Billions of dollars have been lost to cryptocurrency exchange hacks in the decade since Bitcoin launched, with the most severe cases resulting in the collapse of exchanges and complete loss of all funds users have deposited on these platforms. Despite this, decentralized exchanges (DEXs) have yet to achieve anything like the trading volume of the largest centralized exchanges. With the upcoming launch of its user-friendly DEX, Nash is looking to change that.
But the launch of Nash’s DEX is just the beginning. In a recent conversation with Nash co-founder Fabio Canesin, he outlined Nash’s development of a fintech platform that combines decentralized trading of crypto and other digitized assets with a mobile payment service that can be used anywhere.
“Nash itself is a fintech company,” Canesin explains. “We like to think of ourselves in a more traditional form than most crypto companies. The approach we take is we are about technology of finance. And our premise is that finance itself is becoming digitalized.”
Canesin says this was “a bold vision” when Nash’s co-founders began working on the project, but the emergence of fintech upstarts such as Revolut and Monzo from the UK and Defy in the US shows that this is a growing trend. And this trend isn’t restricted to personal banking.
“On the investment side, [you have] things like Robinhood. In our view, these are going to merge, because there’s not enough differentiation between those services in terms of compliance, licensing, and everything the business has to build, for them to be apart. And as finance itself becomes digitalized, our biggest premise with Nash is that the assets that you store on your mobile bank, or that you trade on your mobile broker, will also be digitalized. So we’d like to present Nash a fintech company using blockchain as an infrastructure. We’re trying to build exactly the same kind of user experience that people are used to when managing assets in banks or trading on mobile traders, but with digital assets. For instance, securities, or anything that you can represent using digital ledger technology (DLT).”
A Blockchain-Based Fintech Disruptor
The firms Canesin mentions at the forefront of fintech revolutions in personal banking and investments have experienced explosive growth over the past few years. Revolut and Monzo were both formed in London in 2015 with a focus on developing a mobile-orientated alternative to traditional banking services. Robinhood, founded in Silicon Valley in 2013, allows user to trade shares in publicly-listed companies via its smartphone app without paying broker fees. All three hit received millions of dollars in funding and hit milestones of 100,000 users within the first few months of their existence. By 2018, they had all achieved ‘unicorn status’ with institutional investors pouring in hundreds of millions of dollars in funding that valued each at over $1 billion. The userbase of each service has continued its exponential growth as they’ve expanded beyond their home countries, with the latest available figures estimating that Revolut and Robinhood each have more than 4 million active users.
These leading fintech upstarts are also pursuing exactly the kind of horizontal integration of services that Canesin sees representing the future of fintech. Revolut’s customers are able to purchase cryptocurrency through the platform, though in a highly restricted way that doesn’t allow funds to be withdrawn to external wallets. Robinhood is actively pursuing a United States banking license so that it can offer its customers savings and checking accounts and other traditional banking services.
Nash differs from Revolut and Robinhood by using blockchain as the basis for all its other services. “We’d like to present Nash a fintech company using blockchain as an infrastructure,” Canesin says. “We’re trying to build exactly the same kind of user experience that people are used to when managing assets in banks or trading on mobile traders, but with digital assets. For instance, securities, or anything that you can represent using digital ledger technology (DLT).”
While Revolut has ostensibly embraced cryptocurrency trading, the prohibition on withdrawals to external wallets means that its users can never directly take ownership of cryptocurrencies purchased through its platform. In an interview with Decrypt Media in March, Monzo co-founder Jason Bates said that he thought most Monzo users had little interest in cryptocurrency and the platform was unlikely to incorporate it into its services. Robinhood has its own issues with cryptocurrency, sending a cease-and-desist to crypto exchange Cobinhood based on its “confusingly similar branding.”
In contrast, Nash is aiming to fully integrate cryptocurrency with mobile payments and digital asset trading. And the principles behind its DEX will be extended to all of the services it offers.
“The way that most projects right now deal with trading digital assets or doing fund management of digital assets is that you deposit [under] their control,” Canesin says. “So when you apply traditional technology, you have a mobile app or a Java app [where] you wouldn’t know whether you’re on a database, and so on. We believe that’s not the [right] direction because when you do so, you are actually removing the profits from the assets, because the assets become just a representation on a database, and everything is just blurred together in a single account. Maybe it’s in the offline account of the exchange itself, but not only is there the security issue, but you’re removing the profits from the asset. So we’ve developed our technology on the premise of keeping those profits. When you control your funds using the platform, it’s much more like a window to different blockchains, instead of a place where you deposit your funds. You continue to control private keys. We cannot freeze assets or anything like that.”
