Web 3.0 + DEX: Why DEXs will Win the Race Against CEXs

Ishan Pandey: Hi Manfredi, welcome to our series “Behind the Startup.” Please tell us about yourself and the story behind HyperDex?

Manfredi Magris: Hello Ishan, I am Italian as is most of the Hyperdex Team. I studied Business in southern California and gathered my first financial experiences from European banks. After a few years in the standard financial system, I started developing proprietary algorithms to trade Forex markets independently. I started an initial team in 2005 and coded our proprietary statistical strategies using various languages, mainly CC+ and Basic.

With the new era of digital assets, particularly cryptos and their main pairs, we noticed that our forex trading strategies were also working for these markets. While coding for these new digital assets, new opportunities came by, and we started an Ether mining farm in Europe and Hong Kong. After a short period, we expanded our mining activities to Canada in order to mine at a cheaper cost with green energy (with Hydro Quebec). The mining management required a cluster of machines controlled with digital panels to develop fully, primarily using Solidity and Python. Therefore, we became very accustomed with these new languages and started to get new ideas on how to expand and share our knowledge in trading and software development. After a while, it was clear that the crypto market, especially DeFi, needed a new product: an asset management service.

This service would include three main aspects of the DeFi world that aren’t very developed yet: a fix income service (on stable coin assets), a fully managed algorithmic trading service, and a simplified futures contract trade service with easy pre-set parameters (comparable to a sports bet) for anyone to use easily. Finally, we decided to start building the platform with our own resources. Currently, we have written all the necessary smart contracts in Solidity (on the BSC chain) and have a working platform. We are undergoing the auditing process with Certik and will be complete any day now. Next, we plan to launch our IDO by the end of February.

Ishan Pandey: According to you, who will be the ultimate winner? CEXs or DEXs?

Manfredi Magris: The Ultimate winner will definitely be the DEX! Many pairs aren’t available on DEXs, and when they are, they often have a limited amount of volume/liquidity. But as soon as more and more people use DEXs, a scenario becomes increasingly probable where protocols like for example, Hyperdex effectively onboard even inexperienced users into DeFi. Eventually, the easier approach will replace CEXs totally. Currently, CEXs are cheaper in fees when executing trades or swaps in comparison to the fees on DEXs. Ethereum Mainnet via Uniswap and Sushiswap. However, new optimized DEX chains are ready, such as Avax, Fantom, Bsc etc. and with their usage comes the user incurring much lower fees, even when compared to a CEX.

Ishan Pandey: According to you, what is the future of decentralized financial asset management?

Manfredi Magris: The future is a transition from the standard financial world, where currently 99% of all the money is still under management, into the new DeFi sector. Once this happens, most protocols will probably not have the pump and dump effect anymore, as the “real/old financial money” usually tends to stay longer in the project they choose. With this in mind, we may see many crypto DeFi projects fall to zero if they don’t meet the real financial/government world expectations in terms of regulation. However, at the same time, we could witness an unprecedented rise DeFi tokens that add real value and utility for the new digital finance era.

Ishan Pandey: Could you share your thoughts on the present condition of crypto’s security with us? What needs to be done to dispel the widespread belief that investing in or holding digital assets is a security risk?

Manfredi Magris: The crypto assets stored on cold wallets (nano, ledge, trezor, etc.) or direct wallet services (ex. metamask) are very secure, and so are the passwords and systems created around them. A 24-word passphrase on an ex. a Nano ledger would need all the BTC mining computing power running for 35 consecutive years to find the correct combination. That would be for just one passphrase - basically impossible. The problem is, as always, the lack of precaution from people. They may lose their passwords by writing it somewhere then forgetting or worse on a piece of paper that gets wet, damaged, or vanishes over time. These are only some of the problems, with others including bad communication or management. This can come in the form of for example, telling the password to your friend, or son, or mother, and suddenly 10 people know about it and if one gets eventually dishonest or makes a security mistake, the assets are lost.

In our opinion, robust blockchain security protocols are not hackable in the sense that many think. Often, when someone gets “hacked”, the password was stolen by the “hacker “ via some procedure such as the user falling victim to a phishing program. So a “hacked” wallet is usually never a direct blockchain security issue. One rule is to never share your seed phrase online with anyone unless you are 100% sure it is the correct cold wallet or online wallet service/address.

Another problem includes exchanges, where some users lose their funds due to mismanagement or bad faith management on the part of exchanges owners. As an additional rule, one should never leave their crypto on any exchange for a prolonged time but always transfer it to an external cold wallet or at least to a wallet service such as Metamask to protect their digital assets from exchanges mismanagements. Some exchanges are more reliable than others, such as Kraken, Coinbase or Binance, however, no one should keep a significant amount of assets on them.

Ishan Pandey: How can retail investors mitigate the risks inherent to DeFi that a single passive investor cannot manage?

Manfredi Magris: Retail investors can mitigate their risks by knowing exactly how a DeFi protocol that uses smart contracts functions and what exactly happens with staked tokens. Everything that is happening with their funds is described in the protocol’s smart contract, which should be available publicly on-chain for review. Any functions other than those described in the particular smart contracts cannot be executed, as the code is immutable. This is good to know for an end-user, as the expected execution of a smart contract will always come true. The risk they may have is the owned asset value depreciation, but the risk of mismanagement is extremely low, as no one can modify the smart contract functions once published on the related blockchain. In case of emergency, most DeFi protocols offer an early withdrawal function, so in that case, a passive user can exit their DeFi investment at any time if they wish (usually with a fee).

Ishan Pandey: There are currently very few DeFi companies that are compliant with legislation around the globe and this must be rectified if these companies are to realize their full potential. What are your views on the regulation of DeFi protocols/platforms?

Manfredi Magris: All of my team believes we need to immediately comply with the imminent regulations coming soon to the digital assets world. That’s why we plan to allocate a huge amount of our funds to gather all the required licenses to stay updated with current and future legislations/ regulations. It is essential for us, especially as DEXs continues to grow, that our services are authorized worldwide, including in the United States.

Ishan Pandey: According to you, what new trends are we going to see in the blockchain industry?

Manfredi Magris: This year, according to us, is the year where utility tokens will be the leaders of blockchain. Even an NFT protocol having some utility (ex. used as a reference for a shipping item) could become of high interest. Therefore, protocols that create new utility, such as bringing asset management to DeFi, will be long lasting and gain surprising value. While many protocols that have a specific function will gain value, meme coins or tokens that exist just because of a community support the price without any particular function, or even worse, just a copy of other protocols, may slowly vanish (or at least significantly decrease in value over time).

Disclaimer: The purpose of this article is to remove informational asymmetry existing today in our digital markets by performing due diligence, asking the right questions, and equipping readers with better opinions to make informed decisions.