Crypto Market Commentary
18 August 2019
Doc's Daily Commentary
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The Nash exchange is an upcoming ‘decentralised’ exchange which aims to bring the benefits of centralised exchanges such as speed, capacity and multi-asset exchange into the decentralised realm. This is a very ambitious project and I have generally been very impressed with the professionalism of the team building the exchange so far.
Nash was originally launched as Neon Exchange with the token NEX and is hosted on the NEO blockchain. The team developing Nash have their roots as City of Zion developers for the NEO blockchain ecosystem. These developers are all highly competent and have a strong history of shipping and delivering well-tuned products. However whilst this is the origin of the team, the exchange is being developed as a multi-currency exchange with only the hosting of NEX tokens being reliant on the NEO blockchain.
Nash is targeting a full decentralised financial services stack including the exchange of crypto-assets, a fiat gateway, payment services for merchants and users and a platform for the investment in security tokens.
The Token launch
Nash exchange token NEX was launched via Europe’s first registered security token offering (STO). The initial distribution was an ICO mechanism (the only one I personally ever participated in) however it differed from utility ICOs in many ways.
First, the vesting schedules for the team is for 2 years, as of today, no Nash team member have any tokens from the distribution and the company and retains 50% of all tokens for future fund raises and team incentives.
Second, the selection process to participate was via a lottery with maximum limits of $1,000 per individual retail investor and $10,000 for larger investors. 50% of tokens (25Mil NEX) were issued to investors which is a large amount of equity in the company.
Third, the token is registered as a security with dividend and voting rights with the security registered in Lichenstein (make of that what you will, crypto compliance is a basket case in most jurisdictions). The team spent many months establishing compliant rules and regulations surrounding the company and the token issuance schedule to ensure all the I’s were dotted. I very much respect the methodical, transparent and honest approach by the team. It was very refreshing and NEX was actually the only ‘ICO’ that I ever participated in.
The Nash exchange is targeting a multi-asset digital exchange where users will have access to markets for BTC, ETH and NEO to start. Beyond this, Nash is planning have securities listed on the exchange and is therefore a potential competitor to Open Finance Network and TZero. Given how large the potential market for STOs is in the future, I see this as an enormous opportunity for Nash as a standout player in the space.
Users of the exchange hold their own keys which solves the custody and not your keys problem. This is where the ‘decentralised’ argument comes for the exchange. This is a direct competitor to Binance DEX as well which lets face it, is full of absolute garbage assets that I suspect is already on its way out.
Where Nash will distinguish itself (if they can deliver the product) is that they will be listing only high quality and regulatory compliant assets as well as STOs. Where I see this going is a blend between a future FX market and Securities exchange. Exchange of currency and investments in one location, pretty compelling.
The matching engine is designed to be an off-chain matching engine to overcome the speed limitations of blockchains. It utilises multi-chain state channels which operate outside the main blockchains, exchange between users accounts via trades off-chain and only write back the final state to the main-chain at a time of settlement. This way the speed and reliability of a centralised exchange can be achieved whilst avoiding the bottlenecks of distributed systems. Only when a user has explicitly signed a transaction will the final state be written to the main-chain which again, gives the custodian rights and ownership back to the individual.
Nash will feature a fiat gateway which will be a significant value proposition. In this regard, Nash will act as a connector between fiat liquidity suppliers/partners and users who wish to exchange in either direction. Further details on the fiat gateway is expected closer to launch.
As a final note on the exchange, it is to launch worldwide, including the US. All necessary licensing is being obtained by the team to operate legally for all jurisdictions to access.
The NEX token
The NEX token is a security token and it carries with it the rights of up to 75% of the exchanges revenue stream. Users opt to stake the token for a period of time where the longer the token is staked, the greater the rewards schedule is. This is a fairly straightforward concept and quite frankly, is what Binance should have done with BNB. Rather than creating an infinite number of unsustainable ways to add value to a utility token, NEX has instilled genuine and regulatory compliant dividend rights into the token model.
One difference between the NEX token and the STO tokens that we have considered via Issuance platforms (Harbor, Preflogic, Blockstate etc) is that NEX has access to dividends via locking the token in a smart contract rather than baking these features into the tokens contract. This has benefits that it makes the token and its use cases more flexible as external smart contracts can be built and adjusted as the product suite evolves. It has the disadvantage of not having the compliance elements built in however remains compliant in its registered jurisdiction.
Nash exchange is a centralised team who is building decentralised technology. To date, the teams fund management has been conservative and efficient and my understanding is that the team still has sufficient financial capital to deliver the exchange product. The exchange fees will be shared between the NEX token stakers and the team in order to remain in business and profitable. There remains a risk of shutdown of the centralised exchange team however at the same time, the team has done everything possible to ensure compliance is met for NEX token holders and even in the worst case, users funds remain in the individuals possession (NEX value will likely be destroyed however).
NEX exists on the NEO blockchain and NEO is a supporting investor in the project. Whilst this link is strong, I do not believe that if NEO was to fall apart, Nash exchange goes down with it. The NEX token can safely be ported over to any other blockchain and the infrastructure is not dependent on the NEO blockchain. This is excellent foresight by the team to be blockchain agnostic and works well for mitigating such risks.
Nash first product will be the exchange which I believe is expected to launch on mainnet on 23 August. The exchange will have support for USDC as a stablecoin as well as BTC, ETH and NEO trading. Down the line, security tokens and increased cryptocurrency coins/token can be expected.
The Nash wallet is planned which will be a multi-asset wallet that enables unique features like multi-signature, key sharing to enable brokers and custodian support and setting spending limits like a bank account. Additionally, Nash-pay is planned for the future which will link merchants and Nash users to enable spending and receiving of both fiat and crypto payments. The idea is to create a system similar to Revolut or Venmo where currency exchange, banking services, payments and investing become streamlined through a single platform.
What Nash is trying to deliver is a completely non-custodial exchange with centralised exchange throughput capacity. User funds are never held by Nash and thus even if the exchange gets shut-down, uses never lose their funds.
The NEX token is a registered security and the team have gone to great lengths to ensure they operate under the regulations and in compliance with the law. Thus they have minimized as far as can reasonably be expected, the risk of regulatory attacks.
The tokenomics of NEX are actually sound as they give legal dividend rights to holders. This makes the token vastly superior to any other exchange tokens like BNB, HT and KCS. The biggest risk for Nash that I can determine is attracting sufficient volume to the exchange. Assuming they build a high quality, non-custodial exchange, I expect this to be an organic and likely outcome.
Personally, I like the team, I like the transparency and honesty, I like the ethos and I like the focus on regulatory compliance. The project and token have a sound value proposition and now it comes down to shipping the product and attracting users. If they pull it off, Nash has the potential to be a world class service and I really hope the pull it off.
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