Contributors: Dr. Shin-Liang Chin and Dr. Danny Lim
“MarginX aims to stretch the boundaries and possibilities of DeFi trading. Its mission is to make trading as diverse, accessible, profitable, transparent and efficient as possible.” — Dr. Danny Lim
What is MarginX?
— Multi-chain, Cross-chain and Para-chain Efficiency
— Blockchain Security and Fairness
— Trading Transparency — Know Your Counterparty
— Connecting the TradFi and DeFi Worlds
— Collective Governance — by the Community, for the Community
— MarginX Mainnet
— On-chain Order Matching System
Where to Find Us
COMMUNICATION TRANSPARENCY IS KEY
As of end 2021, centralized exchanges (CEXs) continue to dominate trading in the cryptocurrency world, accounting for 96% of the total trading volume . However, that landscape is fast changing.
In just the year 2021 alone, the total trading volume of major decentralized exchanges (DEXs) running on the Ethereum blockchain increased almost six-fold, from $110b to $620b . In 2022, this growth rate is expected to accelerate even further.
Yes, despite the fall of Luna Classic and other associated cryptocurrency protocols, along with the onset of the bear market this year, DEXs are forecasted to continue with their robust growth. In fact, the demise of these protocols further reinforces the argument that transactions on the blockchain need to be truly transparent, so that checks and balances can be implemented.
DEXs provide the kind of transparency that one would expect from a truly decentralized blockchain technology, unlike traditional CEXs whose critical trading mechanisms are often shrouded in mystery. In this litepaper, we present a DEX called MarginX. MarginX is an on-chain orderbook, on-chain settlement and on-chain voting DEX offering stock-based and crypto-based perpetual contracts. It achieves a throughput of 2,000–20,000 transactions per block, which far exceeds what is currently made available in the market.
Built onto its foundation is the capability to develop and trade other DeFi products, including derivatives of traditional financial assets. It also provides a governance framework that invites the community to collaboratively contribute to the future growth of MarginX. We believe that through these key features, MarginX will be an integral part of this continuing growth in the DeFi sector.
MarginX is the world’s first multi-chain and on-chain decentralized exchange infrastructure. Initially built on the Function X network but expandable to other blockchain networks, it also runs on a public Proof of Stake (PoS) mechanism.
Staying true to its mission to bridge the traditional financial markets and the cryptocurrency world, MarginX is also the first DEX in the industry to facilitate the trading of stock-based perpetual contracts. It offers retail users more investment options on top of cryptocurrency-based derivatives, and provides traditional investors with a familiar environment to trade. While it does not list actual stocks, commodities, cryptocurrencies or asset classes on its exchange, it replicates the market conditions of the stock market closely, and simultaneously offers high leverage.
Nevertheless, MarginX is more than just a place to trade. It is a tool that allows DeFi products to be built and traded upon. It allows anyone to buy, sell, and create derivative products of any traditional financial asset.
In any given stable price oracle, MarginX can even facilitate communities, carbon credits, and any DeFi compatible asset class. It aims to make finance more accessible, more transparent, and more secure — essentially leveling the playing field for everyone, especially the unbanked and underbanked.
At the moment, most Ethereum-based DEXs have limited throughput due to the single-chain architecture.
However, MarginX is a multi-chain, cross-chain, and para-chain DEX infrastructure. Due to its dedicated structure, MarginX is able to handle a throughput of 2,000–20,000 transactions per block, which far exceeds what is currently made available in the market.
Furthermore, MarginX's multi-chain structure ensures that each asset operates on its own unique chain, reducing congestion within the blockchain and increasing trading efficiency, thereby maintaining low transaction fees for traders.
In CEXs, funds are traded through third party custodial wallets. This means that users do not control their assets. Instead, their assets are governed by a middleman. This introduces significant counterparty risk to the investor, such as in the case of default or insolvency.
At MarginX, funds are traded through non-custodial wallets, and all leveraged positions take place on-chain, ensuring they are truly secure, verifiable, transparent, and instantaneous. This means that MarginX does not rely on any third party to hold the assets. These assets are controlled and owned by the user alone — as long as they remember their private key.
Trading is a zero-sum game: one’s loss is another’s gain. However, trading on CEXs can be likened to trading using a black box — users have no way of tracking their counterparty’s trade. Bots, hackers or even CEXs themselves are capable of causing sudden and unexpected price movements, front running, order cancellations and termination of withdrawals.
On the flip side, all transactions on MarginX are run on-chain and all details can be tracked. These include not just order matching, creation and cancellation, but also funding rate settlement, liquidation, and governance. Everyone has full visibility and access to the transactions made, which are recorded on the blockchain.
All transactions, suspicious or not, will be made available for everyone to scrutinize. The public in effect can act as a form of checks and balances to ensure the fairness and transparency of the DEX. This is as opposed to most common practices of proprietary side-chain networks or CEXs, where transactions are essentially processed via a black box, and any potential rogue traders will be untraceable to the public.