Nash’s five co-founders met each other through developing projects as part of NEO’s City of Zion community development group, where they contributed towards NEO’s open-source developer tools. Work on Nash, originally branded Neon Exchange, began in October 2017. In August 2018, Nash’s NEX token was registered with Lichenstein’s Financial Market Authority as a security token. As we explained in an earlier article on Nash, this made NEX ‘Europe’s first digital security.’ An initial coin offering (ICO) for the NEX token was completed in September 2018, raising $21.8 million. In February 2018, U.S. Securities and Exchange Commission (SEC) chairman Jay Clayton told a Senate hearing that “every ICO I’ve seen is a security.” Nash is one of very few projects within the crypto space to have been proactive in clearing all the necessary legal hurdles to becoming a registered security before issuing their token.
Giving users complete control over their funds was one of the core principles outlined in Satoshi Nakamoto’s Bitcoin whitepaper back in 2008. But as the number of alt-coins ballooned into the thousands in the decade since then, many have sacrificed this control for the convenience of easily trading one cryptocurrency for another and stored their funds on centralized exchanges. The huge funds held by these centralized exchanges have made them an irresistible target for hackers, with billions of dollars being lost or stolen.
The most famous exchange hack was on Mt. Gox in 2014. At the time responsible for 70% of global Bitcoin trading, 750,000 BTC were stolen from Mt. Gox’s funds, which were then worth $473 million. Other notorious Bitcoin hacks include the theft of 24,000 BTC from BitFloor in 2012, 19,000 BTC from Bitstamp in 2015, and 120,000 BTC from Bitfinex in 2016. CNBC estimated that $1.1 billion worth of cryptocurrency was stolen in the first sixth months of 2018 alone, with major incidents including the loss of $120 million worth of NANO by Bitgrail and $530 million of NEM from Coincheck. So far in 2020, funds worth $20 million have been taken from Bithumb and $45 million from CoinBene. New Zealand-based exchange Cryptopia has just this week filed for bankruptcy protection following the theft of $16 million in Ethereum and ERC-20 tokens. Even the seemingly-impenetrable Binance has been hit, with 7,000 BTC worth around $40 million being stolen from its Bitcoin hot wallet less than a month ago.
Hacks are not the only security issue around storing funds on a centralized exchange. The death of QuadrigaCX CEO Gerard Cotten in December of last year resulted in the exchange losing access to $135 million in users’ funds as he was the only person with knowledge of the private keys to the exchanges’ crypto wallets.
Despite these repeated high-profile reminders of the risks associated with centralized exchanges, DEXs have yet to generate anything like the trading volume of the major centralized crypto exchanges. The main reason for this is that DEXs have until now been much more difficult to use. With a user interface and advanced trading features comparable to the best centralized exchanges, Nash is looking to change that.
“[We have] different kinds of limit orders. We have stop orders – both market stop [and] limit stop. We have time enforcement, which I think no DEX can do. You can set the time when your order expires. We have all these kinds of complex orders that we can do because our matching system is off-chain. The matching system is based on a system of state channels, so that it’s completely off-chain. All it needs to do is talk to the fund management side which updates these state channels. They talk to each other and that allows some flexibility for us. It’s much more complex in a sense of development, so it takes more time, more engineers, and more money, but it gives you flexibility in the things that you can limit on.”
Some of these limit orders seem to go beyond the functionality of even the most popular of centralized exchanges. Binance doesn’t offer stop-loss or time limit orders. Binance has just launched a beta version of its long-expected margin trading feature, which Nash’s website says will be coming to its own platform in future.
The beta version of Nash’s DEX went live in late March. On April 27, Canesin appeared on stage at an event in London to unveil Nash’s report into the user experience insights gained from this beta testing. Canesin tells me that during that event, Nash committed to fully launching within three months. Nash is abiding by this timeline and the full platform should be live by late July.
The release of the report and the confirmation of the main platform launch has prompted a recent surge in the price of Nash’s NEX token. From a low of $1.33 on May 23, NEX surged 32% in seven days to hit $1.96 on May 30. A correction immediately followed this push towards $2, but NEX is again moving upward, currently sitting trading at $1.86.
When I ask Canesin about the token’s price movement, he laughs. “If I could predict the market, I would be so rich! But I don’t know… I think we are getting close to general release… we did three betas during April. We just closed the final round of the beta.” Canesin’s guess is the recent surge is caused by ‘mainnet anxiety,’ with the price rising as the full release approaches.
Binance Coin (BNB) has been one of the year’s best performing cryptocurrencies, breaking past its former all-time high in April and continuing to rise beyond this. Many have attributed BNB’s success to it having a clear use case in reducing trading fees on Binance’s platform. The NEX token goes further than this, allowing holders to take a share of 25% of all exchange fees generated by the platform, rising to 75% if token holders pass know-your-customer (KYC) checks and stake their tokens for a two-year period. As a legally-certified security token, NEX’s profit sharing model is unique among the many exchange-affiliated tokens listed among the top 100 cryptocurrencies.
