On August 2, 2017, iFinex Inc. (BVI), owner & operator of the cryptocurrency exchange Bitfinex, revealed plans to launch Ethfinex, an Ethereum-based trading and discussion platform.
According to the release, Ethfinex will be a central hub "for Ethereum-based projects, designed to facilitate learning, discussion and analysis, whilst offering access to the most highly liquid and advanced trading platform for Ethereum ERC20 tokens."
Decentralization will be at the core of Ethfinex's model, which will make use of executable distributed code contracts (EDCCs) as a means of internal governance in addition to providing the community with a series of tools and modules to engage in discussion and contribute to various projects.
In the whitepaper, Ethfinex details a means for providing a platform that simultaneously serves large customers who provide liquidity to markets (or market makers), smaller customers, and large companies or projects. As the number of tokenized assets on the Ethereum blockchain increases, Ethfinex intends to create a central base of high-quality information for the communities that spring up around the various tokens.
Challenges like on-chain order-book latency, prevention of front running, the expense of on-chain transactions, and scalability limitations are issues Ethfinex seeks to solve with a Hybrid Blockchain Exchange Model. A set of general APIs and EDCCs allow external protocols to interface with Ethfinex. In this manner, centralized exchange users can access decentralized exchange contracts which pull data from a relay that mirrors the centralized order book. Ethfinex provided a diagram to show this interplay.
At center stage for the Ethfinex platform will be the Nectar Token (NEC), an ERC20 compliant asset. As stated in the whitepaper, NEC's purpose "is to reward market-making on Ethfinex. It is not to raise funds, or to fund or fuel crowdsales. Decentralizing an exchange means in the long term, decentralizing its ownership. Having users that own the exchange will incentivize its owners to remain loyal users. This will benefit all users, as it will foster liquidity and keep the market efficient." As such, NEC rewards will encourage market makers to generate large order books and minimum spreads for their listed trading pairs. 50 percent of monthly trading fees paid by the maker and taker will be directed into an EDCC and, at the end of the month, this reward is disbursed pursuant to the proportion of trading volume each maker conducted. Token issuance for NEC will take place during 28-day cycles according to this model.
Ethfinex's fee schedule is transparent:
The issuance model of NEC tokens means that market makers must continue to provide liquidity to the exchange in order to reap the benefits of rewards. As more tokens are issued, the ownership of the exchange is also distributed across the user base, as the diagrams below show.
The timeline for Ethfinex consists of three stages, as of now. The initial launch phase will see progress built upon the existing centralized Bitfinex platform, the development of a community discussion hub, protocol development for decentralized micro service architecture, integration of Ethereum Name Service, and the minting of NEC tokens.
Step two will involve the development of an API to interact with EDCCs to generate oracle functionality, and integration with additional Ethereum ecosystem partners. A NEC token governance advisory board will also convene as customer ownership increases through reward distributions.
The final stage projects evolution into increased scalability and the integration of proof-of-stake, sharding, and Raiden, as these protocols are developed. Emergent technologies will allow the exchange to fully transition into a decentralized state without requiring funds to be in custody of Ethfinex. Eventually, the NEC will enable Ethfinex to become a "community owned hub for token trading in the Ethereum ecosystem."