Sector coverage – Decentralized exchanges 1. Key players in the DEX space 1.1 Selected projects 1.2 Selected competition 2. Fundamental value 2.1 Current use cases 2.2 Future use cases 3. Financials 3.1 Current Comparables 3.2 Future possibilities 4. Final conclusion 1 1. Key players in the DEX space 1.1 Selected projects 1.2 Selected competition 2 1.1 Selected projects Multiple projects have their native token among the Top 200 in terms of market capitalization. The majority of large projects try to promote themselves with low fees, open protocols and hidden order books Large Cap1 • Very low fees • Open protocol • No KYC, no login • BTC and Fiat support • Fast relayer • Low fees • Automatic matching • Low fees • SmartAssets & • Platform supports • Only actual ERC20 custom token transaction go on • No trading limits the blockchain Mid Cap2 • Liquidity via reserve • Smart token • IDEX exchange entities reserve system • Only ERC20 token • KNC token burning • Conversion via • Low fee for makers • No order book smart contracts, • Open order book • On-chain operation not second party 1 Market cap exceeds EUR 75m as of 23.11.2019 2 Market cap exceeds EUR 25m as of 23.11.2019 3 1.1 Selected projects (2) Countless projects still have a fairly small marketcap. Some centralized exchanges either bought or fully developed DEX projects as well. Small Cap • Backed by ConsenSys • Open source protocoll • Feeless trading • Hidden order book • Dark pools / no front running • Decentralized order matching • High influence by token • Possibility for cross-chain trading holders Non public exchanges • ERC20 token relayer • Built on Binance chain • Built based on 0x protocoll • Automatic price matching • P2P system, no login required • Works together with Binance • Bought by Coinbase in 2018 Core Source: Company websites, Medium, Coindesk as of 27.11.2019 4 1.2 Selected competition DEX not only have to compete against current centralized exchanges and P2P markets but also new entrants in the form of legacy exchanges or DEX owned by exchanges like Coinbase or Binance Centralized exchanges OTC markets • Most common forms of exchanges • Cash payment possible • Easy to use, regulatory safety • Trusted escrow systems • High volume, low spreads • Available in most countries • Counterparty / security risks • High level of anonymity Legacy / traditional exchanges 24h volume as of 11.10.2019 Centralized exchanges > 60.000.000.000 USD • Trading of BTC/ETH futures by Q4 19 • Excellent infrastructure / trust level OTC markets ~ 230.000.000 USD • Connected to institutional investors CME Futures ~ 125.000.000 USD • Rumored to work on DEX-solutions Decentralized exchanges < 8.000.000 USD Source: Company websites, Medium, Lifewire, Coincentral, Barchart.com, Coindesk and various OTC volume trackers as of 11.10.2019 5 2. Fundamental Value 2.1 Current use cases 2.2 Future use cases 6 2.1 Current use cases The current use of decentralized exchanges mostly consists of trading large amounts of crypto without any front running and not having to transfer your funds to third parties Retail investors / traders High frequency trading • Funds stay in your wallet • Using large dark pools • No danger of front-running • Like open source protocolls • High level of anonymity • Like trading directly with • Not restricted by laws wallet • Great network to founders Institutional investors Selected partners of DEX projects • Need dark pools for large orders • Like trading out of their wallets • No danger of front-running • Actively support independent projects Source: Company websites, Medium, Lifewire, Coincentral, Coindesk as of 29.11.2019 7 2.2 Future use cases DEXs can be a catalysator for far more than just mere decentralized crypto trading. Real assets, illiquid financial instruments etc. could be introduced to the crypto space via DEX platforms True decentralization Tokenization • Current crypto eco-system heavily relies on • Tokenization refers to the system of creating centralized exchanges