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The Inner Workings of Decentralized Crypto Exchange EtherEx

Last Updated March 4, 2021 4:48 PM
James Moreau
Last Updated March 4, 2021 4:48 PM

For cryptocurrency enthusiasts, there are quite a few options where they can do business in regards to trading and exchanging one type of digital currency for another via a digital exchange. Some exchanges offer sophisticated trading options with limiting, stop order and more. However, for most exchanges, the process of what goes on between trading funds is really a mystery.

You get a general idea about how much you’re able to buy and sell assets for, but that’s about where the transparency stops. EtherEx is striving to bring a new level of openness to cryptocurrency and token trading and they’re doing it through the Ethereum Dapp framework.

A Trustless Dapp To Prevent A Future Mt. Gox

As a team of 3 that initially met in a Bitcoin trading channel, EtherEx has been growing for over 2 years towards addressing what they saw as major problems in the crypto-exchange marketplace. As a reaction to Mt. Gox going insolvent, they believed some different standard needed to be developed if the industry was going to continue to grow. Luckily for them, they’ve received a lot of support in the Ethereum community, ConsenSys as they’ve continued to develop.

Dapps built on the Ethereum platform range anywhere from pie-in-the-sky abstract to quite pragmatic, however, the question always arises when a Dapp idea is brought up – how is a decentralized version of this better than a centralized version?

As co-founder of EtherEx, Eric Conner elaborated on the inspiration to develop a decentralized, trustless exchange. Speaking to CCN.com, he said:

At that time, Mt.Gox was going insolvent and stealing their customers’ BTC.  We had read Vitalik’s original whitepaper about Ethereum and realized it’d be a great opportunity to create a decentralized, trustless exchange.  That was really the catalyst for what became known as EtherEx.  We knew it’d be a long journey, especially at the time with the Ethereum launch being so far away but it’s really come together in the past couple of months.

Leading The Way To Trading Ethereum Based Tokens

EtherEx will offer cryptocurrency trading options much like most of the major players in today’s industry, however something they will focus heavily on in addition to this is cryto-tokens which are issued as currency within the Ethereum network. Dapps such as Augur and Digix have been some of the more high-profile examples of companies that have issued tokens thus far through crowdsales. Until recently, these tokens were only exchangeable through peer-to-peer transactions, however much like the market has seen trading value in Ether against fiat and other cryptocurrencies, the demand for token trading has arisen.


In what may seem a bit meta, EtherEx has been caught up in some controversy in their announcement that they’re considering a crowdsale in order to help finance the further development of the platform. Other Ethereum Dapps have run highly successful crowdsales including gold-backed digital currency Digix and decentralized prediction market Augur raising millions of dollars in exchange for Ethereum issued tokens.

EtherEx will both potentially offer token trading and purchasing in their exchange platform, as well as need to issue tokens in order to make the platform possible. While many people in the Ethereum community and beyond are very excited for the possibility of a decentralized and trustless exchange, some people have voiced criticism about EtherEx being “greedy” in selling tokens or in their eyes, adding fees to the exchange. Conner obviously doesn’t agree with this perspective.

Conner stated in regards to the ETX tokens being considered fees by some, that their view is a bit short sighted. “From day one we’ve set out with the goal of creating a dEx without any fee other than the gas cost.  We think it’s important to stress that we don’t see the gas imbalance collection as a fee in the traditional sense (internally we refer to it as the ‘balancer’).  We are solving a problem that would exist on any dEx built on Ethereum which in turn would create an illiquid market.  

“Most centralized exchanges choose to charge a fee on a trade just because they can, whereas ETX is solving a problem that exists naturally for a blockchain-based dEx.  It’s also very important for us to note that we are giving these gas collections back to the holders of ETX. “

Figuring Out A Funding Option To Make EtherEx A Reality

Conner continued to elaborate on the need for ETX not only to balance out the gas-costs of trading as a decentralized exchange on Ethereum, but to help actually pay the people who are building EtherEx.

Funding honestly brings the project to reality; without it, it may not be possible, or at least not to the same degree that community members deserve.  We have a very small team and the challenges with a project like EtherEx are mounting.  There are not only feature/functionality requests that we would like to entertain, which take time and energy, but also the cost of compliance is daunting.

As a small team, we don’t have all the resources needed to take on these challenges.  We believe a crowdsale would allow us to realize the vision we have.  We hope others see that vision and contribute to our mission to bring a fair, stable, and complete decentralized exchange to the market.

The voices that have raised concern over how the crowdsale of ETX will affect EtherEx as a company and potential community have not fallen on deaf ears however. The team at EtherEx is putting much thought into how they will go about issuing and structuring their crowdsale tokens and plan to take cues from other successful and popular crowdsale examples directly.

“The idea of ETX came about when we realized the gas imbalance between placing an order and filling an order.  At the same time, the team needs funds to continue development on the project so we found it as a natural fit.  Our main idea is to create ETX tokens which would be redeemable to a contract that holds all of the gas imbalance collected among trades on the exchange.  We are collecting feedback from many in the community and working on the logistics of sale internally.  

“As mentioned in our blog, Digix has been a great partner and we are talking with them in relation to our crowdsale and are also hoping for help from their DAO in our code audit.”

Embracing The Community Around Ethereum

According to Conner, the projected launch date for EtherEx is slated to be somewhere in Q3 of 2016, which comes around the expected date of DevCon2 in September. When asked if this launch date was intentionally in lockstep with a major industry announcement or purely coincidence, Conner stated that it was not initially a plan to launch with DevCon 2 in lockstep.

“At this time we have not been in talks to launch at Devcon 2.  As with any software development we live by the motto of: “When it’s ready.” It would be awesome to release it at DevCon2, but it’s impossible to set a hard date until it actually is ready.”

As for the timeline of finishing the initial product offering, there’s still a lot of work to be done in order to bring EtherEx to fruition. It seems the team is seeking as much public input on the project as possible, In creating a structure called The EtherEx Foundation, EtherEx will be providing a non-profit model organization which will advise the advancement of the exchange moving into the future. Obviously, this model is something that hasn’t ever been seen before as real Dapps from Ethereum are simply on the bleeding edge of what’s possible in business and technology. How EtherEx and other Dapps with a similar ethos will materialize in the future may be very different than what even the creators expect and could surprise us all.

Conner commented on the growth of Ethereum and building on the platform:

“In general, the community has been great to us.  We’ve created a wonderful network of individuals deeply involved in dApps that we continuously bounce ideas off of and get feedback.  In terms of the technology, this is new territory for everyone and I think it’s important that it stays open and honest in the early stages of development.  This is a very different environment than with traditional web applications and newcomers may struggle, but even beginners can see the mind-blowing possibilities that are available to them. 

“For EtherEx, early development was particularly challenging between the first proof-of-concept (PoC) and the Frontier release, which was to be expected.  With Frontier released, there are now assurances for developers that the platform is stable which should bring in more resources.  Ethereum offers an amazing platform for success and we all need to take advantage.  The best way anyone can further the technology is to develop, manage, or invest in projects.”