of our layer-2 ledger. We've released a little bit of info on our blog, and will have more details, including an updated github repo, as we get closer to launch. Here is a post that summarizes the token and what to expect in IDEX 2.0

Messari: Got it that's very helpful. And so the reduced settlement fees are a result of your new layer-2 solution which we have a question about

• What did you find in your research on scaling solutions that led you to land on optimized optimistic rollups? How does your approach differ from other ORs?

Alex: We started our search for a scaling solution in late 2018. We met with a lot of the various teams working on these projects, and left with two primary concerns. 1. Many of these are very ambitious, based on new research, and likely have long timelines to launch. We were looking for something that works today, in an ETH 1.0 world. 2. These solutions are understandably designed to be general purpose, however we have a very narrow use case. By designing for just IDEX's off-chain trading system, we can greatly reduce the scope and complexity and achieve additional performance benefits.

There was a very good report released recently by a researcher, Daniel Goldman, and I encourage everyone to read it. The major difference between IDEX and others are that our design, at least currently, only supports the IDEX platform. IDEX 2.0 ledger entries are quiet expensive, ~2kb, which means that with a traditional OR implementation we would only see ~5x improvement in gas costs. By focusing on just IDEX, and employing our staking network to help with validation, we're able to incorporate what is know as a data availability challenge. This allows us to keep data off-chain by default, and greatly increase the scalability.

For those interested in the full details check out the IDEX sections here. It's overall a pretty accurate piece, though there is one problem mentioned that we've since addressed and will be releasing more information on soon.

Messari: I'll make sure to check that out, thanks for sharing! Moving on from 2.0, we've received a lot of questions about future plans for IDEX which we can hit in a more rapid fire manner before we wrap things up

• Does IDEX have plans to onboard fiat to get new investors?

Alex: It's on our roadmap, but not near term. We've looked a lot of the fiat integration providers but they are quite expensive, ~3% of the transaction amount. We have spoken with some banks about integrating directly, but we don't think it's the biggest bottleneck for growth at the moment (looking at the success of many crypto only centralized exchanges).

Messari:

• Do you long term plan to share 100% of the fees with the stakers?

Alex: Yes, the staking fee percentage is increasing over time as we move various components from the company on to the staking network. With IDEX 2.0 we're increasing the role of network operators, but there is still a significant component that IDEX operates (order book/matching engine, compliance, etc.). As we move more to the network over time we'll continue to increase this value.

Messari:

• Any interesting development with the Algorand partnership?

Alex: We've been working with the Algorand team to spec out the integration. They've done a lot of great work with their TEAL scripts to support the IDEX hybrid design. Development will begin as soon as we launch IDEX 2.0.

Messari:

• Any plans for a non-website tool to interact with the smart contract for a more decentralized way to trade?

Alex: Our hybrid design, and all layer-2 DEXs, require off-chain components that makes interacting directly with the contract for trading impossible. Users can always deposit/withdraw directly, but must go through the application/API to initiate a trade. Until we can decentralize this part of the operation, we don't see ourselves dedicating resources to a non-web based tool.

Messari:

• Will you increase staking requirements? 10,000 tokens is very low - $115

Alex: The new staking version will likely have a higher minimum, simply because the process will be more resource-intensive and will result in higher costs for node operations. Exact amounts are still tbd.

Messari:

• Any news on your planned stable coin Boreal?

Alex: Love the question! We still want to bring it to market, but for the time being it's on hold. We spent a lot of time early on detailing our plans internally, but once IDEX took off we realized we have a unique opportunity and for now all resources are focused on the execution of IDEX 2.0.

Messari: Awesome, well looks like we're running out of time here but before I let you go could you tell us what you're most excited about in the next year (other than the launch of 2.0) for IDEX or crypto in general

Alex: I'm excited by the growth of non-financial products. DeFi was certainly the narrative of 2019, but in many ways was just a twist on what crypto has already been good at (yield, leverage, etc.). We've recently seen the growth of other products that are crypto-related, or abstract it away, such as Brave browser and Audius. I'm optimistic that a lot of the early ideas that failed to gain traction will have a second chance now that the infrastructure, tooling, etc. is more built out.

Messari: Agreed! Well it was awesome having you on Alex, this was super insightful. If you could let us know what the best way to keep up with IDEX is that would be great

Alex: You can follow us on twitter @idexio for all of the latest news, and check out blog.idex.io for recent announcements. Thanks for having me!