As for the tokens that will be listed on Nash’s DEX, Canesin tells me that Nash is looking to integrate any token that can “demonstrate economic value.” The co-founders roots in the NEO developer community meant that NEO and Ethereum were the first tokens to be integrated into the platform. Canesin explains that Nash is now working on Bitcoin integration, with a view to then incorporating the various cryptocurrencies that have formed as forks of these, giving the examples of Ontology, Ethereum Classic, TRON, and Bitcoin Cash. While the listing process of most exchanges is opaque, Nash’s Q1 2020 report straight-forwardly explains that new tokens wishing to be listed on the exchange will need to pay a fee of $10,000 that will be used to obtain opinions from legal experts on whether the token represents a “high quality” project.
Seamless Crypto Payments
At launch, Nash will offer both a DEX and a fund management service that tracks a user’s portfolio performance. There is also a third layer protocol that allows these two layers to interact. The next step is mobile payments.
“People think that we are a decentralized exchanged,” Canesin explains. “But that is one of our products. And the reason that it is decentralized is because we are trying to keep the profits of the assets [connected to the asset] itself. So we have these products coming online, the funds management and the exchange, and they [operate] on this premise.”
Canesin tells me that Nash’s DEX will both generate revenue for the company and provide an infrastructure on which its mobile payment solution will then be built.
“The mobile side will be much more focused on payments and things that you do day-to-day,” Canesin says. “Because if you think about trading, most people trade once in a week, or something like that, or even less, when there’s a market opportunity. When you think about the mobile app, you want to be [part of] the customer’s behaviour every time. So that’s where the payment side comes. It’s very important for us to acquire and keep customers, because payment is something that you do every day. So that’s what the mobile app will be focusing on.”
And by building its payment solution on the top of the infrastructure behind its DEX and fund management services, Nash can allow for seamless payment using any cryptocurrency in any situation.
“Since we are talking about digital assets, how do you pay with digital assets? There’s a fundamental problem here. Most suppliers, most vendors, want cash, fiat, or they want Bitcoin. They are not open to the thousands of ‘shitcoins’ that are out there. But the users do have that stuff. So you have a mismatch of supply and demand. So that’s where Nash is the opportunity for trading. We want to do payments not because we want to charge fees on payments – that’s not what we’re aiming for – but when the user needs to trade to perform the payment, we can bundle our services there.”
Nash’s Q1 2020 report says that it has “approached numerous businesses” for input on its payment solution. When I ask Canesin to give more insight into this, he explains its part of the same user-centric approach to design guiding the development of the DEX’s user-friendly interface.
“Most of our team has built software before. For most of us, it’s not our first start-up. So we’ve tried to use a product design method which is called ‘user-centric design,’ which means that you are focusing on the user experience for your product. When you think about payments, you actually have two different users. You have the merchant or the provider’s side and you have the customer’s side. We ourselves are mainly customers, so if you only look at the customer’s side, you will not learn what the other side needs from this service or this product. So before defining what the product would be or drawing anything, we actually went to talk to many payment providers, processors, and businesses [to ask them] what they need from this service. If we do provide a payment service for cryptocurrencies and digital assets, what would be your requirements for that? So that is part of this process of user-centric design: talking to users.”
Customers don’t provide all the information – Nash has to talk to “the merchants themselves.”
“We did about six months of interviews and talks with businesses, and after six months we [created] a specification for the product. I’m actually building it right now. And now that we have a specification for the product, we will start implementation of the service.”
The Next Step
In the run-up to the DEX launch, Nash opened a referral program to bring new users into the platform. Figures from the Q1 report show that Nash currently has 200,000 users signed up, with an additional 32,000 joining from the referral program. Canesin says that Nash had initially wanted to launch its exchange earlier, and would then have expected more. But without a working product, only a small percentage of users could be expected to stick around, meaning money invested in marketing before launch would not be cost-effective. Nash’s marketing efforts will ramp up once the product is live.
Once the exchange and funds management service is live, I asked Canesin where Nash is headed next.
“We will try to consolidate the funds management and the exchange side. So we will have two teams: one for doing continuous improvement on the exchange side, and another will be going fully head-on with the payment side. So after the exchange, what is coming for next is mobile payments, mobile trading, mobile assets – everything that you can do on your phone. In terms of finance, we want to bring crypto to be at the core of that. Not only on the technology side, but on the service side, for example, our payment solution is envisioned to be seamless for the user, so that it doesn’t matter if the service doesn’t accept crypto or things like that. We are aiming to have solutions that allow those services to allow you to pay with Nash, even though they will receive fiat on their end.”
But that doesn’t mean the DEX’s launch is the completion of the project.
“As a company, we will stay on the exchange. It’s not like we launch and it’s done. It will be continually improving.”