By Staff Writer
HK-based OAX Foundation, which is working on a decentralized digital assets exchange, recently released (see here) the code for a trustless exchange protocol that aims to address some of the key vulnerabilities such as hacking and dispute resolution often associated with current crypto exchange models. The new Layer 2 Exchange (L2X) protocol has been developed in association with its partner Enuma Technologies. We speak to the Amanda Liu, general manager of HK-based OAX Foundation, on what exactly it entails.
Q: The new layer-2 protocol is hailed as a breakthrough in terms of how it has a built-in on-chain dispute resolution mechanism? Is this the future of crypto exchanges? What exactly does it mean?
A: The L2X protocol launch is absolutely a breakthrough for crypto exchanges. In centralized exchanges, third parties such as custodians hold a user’s assets and can adjudicate in the event of any dispute between buyer and seller. However, entrusting assets to a third party carries considerable risk as third parties may not act faithfully or in a timely manner. By creating a way to automate the dispute resolution mechanism, we’ve greatly reduced such risks while overcoming speed and scalability challenges.
Q. Is this the first time that someone has designed a protocol with such a feature? Are there are any rival protocols? What are some of the key differences?
A: We are one of the first exchange protocols with on-chain dispute resolution mechanism. We’re proud to have developed a non-custodial exchange protocol that solves the speed, scalability and custody challenges of conventional digital asset exchanges.
Q: Do you mean that once we have a trustless exchange, there would be no need for custodians, nor collateral? Does it mean it would be easier and less costly to set up exchanges?
A: L2X protocol allows users to maintain control of their assets at all times without needing to put trust in third parties, such as custodians, who have consistently proven liable to hacking. The cost involved in setting up and running exchanges varies between operators.
Q. What are the regulatory implications of such exchanges? Would it make it easier or harder to comply with crypto asset regulations, especially when it comes to KYC and AML/CFT regulations?
A: Currently, FATF demonstrates that the regulatory focus is placed largely on centralized exchanges that are in the market. While its less clear where decentralized trading will ultimately sit within this wider framework, we believe the future of decentralized exchanges will need to be able to interact with other parts of the digital market, hence the integration with specialist firms offering KYC and AML/CFT services. Through integration with their systems and work, we should be able to build an ecosystem which provides for everyone’s needs.
Q: How the new trustless exchange model might actually help the mainstream adoption of crypto assets?
A: Many decentralized exchanges are plagued with performance problems due to technical restraints. Combined with hacking risks, these barriers greatly limit mainstream adoption of digital asset trading. With the release of our new Layer 2 Exchange Protocol, we’re proud to have developed a non-custodial exchange protocol that address the speed, scalability and custody challenges of decentralized exchanges.
Q: How far are we from the actual implementation of this protocol to create a trustless decentralized crypto exchange? I understand that OAX is working on one.
A: The launch of Layer 2 Exchange Protocol marks a historic moment in OAX’s mission to bring digital assets into mainstream through decentralized exchanges by tackling the technology challenges by addressing speed and scalability issues. OAX will continue to work with business partners and focus on addressing the particular requirements necessary for integration technical constraints the industry faces. We look forward to updating the community as we continue to develop the next generation of decentralized exchanges.