Today we interviewed Adam Todd, Founder of Digitex on our coinmonks slack community, Digitex is building next generation Crypto Futrues trading platform. Watch this video to know what is Futures trading. Below is transcript from the interview.
Me- So tell us about Digitex, What is it?
Adam- simply put, its a commission-free futures exchange and it sustains itself indefinitely by using its own native currency instead of charging transaction fees by using its own native currency, the DGTX token, it can create a small number of new tokens each year to cover costs, in this way the costs are covered by a small inflation rate spread out amongst all token owners instead of only by the active traders this encourages active trading. The digitex model of commission free trading is thus sustainable because the costs are being covered, its a revolutionary new way of running a futures exchange that has never been done before.
Me- Why are you building it ? Whats the motivation behind it?
Adam- I’ve been a futures trader all my life so its something I understand, I was in the open outcry pits in London in the nineties, when I discovered crypto, I knew there was something that could be done to remove transaction fees, as a short term trader the fees have always been the main problem for me trading fees can and do kill marginally profitable trading strategies, with digitex traders will be able to do high volume trading strategies and still make money there is literally no edge working against you, no reason why you should lose of course, there’s no reason why you should win either, but if you are good and disciplined you can make money on an exchange that doesn’t always constantly take money from you regardless of whether your trade wins or loses.
Me- How its different from normal future exchanges like CME or CBOE? you can go beyond other than transaction fee removal.
Adam- It’s different because of the costs, its hugely expensive to trade on those exchanges you mentioned and there are different charging tiers based on volume so as a small trader its impossible for you to get the same deal that the pro traders get. Its not a level playing field, the pro traders on those exchanges will always beat you.
Me- What is this Hybrid Model of Centralized and Decentralized Components?
Adam- Yes the way that account balances are held is also very different from traditional exchanges on digitex you will not need to trust the exchange with holding your account balance. we’re going to use state channels to instantly give you your profits and take your losses but you never send your money to the exchange, instead your trading bank is locked up into a state channel which is very similar to the lightening network, your profits and losses are settled off chain until you actually want to stop and then you can unlock your most recent balance at no point do you have to trust digitex, its impossible for digitex or for hackers to take your trading bank. With a state channel you “lock up” an amount of money that you are going to use then as you place trades your profits and losses will be added/subtracted from that amount, but off chain. at any time you can stop trading and get your money back and only the most recent transaction will be sent to the blockchain and you will have the correct balance. This saves on gas costs but more importantly enables us to do live time futures trading without having to wait for everything to hit the blockchain, with the time delays and extra costs that would entail. we’ll probably call them “trade channels” its just like the lightening network on bitcoin.
An Example of BTC/USD Trade on Digitex Futures Exchange
Bob is a short term, trend following Bitcoin trader. He sees the price of BTC/ USD start to rise and he jumps on by buying 500 BTC/USD futures contracts with a single click of the mouse that are being offered for sale at $10,700.
The price rises quickly and then starts to come down so Bob immediately hits the bid and sells 500 contracts at $10,720 with a single click of the mouse.
The tick size of the BTC/USD futures contract is $5 so Bob has made a profit of 4 ticks on a 500 contract position which is a 2,000 tick profit. 1 tick is worth 1 DGTX so he has made a profit of 2,000 DGTX.
The current market price of 1 DGTX token is USD $0.10 so Bob’s profit is 2,000 DGTX × $0.10 = $200.
Bob’s initial margin requirement to open his trade was 500 × 20 DGTX = 10,000 DGTX ($1,000). He needed this much in his account to be able to enter the trade. His account balance is held by an independent smart contract, not by the exchange.
There are zero transactions fees on all trades so Bob’s profit of $200 after commission is $200.
Me- So you mentioned in your white paper that after two years you will start minting new coins..to bear the cost of operations. how will you decide to run operations in an optimal way for example not overpaying for things (salaries, partnerships)? Will anyone oversight on it?
Adam- Yes, there will be oversight because the community of DGTX token owners will vote to give approval on any new token generation events ,new tokens can only be generated with the approval of a majority of DGTX token owners, so if I come up with a large figure the community can say no
so we will publish the costs we need to run the exchange for another year and only if the community approves this then the new token sale will happen.
Me- Can you explain this “ Traders can eliminate DGTX price risk from their trades with the DGTX Peg System”. (Mentioned in white paper)
Adam- Yes one of the drawbacks of the digitex revenue model is the need for traders to buy DGTX tokens which can potentially introduce extra price risk to the trader many traders will be happy to accept this risk, others will not
so we will introduce a peg system that lets other traders take that price risk from other traders through a peg system, which is basically just another futures contract. You can lock in your DGTX/BTC price by taking an extra position on the peg system futures contract or your DGTX/ETH price.
Me- So is it like futures trading of DGTX token?
Adam- correct, in order to remove the price volatility for traders who want to purely trade on the price of BTC/USD without introducing the element of DGTX price volatility.
Me- When are you launching Digitex for live trading?
Adam- Our in house software development team is working now, we have anew office setup in Dublin and we are aiming for Q3 launch of the futures exchange. I’m actually flying to Dublin tonight to go spend another few weeks with the dev team.
Me- Is business model complies with legal framework ? are there any regulation challenges?
Adam- DGTX token is simply a utility token. It offers no dividend and no equity share in anything, all it does is enable the owner to trade futures with no costs.
Me- How big is your team currently and where the team is based out?
Adam- Including the dev team and the support and social media guys we are now 14 people, the dev team is all in house and must be based in Dublin to work with us, there will be no remote workers on the software dev, but everyone else is remote and based all over world.