At the London Blockchain Conference, Angus Adams (Analytics Advisor at DXS) had the opportunity to represent the DXS platform and introduce the audience to how it empowers retail traders.
In the style of a startup pitch, he describes DXS as ‘Robinhood the trading platform, but actually.’ The allusion to ‘taking from the rich and giving to the poor’ plays an important role in the presentation.
The industry favours institutional investors over retail traders
Adams identifies a key issue in the current trading landscape: traditional trading platforms profit when retail traders incur losses. He specifically critiques Robinhood, highlighting that the platform ironically makes money by favouring large financial institutions over its retail trader user base. Adams characterises this dynamic as akin to taking from the less affluent retail traders and benefiting the wealthier institutions.
Adams explains that Robinhood, despite its image of empowering small traders with zero commissions, generates a significant portion of its revenue, around $1 billion annually, through a practice called payment for order flow. He contends that this involves selling retail trader orders to large financial institutions, providing them with advanced knowledge of retail traders’ profit levels, stop loss levels, and liquidation levels.
The conflicting business model of current trading platforms
Adams argues that this arrangement allows financial institutions to trade against retail orders and gain an advantage over them. Ultimately, this also results in retail traders receiving poorer pricing for their trades. Adams explains that the root of this problem is that such exchanges intertwine two different business models:
‘So you’ve got retail, you’ve got the trading brokerage trading platform itself and then you’ve got this intertwined entity that it deals with that is responsible for market making, trade settlement and liquidity,’ he said.
Adams also discusses what a theoretical solution to this conflict situation might look like. He suggests the creation of an ultimate liquidity function as a protocol, ensuring transparency, independence from specific trading platforms, and openness for public auditability. The protocol would allow any compliant broker or trading platform to connect to it. Notably, Adams emphasises the importance of redirecting any value extracted from retail traders’ losses towards a non-profit foundation for the public good.
The liquidity protocol in practice and how DXS users interact with it
Adams goes on to reveal that DXS has developed such a protocol over the last two and a half years, which interoperates with the DXS trading frontend. The protocol consists of a pool of US dollar stablecoin funding, including USDC, USDT, and Dai.
The trader base, currently exclusive to the DXS trading application, interacts with this protocol. Profits from trades are paid out of the pool, while losses are absorbed into it. Liquidity providers contribute to the pool and receive daily yield payments, averaging around 10% over the past year on DXS.
The blockchain serves as the foundation for this protocol, offering transparency, immutability, and the ability to automate business processes through smart contracts. This blockchain-based approach ensures that users can trust the recorded data and prevents any undisclosed business processes. Additionally, the native liquidity on the blockchain eliminates the need to connect to the traditional financial system.
User experience on DXS
To showcase how DXS works and how users experience the platform, one of the presentation slides includes a GIF of a user opening a $300-long position on the gold market with 30x leverage. While the front end of the trading application is smooth and intuitive, the platform is actively constructing a BSV transaction behind the scenes, when doing trades.
As the user inputs transaction parameters, this data is stored in a BSV transaction’s data payload. The open liquidity protocol then signs this data, confirming its authenticity, and encrypts it to the user’s public key. The user’s wallet subsequently signs the $10 output, authorising the transaction and finalising the trade.
Additionally, Adams presents another GIF, where the same user can access an independent website via a link, exploring the blockchain to view the transaction they just made. This provides users with independence from DXS in verifying the transaction’s accuracy and allows them to retrieve data from an unrelated third party in the future. The process involves secure and transparent blockchain-based transactions, enhancing user control and data verification.
DXS has entered the growth stage
Adams briefly touches on the substantial customer lifetime value, approaching $1,000, highlighting the profitability of the trading model on a per-user basis. He suggests that this strong financial position sets the stage for the next development phase, focusing on growth, and prompts the question of how much can be spent on customer acquisition given such a significant customer lifetime value.
DXS, operational for a shorter time frame, currently boasts over a million trades across 200 global markets, resulting in over $4 billion in trade volume. The protocol is running smoothly, the DXS trading interface is operational and nearly bug-free.
Currently, DXS is aiming to attract the next 10,000 to 100,000 users. Adams recaps the current state of DXS, emphasising its operational status, access to global markets, zero transaction fees, and a recent connection to the Ethereum network.
Adams outlines the final step in their plan: implementing a growth engine by giving users free capital to trade. He briefly touches on the growth strategy, targeting jurisdictions where competitors face challenges, and notes the importance of exploring untapped markets.
You can find out more about DXS here.
