TradeConnect’s aim is to create the world’s largest peer-to-peer multi-asset trading network that decentralises and democratises trading for all. The network will create a level playing field between individuals and institutions, with lower transactions costs for all players. Trades will be automatically settled on the blockchain, with recording and execution conducted off-chain to deliver the fastest service possible. Initially focused on the retail trading sector, the network will expand into institutional and corporate derivative trading markets and subsequently to a range of other financial sectors.
Global financial markets are dominated by large financial institutions and prime brokers which influence and distort markets. Currently, there is a lack of transparency in price-making and trade execution. Settlement of trades and funds can take many days in most cases. Most institutions still use centralised order books to control prices and trading. Opaque markets allow big institutions to control pricing and move markets to favour their positions.
The TradeConnect network is the brainchild of the ThinkMarkets Group which includes TradeInterceptor, their mobile trading act which currently has 500,000 unique registrations. This will act as the user interface for the TradeConnect network. The ThinkMarkets Group combines years of global experience in financial products with a large pool of tens of thousands of users around the world.
TradeConnect will start with derivative contracts in CFD, Forex (FX), commodities, equities and crypto-trading markets. ThinkMarkets Group already provide these services to their users around the world as a regulated broker.
TradeConnect has a unique revenue model which is not based on “risk-taking” but on transactional volume. Their primary sources of revenue are as follows:
- Connect Fees: Instead of traditional commission fees set by brokers or institutions, TradeConnect will charge a Connect Fee paid in TCO which will be paid by all participants in the transaction and a portion to the network for maintenance and ongoing development. Connect Fee distribution will be 50% to Makers, 25% to Takers and 25% to TradeConnect Network. In this way traders who make the market are incentivised to participate in the TradeConnect Economy and support it at the same time.
- Margin Lending: TradeConnect will create a structured margin lending model made up of qualified margin lenders that have sufficient assets, credit and liquidity to offer margin lending and a stable mid-market lending rate. This rate will be set each day by a vote of a consortium of vetted margin lending providers on the network. The providers can set a higher or lower rate than the benchmark, within a tolerance of 1-5% of the benchmark to avoid price manipulation.
- Digital Personas: In centralised trading models, the underlying trade is not ‘visible’ to market participants other than price, time, size and asset traded. TradeConnect’s Digital Personas tag each unique subscriber on the network with unique scores and over time build a profile that will allow market makers and takers to bid for the right type of trader. These ‘auctions’ allows liquidity providers on the network to pay the most for the right type of trade and reduce their overall charges as a result. For each successful auction, the network retains the additional spread percentage the Maker bid in the auction. These profiles monetise scoring and value for the network.
- Token Listings: The network will initially support the most liquid cryptocurrencies as collateral, based on market size and available market liquidity. TradeConnect wallet will initially support Bitcoin, Bitcoin Cash, Ethereum, Dash, Monero, LiteCoin, ThinkCoin (TCO). All crypto-assets will be secured through their partnership with BitGo, which has a robust institutional custody offering with advanced treasury and security controls. BitGo’s powerful API will allow for further development of internal controls for transactional signing and auditing.
Below is a transactional flow diagram which shows how transactions would occur on the network:
Initially, TradeConnect will create and store trading contracts off-chain on the network to settle price-making and liquidity-matching transactions instantly. Once these transactions are settled off-chain on the network, the profit and loss will be aggregated as one ‘batch’ transaction onto the Ethereum network and then netted out. Before trading begins, participants will be required to lock an amount into an Ethereum smart contract, and both parties can only trade their account balance.
Market makers create off-chain trades to offer to takers and signs this with their private key. The trade would then be offered off-chain to potential counterparties, who can then decide to accept the offer to trade. If accepted they would sign the off-chain contract with their private key, and the contract to trade is generated. The contract would then be ‘validated’ by an ‘oracle’ – an independent price maker such as Reuters, Bloomberg, etc. – to determine the outcome of the trade. The result is made available to all parties and submitted to the Ethereum network along with the transaction, automatically via batching.
TradeConnect intends to create a hybrid approach to centralised trust by creating a private post-trade blockchain ledger that verifies the process of connect fees, persona auctions, margin lending pools, etc. Since only the result of the trade will be sent to the Ethereum network, their private blockchain ledger will use a consortium model whereby signing rights are allocated to a consortium from the pool of Oracles. Oracles are the price makers on TradeConnect who provide a mid-price for the markets traded and validate contracts.
The TradeConnect network is powered by ThinkCoin (TCO) which is an asset-backed token. TradeConnect will hold the equivalent value in fiat currencies such as USD, GBP, AUD, JPY and other G10 currencies. This will create price stability for TCO and platform liquidity for transactions. All parties must convert their fiat into TCO on the TradeConnect network. TradeConnect achieves this through their vast banking network, holding client funds in a fully segregated manner.
Details of the initial coin offering are below:
This is a very technical and specialised trading project which understands how the market currently works and ways to create value by removing middle fees and transaction charges inherent in most derivative markets today. Brokers ‘make’ markets and their livelihood by connecting both sides of the transaction. The Tradeconnect network creates the market and creates transparency for all parties of the transaction and the network which should, in theory, create a more efficient marketplace for all participants. However, I have several questions:
- Does their off-chain aggregation process act like an order matching engine when ‘matching’ makers and takers?
- How do Oracles (third party price makers like Reuters and Bloomberg for example) verify the off-chain aggregation/matching process? I want to understand how the off-chain matching (which one could argue is a form of centralisation) does not create a bias towards makers who produce larger volumes and therefore higher fees for the network?
- How will the network acquire users or compete with trading platforms that offer a complete product offering and not just derivatives to start with? They allocate 45% of the proceeds to marketing and customer acquisition. This will be no easy task when there are so many competing platforms and institutional players in these markets.
- How will they attract institutional and commodities players if Ethereum cannot process large numbers of their batched transactions quickly?
- If ThinkCoin (TCO) is an asset-backed token, then in many ways it serves the same function as Client Money in brokerage accounts today? How will this not then be regulated as securities are in traditional trading or broking?
This is a great project based on a currently running brokerage business with impressive year-on-year growth. The team understand their market and clients very well. TradeConnect is well placed to develop and deliver their roadmap to IPO in 2019.
By CeAnn Simpson