The cryptocurrency market expanded rapidly after the ICO bubble of 2017, from a market capitalization of approximately $ 566 billion at the end of 2017 to $ 1.5 trillion in February 2021. This means that there should be a strong infrastructure for support growing cryptocurrency trading.
Cryptocurrency exchanges are the first question for this answer. While most crypto assets are built on the foundations of decentralized architectures, most of the trading still takes place on centralized exchanges.
In centralized exchanges, users must guard their assets on the exchange. While these exchanges have many benefits such as speed, their past raises questions about their reliability. Incidents that occurred with centralized exchanges such as Coin check, Mt. Gox, BitGrail, NiceHash, Bitfinex, and Youbit force cryptocurrency users to think twice before interacting with them.
After the introduction of smart contracts on the blockchain with the launch of Ethereum, decentralized exchanges (DEX) tried to solve the underlying problems of CEXs facilitating smart contract transactions, eliminating third party control of merchant funds. But that came at the cost of the speed and performance of a blockchain network.
Putting all business activities on chain slows down the network. So a group of cryptocurrency traders built a solution on the Ethereum blockchain that rests in the middle, one that delivers speed without compromising the security of DEXs. They called their solution IDEX.
What is IDEX Exchange?
IDEX is a decentralized exchange (DEX) based on Ethereum launched by a group of cryptocurrency traders in 2017. It claims to offer real-time cryptocurrency trading with support for limiting and trading orders, no-gas cancellations, and the ability to complete many exchanges at once.
The 2017 release was the first IDEX 1.0 version of the exchange. The team released IDEX 2.0 in late 2019, which is now available to users.
IDEX 1.0 combined out-of-chain matching and validation with in-chain settlement. This architecture of off-chain trade reconciliation and in-chain settlement offers the speed of centralization while maintaining the security feature of decentralized exchanges. Also, IDEX 1.0 had no custody, given the control of funds to merchants.
IDEX 2.0 also maintains this same off-chain matching and in-chain settlement, but with powerful new features and scaling solutions. Let's see how it works.
How does IDEX work?
Before the introduction of IDEX, conventional DEXs took the term most literally, building fully chain-based models in which all orders interact directly with each other.
This approach achieved decentralization, but made trading time-consuming and expensive, as every process, from placing an order to modifying or canceling an order, generates a network fee and depends on the time a blockchain network confirms an order. transaction. Below are the characteristics of the IDEX exchange.
Hybrid design
The IDEX exchange uses a hybrid design in which the execution and settlement of trades occur as separate events. On the IDEX platform, transactions are executed in real time, but they are settled minutes later at the speed of the network.
To make this possible, all transactions, such as deposits and transactions, are authorized by the end users and their private key. However, IDEX retains the ownership of transmitting certain authorized transactions to the network.
Work flow
The following diagram describes how IDEX works.
Figure 1. Image of IDEX
According to the IDEX whitepaper, trading on IDEX works as follows.
- The creator and the receiver deposit their tokens in the IDEX contract.
- IDEX smart contracts then update the IDEX database to include customer addresses and token balances.
- The manufacturer creates and sends a signed order to the IDEX server.
- The IDEX server then confirms that the manufacturer's account has sufficient funds and that the signed transaction matches the one submitted to IDEX.
- When confirmed, the order is added to the order book.
- "The recipient submits a matching order, signing a transaction with the same price as the target order and a smaller or equal quantity."
- IDEX confirms that the manufacturer's account has sufficient funds.
When confirmed, the operation is marked as matching and the order book is updated. - The IDEX database is updated to reflect the new balances and at the same time, the signed order is added to the queue to be transmitted to the Ethereum network for processing.
- "The transaction is sent to the blockchain by a universal shipping address, using the following nonce to ensure that miners place a proper order."
- When the transaction is confirmed by the blockchain network, the IDEX smart contract is updated to reflect the exchange.
- The creator and receiver can now withdraw their funds.
Deposit contract
IDEX uses an escrow agreement that acts as an escrow and temporarily locks funds before allowing the user to authorize a limit or market order.
This ensures that funds are available not only at execution but also at settlement, eliminating business failures.
Universal shipping address
This is an important feature that ensures that only IDEX can submit signed trades to the Ethereum network for settlement and enables the exchange to control the order in which transactions are processed and settle trades on the chain in the same order as they are. they run off the chain.
IDEX 2.0
IDEX 2.0 retains the same core design but improves drawbacks such as excessive transaction costs, limited scalability, and limited asset support. IDEX 1.0 only supports Ethereum and ERC-20 tokens. IDEX 2.0 also supports other assets such as Bitcoin.
IDEX 2.0 is powered by an innovative Optimized Optimistic Rollup (O2 Rollup) Layer 2 scaling solution. O2 Rollup is a new open source Layer 2 design to bring scalable applications to public blockchains.
According to IDEX, O2 Rollup enables unlimited off-chain scaling with a fixed on-chain settlement cost, eliminating bottlenecks and costs that have prevented DEX adoption. IDEX 2.0 has been implemented in three phases.
Phase 1
In the first phase, a breakthrough in performance was provided where operations were still settled on the chain individually, but manufacturers incurred no gas fees, while buyers pay a small gas fee per operation.
In this phase, new off-chain components were added that generated real production data while still relying on battle-proven on-chain settlement mechanisms.
Phase 2
In phase 2, the layer 2 system operated in conjunction with the chain settling and the team tested to compare the layer 2 system using these same production data generated in phase, ensuring that the settlement methods produced the same results.
Phase 3
In phase 3, the on-chain liquidation was fully moved to the layer 2 system, completely eliminating absorber gas costs and setting the stage for unlimited scale.
IDEX 2.0 supports batch settlement of operations through Merkle Roots, a data structure that can be used to reduce an arbitrary-sized data set to a single, short set of bytes.
IDEX combines the concept of off-chain balances and Merkle root testing to support the settlement of batch trades and dramatically reduce gas costs.
(embed) https://www.youtube.com/watch?v=mMKwFFq9WoQ (/ embed)
IDEX Token and Staking
IDEX is also the native token of the IDEX exchange that is used in betting. IDEX participation enables IDEX merchants, market makers and users to operate part of the IDEX infrastructure and, in the process, contribute to the security and performance of the platform.
In IDEX, stakeout is a two-level operation.
Level 1, Validator Staking: Level 1 are validation node operators. A validation node (VN) is an engagement client managed by community members that enforces the validity of the Layer 2 ledger.
To participate in the validation network, VN operators must deposit IDEX tokens in a participation contract. VN operators review all transactions posted to the off-chain ledger, commit transactions and Merkle root to verify correctness, and call fraud-proof execution functions in the event a problem is identified.
They are rewarded in IDEX tokens through a pool seeded by IDEX.
Level 2: Tier 2 are API node operators that maintain a real-time copy of the IDEX order book and other system data and provide the public with supported REST API endpoints.
They help IDEX reduce transactional costs by offloading popular API operations. Tier 2 nodes are rewarded through an internal audit system.
Tier2 is also a replicator where users stake IDEX tokens and run a lightweight node. They earn 50% of all IDEX trading fees paid every 2 weeks in ETH and BNB.
