As we approach the ErgoDEX launch, it is important to highlight the capabilities of UTXO based DeFi (Decentralized Finance) smart contracts. More recent Layer 1 projects tend to be built on the Accounts model of Ethereum while Ergo is one of the few blockchains working to improve DeFi on the UTXO model that Bitcoin introduced. UTXO offers greater functionality and scalability for DeFi contracts through its lighter design when compared to the Accounts model.
Disclaimer: Decentralized Finance platforms are still in the experimental phase, therefore it is important to VERIFY and RESEARCH before TRUSTING the properties of a smart contract. When investing in new projects on decentralized exchanges, users should verify that the smart contract is designed in the way the ISSUER claims.
Initial Coin Offering on ErgoDEX
An Initial Coin Offering (ICO) is somewhat similar to an Initial Public Offering for traditional financial instruments such as stocks. It is basically a crowdfunding phase for independent developers who want to build their particular DeFi project.
A decentralized exchange creates an equal playing field for both developers and investors. It removes certain entry barriers and allows each participant to participate in the crypto ecosystem. With ErgoDEX, users can initialize coin offerings without the need for a centralized structure (eg. Binance’s Initial Exchange Offering) with the potential to reach a larger user base.
Similarly, investors can participate in an ICO (or in the case of a decentralized platform, Initial DEX Offering - IDO) with amounts as little as five dollars without the need for KYC compliance. During the ICO process, users enjoy full control of their funds while interacting with the ErgoDEX. The user’s private wallet (like a Yoroi wallet) interacts with ErgoDEX and holds the assets until transactions are verified and completed.
The ErgoDEX is a decentralized finance platform where all users can participate in the ecosystem confidentially and securely.
An ICO contract consists of 3 parts: the issuer, the buyer and the liquidity pool. Smart contracts can verify:
- If the issuer created the token,
- If the buyer has the ERGs to invest,
- If the liquidity pool contains enough liquidity for the desired exchange pair.
After that, the issuance stage takes 3 phases
- Funding: Buyers send ERGs to liquidity pools in a predefined time.
- Control: The funding epoch closes and the issued tokens become unlocked
- Withdrawal: In this phase investors can claim the tokens.
Because everything is on-chain, there can not be a point of failure in the process. If a user examines the offering’s smart contract, they can verify whether each step will be executed as proposed. Questions dealing with how to participate, how to receive tokens and when tokens will be received can be verified through an analysis of a particular ICO contract.
Your Keys, Your Funds
It should be kept in mind that although ErgoDEX is designed as a fail-proof exchange application, it does not mean that every project listed on ErgoDEX will be fail-proof. Users will need to verify the issuance contract in order to secure their funds because decentralized Exchanges can allow anyone to create an ICO contract. Therefore it is wise to use common sense to be aware when investing in new ICO’s and the contracts that govern those tokens. After all, it is a contract and it is always prudent to review a contract before agreeing to any terms.
In addition to the aforementioned DEX properties, ErgoDEX can provide “time released orders” where investors funds are released gradually while funding a project. There is also the option to provide a “buy-back order” which creates the ability to refund investors. These features offer a layer of security and oversight by potentially prohibiting developers from receiving the investments in the event they do deliver on the promised project. If the project is not proceeding as advertised, investors can withdraw their remaining funds and exit with minimal loss.
With Ergo, we are trying to create an equal playing field for all users while building safeguards to prevent malicious actors.
ErgoDEX is coming soon!
It is already designed so that users will be able to provide liquidity pairs for tokens such as SigRSV / SigUSD / ERG / ADA while earning commission fees. For more information on the features of ErgoDEX, please visit ergodex.io and check out this interview with the ErgoDEX Team. Additional resources include our article, ErgoDEX: A Cross Chain Workhorse, as well as a write up on how users can try out the release of ErgoDEX Beta.