The cryptocurrency market is still largely isolated, untapped by many established institutions or retailers who are mostly accustomed to the instruments of traditional financial markets. MarginX offers the tools to replicate traditional financial asset classes.
How it does this is by laying the foundation for where other DeFi products can be built upon. Such products can be in the form of derivative products of traditional financial assets, a trade strategy, a smart contract or any other compatible protocol. Since MarginX is a permissionless platform, anyone can design and build their own DeFi products on the blockchain.
Here are two examples:
- 1.Institutional Portfolio / Copy Trade — User stakes funds to this product, which is a strategy to follow Warren Buffett’s portfolio. This strategy is then automatically executed on MarginX. Since every trade can be traced and verified, the users can ensure that the strategy does what it is meant to do.
- 2.Synthetic Asset Mining — User stakes Liquidity Pair Tokens from Avalanche network into product, which allows these tokens to enter a synthetic asset position and gain price exposure to real world assets like TSLA. This will enable users to achieve a greater yield in a shorter period of time.
Traditional traders are able to trade in a familiar environment using this blockchain technology, while being in close proximity to the cryptocurrency market. This greatly reduces the learning curve, and helps bridge the old and new traders of the financial world.
The ideal decentralized platform is both fair and trustless. The policies, development and improvements of the technology are not governed by a central authority, but by the community itself. At MarginX, every stakeholder, whether a developer, community manager, or trader, has a say through our governance framework.
In this framework, the top contributors can propose to add a new feature, add a new product or make a development change to MarginX. Once a proposal has been made and accepted, it will be put onto vote. While only top contributors can propose, every stakeholder has a vote, where their voting power is proportional to their contribution.
- 1.As a trader, you contribute a transaction fee. The ratio of your transaction fee over the total transaction fee that MarginX receives is used to determine the number of votes you can cast.
- 2.As a market affiliate, you refer new users onto the platform. Your referral rank is used to determine the number of votes you can cast.
Though there is no Know-Your-Customer (KYC) policy to establish user identity at this moment, MarginX runs on a utility NFT system, where each NFT is tied to a wallet address, and determines each wallet’s voting rights, trading rebates and referral fees. This opens up the avenue to build a sense of community, and offers users an additional and perpetual source of yield.
The core network of the entire Function X ecosystem that is built with the Cosmos SDK, and acts as the central hub allowing all other blockchains to connect to and through it. The FX token is used for gas fees.
Inheriting the IBC cross-chain relayer from the Cosmos SDK, f(x)Core can connect to many other blockchains while allowing them to remain independent. This makes the system highly scalable and interoperable.
Highly customizable and expandable subnet architecture that reduces traffic congestion and transaction fees, since the number of transactions per second is infinite. Current subnets include the Pundi X chain and the MarginX chain.
Compared to Proof of Work, PoS is much more environment-friendly and energy-efficient. Validators stake the FX token to validate the network, and this mechanism is also more secure and scalable.
An EVM compatible chain that allows smart contracts and dApps to be deployed on the Function X network. This means more opportunities with high transaction speeds and low transaction costs.
Writing a few lines of code into a smart contract allows users to carry out protocols such as lending, borrowing, swapping and even insurance, in a truly decentralized manner. This opens up a whole world of DeFi, dApps, NFTs and more right on the Function X network, with MarginX being one crucial part of it..
All pending orders and cancellations are recorded permanently on the blockchain. Traders on both the buy and sell sides submit their orders, and directly transfer their assets from their private wallets to our on-chain order matching system.
This on-chain order matching system runs on a PoS mechanism and is managed by our decentralized nodes and their validators. Once there is a match, the transaction will be successfully carried out. If a match has not been found, the order will remain good ‘til canceled.
To note: A small gas fee will be required for every execution on the blockchain. This will be paid using the FX token.
DEXs are contributing to a growing trend, and are forecasted to experience robust growth in the next few years. Transparency and security remain two key reasons behind this growth.
This is because all transactions on DEXs are clearly recorded on the blockchain, which is then traceable and verifiable. When trading on a DEX, users also trade through non-custodial wallets, where in the case of a fallout, they would still have access to their assets.
MarginX offers all of these advantages, and more. MarginX is the first on-chain DEX to facilitate the trading of stock-based perpetual contracts. Owing to its groundbreaking multi-chain architecture, MarginX is also a cut above its DEX peers because of its lightning speed throughput.
In addition, MarginX provides a foundation on which any DeFi product can be built upon. This includes derivatives of traditional financial assets, creating an environment to bridge the traditional financial world with the new cryptocurrency world.
Finally, and perhaps most importantly, MarginX provides a governance framework that invites the community to grow with us. Every contributor to MarginX will have a say on the future development of MarginX.
-  Calculated from the average daily spot trading volume on CEXs from 1–7 September 2021. (Source: Coingecko)
-  Taken from “Crypto Insights #2. Decentralised Exchanges & Automated Market Makers - Innovations, Challenges & Prospects” by KPMG (October 2021).