IDEX is a cryptocurrency exchange that combines elements of centralized and decentralized systems.
On the one hand, IDEX offers self-custody, a core tenet of DeFi. On the other hand, IDEX has CEX features that speed up token exchanges due to higher liquidity and optimized match-making.
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Launched in 2017, IDEX is a self-proclaimed “high-performing decentralized exchange.” According to IDEX, there are no failed transactions and no front running. Until 2018, IDEX could be considered a decentralized exchange (DEX). However, this faltered in November 2018 when IDEX went fully Know Your Customer (KYC) and required a user ID.
“Decentralization exists on a spectrum, and unless your system or application lacks centralized parts, it may be subject to regulation. In addition to IP blocking, IDEX will implement KYC/AML policies to comply with sanctions and money laundering laws.”
With the privacy aspect removed from the DEX attraction, IDEX was left with self-custody and easier access to new altcoins not yet listed on major exchanges like Binance or Coinbase.
Source: IDEX
If one does not register an IDEX account, users with their non-custodial wallets like Block Wallet can still connect to the exchange without KYC, just like any other dApp.
IDEX supports three blockchain networks – Ethereum, Polkadot and Binance Smart Chain (BSC). Like other DEXs, IDEX supports the exchange of hundreds of cryptocurrencies.
How does IDEX work?
DEXs like Uniswap typically employ automated market makers (AMMs) to match and execute users’ order requests. They achieve this by managing liquidity pools. These smart contracts allow users to escrow specific token pairs such as USDC/ETH. When traders want to trade one for the other, they access the user-provided liquidity pools.
IDEX also follows this model in that users can add liquidity to get Liquidity Provider (LP) tokens, earning them 0.2% on all trades.
Source: IDEX
However, IDEX deviates from the AMM model by using Hybrid Liquidity (HL), which combines traditional order book with AMM’s liquidity pools. In practice, this combination results in automatic matching of user trades from both limit orders and AMM’s liquidity pools.
In addition, this liquidity management system automatically sorts gas fee rates to optimize exchange rate cost reduction and avoid failed trades.
Specifically, users pay transaction fees directly for executing trades using IDEX’s smart contracts. Therefore, the gas fees for all other sub-actions, such as e.g. B. Withdrawals, adding or removing liquidity or trading, simply deducted from the account balance.
With this pre-emptive hybrid liquidity, it is impossible for transactions to fail.
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In addition, both deposits and trades are executed centrally and off-chain on IDEX’s proprietary infrastructure. In turn, only trade settlements are executed on-chain. Thanks to this hybrid model, which bypasses slower decentralized streets, IDEX has earned a reputation as a fast exchange, as users can make unlimited and instant trades until they are executed on-chain.
Whenever a user deposits funds, IDEX opens a channel hub. Each transaction corresponds to a trade on the channel, which is immediately closed upon completion. IDEX then verifies that the transaction is authentic and updates the off-chain status before sending it on-chain.
Infographically, this interaction between user liquidity pools, IDEX infrastructure, and Ethereum looks like this.
Source: IDEX
Also, due to IDEX’s instantaneous, channel-based execution, there is no possibility of front-running. Typically, when front-running, bots scan pending transactions and then pay much higher gas fees to validators to process those transactions first, giving the front-runner a trading advantage.
In late 2021, IDEX further improved its token exchange performance by integrating Ethereum’s Layer 2 scalability solution – Polygon – which reduced trading fees to a minimum.
However, IDEX’s hybrid model still doesn’t allow buying bitcoin like on a fully centralized exchange like Kraken. Instead, like other Ethereum-centric DEXs, users can buy wrapped Bitcoin, which has the same value as BTC but as an ERC-20 token.
IDEX Token
As mentioned earlier, IDEX incentivizes liquidity providers with LP tokens, the native token of the exchange – IDEX. There is a total stock of 1 billion IDEX. Users can farm IDEX tokens on either single or dual reward farms.
Dual reward farms pay out rewards in more than one token, while single reward farms allow wagering across a wide range of IDEX reward multipliers, from 0.25x all the way up to 4x.
Source: IDEX
In addition, when users stake IDEX tokens, they receive a reward equal to 50% of trading fees. To enable further scaling for future crypto adoption, IDEX allows users to deploy at least 10,000 IDEX to run replicator nodes. These nodes provide IDEX API data to market makers, algorithmic traders and researchers as advanced IDEX users and exchange providers.
Launched in December 2020, Replicator nodes run a lightweight client that provides real-time access to IDEX order book data.
IDEX’s 1 billion token stash is capped, which means their value will not depreciate with the gradual inflation, except for those that are still unlocked. As of November 2022, 67% of IDEX tokens are in circulation.
IDEX History and Funding
The brothers Alex Wearn (CEO) and Philip Wearn (COO) introduced IDEX in 2017, version 2.0 was launched in autumn 2020. Alex has an MBA in Design and Innovation with a second degree in Product and Process Design. He previously worked at Amazon, IBM and Adobe.
His brother Phil is an entrepreneur with a degree in space engineering. Phil has a dual job, both as COO at Aurora Labs and as COO of IDEX. Aurora is powered by Aurora Labs with the goal of becoming a one-stop shop for decentralized financial services, similar to a crypto bank built on top of a decentralized exchange.
As CTO, experienced software engineer Brian Yennie is responsible for IDEX development.
According to Linkedln, the exchange is based in Panama and has fewer than 30 employees. Gnosis, G1 Ventures, Collider and Borderless Capital funded IDEX with $2.5 million in August 2020.
Disclaimer for the series:
This series article is intended only as a general guide and information for beginners looking at cryptocurrencies and DeFi. Nothing in this article should be construed as legal, business, investment or tax advice. You should consult your advisers for all legal, business, investment and tax implications and advice. The Defiant is not responsible for lost funds. Please use your best judgment and exercise due diligence before interacting with Smart Contracts.
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