As enforcement bites, decentralized protocols promise a different future

Kyber Network, OmiseGo, and 0x are all building token trading protocols that aim to allow developers to build and monetize decentralized exchanges. According to CryptoMiso (a site that ranks cryptocurrency projects according to development activity), 0x has consistently been the most actively developed project, with 5,831 commits over the past year, and project activity peaking in mid-October.

The number of ‘commits’ — which are simply records of individual changes — is the metric used by CryptoMiso to measure project activity. While this methodology has been disputed, as ‘commits’ alone can by no means give a good representation of project progress, the data does indicate intense development activity.

On State of the Dapps, another ranking site which measures activity more completely by monitoring all GitHub events, including code pushes, issues, and pull requests, 0x sits alongside Kyber Network and Omisego among the most actively developed Dapps of the last 30 days.

A new decentralized infrastructure

Although a wide range of so-called decentralized exchanges are currently available, most of them are more centralized than they are decentralized — depending on a central team, a web address, and other centralized components to transfer tokens effectively.

Enforcement action against Etherdelta earlier this month made the vulnerability of these exchanges clear, setting a precedent for SEC action against token trading platforms it considered to be violating federal securities law or operating as unregistered securities exchanges.

Following the action, several exchange projects — including 0x — issued compliance statements; leading some to question just how easily decentralized exchanges (DEXs) can be shut down, and how liable developers could be for code on a decentralized platform that facilitates illegal activity.

In its statement in response to action on Etherdelta, 0x expressed a willingness to acquiesce to regulatory demands, but also deflected responsibility to those building on the platform, who would ultimately make the decisions determining the legality of its use.

Open source decentralization

Decentralized exchanges are regarded by many as a key part of the future of cryptocurrency; providing infrastructure that is free from the interference of authorities like the SEC. But, as the crypto community is realizing, true decentralization might require a degree of anonymity, or a way of collectively sharing the responsibility for development.

As OmiseGo, 0x, and Kyber Network are all open source, their codebases are freely available on GitHub, complete with guidance and tools, so people can create their own custom products, which can then be refined and improved upon based on user feedback.

The 0x team for example, are working closely with different development teams building relayers and exchanges on top of the 0x protocol. Ethfinex, the recently launched decentralized equivalent of Bitfinex, runs on the 0x platform, along with Radar Relay, which is currently still in beta, and others like The Ocean, which promises institutional grade decentralized trading.

WeSwap, a peer-to-peer token exchange, are building on the Kyber network protocol, which has also negotiated a partnership with MyEtherWallet with the goal of integrating token swaps directly into the wallet. Other projects, like Loopring and OmiseGo, also form the foundation of dozens of fledgling decentralized platforms.

With so many different programmers working on the projects, GitHub commits are typically made by a greater number of contributors than on more self-contained developments. 0x, for example, has 1,137 commits from 34 contributors over the past three months, OmiseGo has 19 commits from 23 contributors, and Kyber Network has 98 commits from 13 contributors. INS, on the other hand — another top-ranking project with a different focus, has 3,098 commits from only 17 contributors over the same period, and Zeusshield — a decentralized insurance project, has 940 commits from just 7 contributors.

If the pace of development on these trading protocols remains strong, we could expect some of these projects to transform from prototypes into worthy rivals for their centralized counterparts.

This suggests that by providing the foundational infrastructure for a new type of token marketplace, these protocols could potentially fill the void left by a mass delisting of tokens, or an exodus of exchanges in response to SEC action.