Hong Kong-based bitcoin and cryptocurrency exchange Bitfinex has announced today it will launch Ethfinex and with it the vision of a customer-centric and highly liquid digital asset exchange platform. Ethfinex will be a hybrid community and information hub for developers, traders, and enthusiasts designed to facilitate discussion, development, and trading in the Ethereum ecosystem.
The company is planning a new token called the Nectar token or NEC which will act as a loyalty reward for token market makers on the Ethfinex exchange. Facilitated by the Nectar token, the long-term vision is to move towards a completely trustless exchange, with gradual decentralization of ownership to its community of users.
The Ethfinex platform will reflect the nature of the Ethereum community itself: building smart contracts and decentralization increasingly into everything it does and providing tools and modules necessary to interact with and contribute back to other projects in the ecosystem.
The Bitfinex team said:
“Tokens and tokenized assets on Ethereum are fast proving themselves to represent one of the most exciting innovations of the decade, with the potential to displace traditional business models and revolutionize financial infrastructures. The core value of these tokens is often the communities around them but, following the rapid growth of the ecosystem, these communities tend to be dispersed, with credible information difficult to find, analyze, and keep track of.”
“Based on Bitfinex’s trading engine experience and customer base, we believe that fully decentralized models for exchange are not yet mature or scalable. To accelerate the development of on-blockchain exchanges, the Ethfinex platform will pioneer a hybrid decentralized architecture, allowing decentralized exchanges to plug into it and trade with Ethfinex customers, as well as each other. Ethfinex will encourage the emergence of scalable and trustless solutions by acting as an experimentation zone for emerging decentralized exchange protocols, providing feedback and allowing them to test and learn.”
Preview: White Paper Introduction
After the Bitfinex hack in 2016, when approximately USD $72 million in bitcoin was stolen, the need to decentralize funds in the interests of security and customer protection was brought home to all reasonable observers. Significantly more funds were stolen in the security breach than were in active use on the platform at the time.
After the security breach, a tradable token—the BFX token—was given, without release or waiver, but subject to conditions on tradeability, to victims to address their losses. The tokens were subordinated, limited-recourse, and contingent liabilities of Bitfinex. The tokens gave holders the opportunity to exchange them at face value for shares of the capital stock of iFinex Inc., to eventually be paid back out of future exchange operating profits at one hundred cents on the dollar, or to dispose of them in the market at current market prices. Initially, these traded at a heavy discount, representing customer skepticism about whether they would ever be redeemed, given the history of other cryptocurrency exchange security breaches and the magnitude of the Bitfinex hack.
When Bitfinex began fully redeeming the BFX tokens for USD and exchanging them for equity, confidence returned to the market, as reflected in the market price of the tokens. Trading volumes on the platform started returning to previous levels. These positive market signals demonstrated the power of decentralizing ownership to a community of interest through tokens. Many Bitfinex customers and supporters now have a stake in seeing Bitfinex succeed. They, therefore, have an additional incentive to trade on the platform. The benefits for any platform dependent on network effects—as are all exchanges that rely on liquidity—are clear. Bitfinex has now spun off the Ethfinex team… (the link to check out the rest of the white paper is down below).