token that represent a real world value e.g • A handful of key people control most of the shares in companies, debt instruments or crypto cash flows real estate • DEX enable true P2P trading without • These tokens can then be traded on DEX, counterparty risk / front running thereby giving liquidity to assets which • From buying to trading, lending and selling, usually are not traded (e.g real estate) everything can be done out of your wallet • Potential for traditional financial products to without the involvement of any third and be introduced to the decentralized crypto- sometimes even a second party world, without the need for expensive third • For retail investors / normal crypto users DEX parties like clearing houses enable true decentralization • Retail investors get more and easier exposure to traditional assets classes Source: Company websites, Medium, Lifewire, Coincentral, Coindesk as of 16.11.2019 8 3. Financials 3.1 Current Comparables 3.2 Future possibilities 9 3.1 Current Comparables Decentralized exchange token almost universally trade at extremely high multiples and in the past have lost a majority of their value vs. bitcoin Current Price Performance 7d Performance 3m Performance 1y Token Volume Exchange Vol / MC / Identifier Marketcap (in BTC) (vs BTC) (vs BTC) (vs BTC) (in USD) Supply Rate Exchange Volume Transactions MC / Volume Transactions Transactions Waves WAVES 104.541.590 0.0001060 2.93% (17.04%) (68.78%) 39.756.734 100% 539.336 68.536 194 7,87 1.525 0x ZRX 129.979.581 0.0000220 37.42% 20.42% (77.29%) 16.201.141 94% 197.013 n/a 660 n/a n/a Bitshares BTS 92.197.192 0.0000030 4.62% (42.55%) (81.56%) 2.099.168 78% n/m n/m n/m n/m n/m Kyber KNC 34.450.390 0.0000210 1.16% (8.34%) (65.12%) 2.173.096 120% 742.228 1.071 46 693,02 32.167 Bancor BNT 24.602.307 0.0000400 6.19% (40.57%) (82.58%) 1.113.367 91% 335.770 235 73 1428,81 104.691 Aurora AOA 54.972.801 0.0000008 4.39% (66.85%) n/a 2.104.101 65% 365.165 4.400 151 82,99 12.494 Airswap AST 4.953.000 0.0000034 33,86% (45.81%) (73.23%) 3.390.645 30% 3.744 5 1323 748,80 990.600 Rep Protocol REN 36.978.602 0.0000047 17,21% (13.44%) (10.65%) 3.111.931 80% n/a n/a n/a n/a n/a Average 408 592 228.295 Median 172 693 32.167 Binance BNB 3.103.509.063 0.0020234 1.82% (37.46) 32.32% 151.346.231 83% 781.749.983 10.000.000 4 78,17 310 Key takeaways: • All decentralized exchanges currently suffer from low volume, most have a low average size • Poor token performance vs. to BTC Sources: DexTracker, Coinmarketcap, Onchainfx and various company websites as per 23.09.2019 10 3.2 Future possibilities Bull Case • Volume rises significantly, adoption gets to mainstream levels • Multiples of DEX token converge to real world counterparts • DEX token utility rises, resulting in exploding prices Medium Case • Volume on DEX slowly rises, resulting in moderately rising token prices • Multiples normalize to a certain degree • Better DEX liquidity results in continued mainstream adoption Bear Case • Volume / liquidity stays very low, adoption doesn’t grow • DEX token prices continue their downwards trend, with some even ceasing to exist Source: Company websites, Medium, Lifewire, Coincentral, Coindesk as of 27.11.2019 11 4. Final conclusion Thesis • Bull Case: DEX take over most of the market share • Medium Case: DEX take a strong minority share • Bear Case: Consolidation; Continued low market share • No way of telling with scenario is most likely to happen Catalysts • Future security breaches of centralized exchanges • More institutional investors showing interest in crypto • Continued tokenization of real assets • Rise in average knowledge about DEX of crypto users Risks • Regulatory uncertainty e.g SEC approvals pending • Continued low liquidity might scare of mass adoption • Many projects might fall victim to consolidation • DEX UI still to complicated for new users Source: Company websites, Medium, Lifewire, Coincentral, Coindesk as of 27.11.2019 12
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