DCI Proposed Financial Market Solution

DCI ecosystem has been thought thoroughly to solve some of the existing financial market problems and some of the technical limitations we face today with blockchain. Few significant differentiators from our competitors from a technology and business capabilities standpoint are:

Non-Functional Language (Security)

We have thought to create the first blockchain ecosystem using functional language. Most if not all our major competitors are using non-functional languages and build with blockchain miners-based technology predominantly Ethereum, NEM, NEO and others.

Reliability is one of the key factors to be considered in financial applications which is a unique feature of Functional programming. Even a small bug can haemorrhage mind-blogging amounts of money if failsafe don’t fire and quickly drain most of the firm’s assets which generally tend to be liquid. Optimizing productivity and safety are the key factors of the functional approach.

Based on the recent DAO attack in which around $60 Million were hacked, we thought of using an FP approach which does not have any side effects and more secure. FP Approach also has its challenges like the steep learning curve and hard to find human resources. Considering security and reliability as the top priorities, we have opted for this approach.

As a functional approach is just too complicated for inexperienced programmers and it requires a different way of thinking the way the code is used and executed. Because of faster adaptability and easiness in learning the language, people still prefer languages like Solidity, GO, Python and other languages for writing “Smart Contracts” in Blockchain which is not secure.

The functional approach uses pure functions which lead to reliable functions with no “side-effects” that accomplish and return exactly what you expect them to. It uses “lazy evaluation” where services are not evaluated until results are needed which enables better performance.

This approach dramatically improves the code writing process and quality code. It does not guarantee the security of the software we build, but it can eliminate potential problems securing the software that may arise while writing code. It supports concurrency through which developers take advantage of multi-core processors. We choose HASKELL as our language as it has all the features mentioned above and widely used in the financial industry for the last 20 years.

In Programming smart contracts, security consciousness is critical as they deal with high-value digital assets. A three-line bug in a smart contract allowed an attacker to steal 150 million USD in 2016. This was the infamous DAO hack which was caused by a re-entrancy bug, a surprisingly common class of bugs, which are now well-documented.

Majority of ITO’s today use solidity / GO [ Non-functional language to write smart contracts which are Turing complete and has potential risks. Based on the DAO Hack we are focusing on security in smart contracts and implementing smart contract using functional approach.

Cross Chain Transaction capability to improve liquidity and scalability

How do we achieve Liquidity? Liquidity is directly correlated to the demand and offers provided by the size of the market in term of the number of players (investors) involved in it, and it also relates to the ease to buy and sell quickly.

Today, when a company is listed on the exchange, it needs to follow a set of strict rules/regulation that allow investors to buy attractive assets with a transparent assessment of the risk involved in the investment supported by fundamental and technical analysis.

Attracting institutional investors by providing a safer regulated ecosystem is one of our primary goals. The ecosystem will provide a simple legal and governance framework to support the same objective to include rules, disclosure, audit, and reporting requirements.

The development of a legal and governance framework supported by financial expertise will provide the ability to the investors to assess real-time company’s risk rating and valuation. Valuations will be primarily based on qualitative techniques for ITOs, while more fundamental analysis for “mature” ITOs. ITO’s participants (investors) will have clear visibility of the company’s ITO progress to date in term of milestones achieved, budget burnt, next stage funding and if the project still sounds.

The ecosystem will in a future stage of development also act as the market maker to further enhance the ecosystem liquidity. The main idea is not to copy the existing financial system structure but make the most of the learning and apply the best practice in this new ecosystem.

In addition to the above, we also took well care to solve the constraint provided by the existing platform that operates in silos without the ability to support cross-platform transactions. Initially, only one blockchain existed – Bitcoin blockchain and later Ethereum blockchain created by a Russian developer with an essential new feature the smart contracts. A few years later new blockchains have been established with their native cryptocurrency; a new challenge arises in the industry. How do we interact between chains? In this problem-solving process lot of cross-chain protocols have been developed which enabled us to communicate with other blockchains and having the capabilities of converting one native crypto token to other. DCI ecosystem will support cross-chain transitions to enhance the liquidity of the ecosystem and its scalability further.

We have chosen Stellar

Traditionally, ITO tokens have been issued on the Ethereum network in the form of ERC20 tokens. ERC20 tokens are easy to issue and are infinitely customizable using Ethereum’s smart contracting language. However, recent events have highlighted and exacerbated some weaknesses of the network, including slow transaction processing times for the network during ITOs and increasingly high gas prices (by fiat standards) for transactions and smart contract execution. Moreover, many organizations require only necessary tokens; they adopt the risk of Ethereum’s Turing complete programming language without taking advantage of many of its benefits.

We have chosen Stellar contrary to our main competitors after long considerations and capabilities analysis. There are multiple reasons why we have chosen Stellar:

  • Stellar provides a decentralized exchange as out of the box capability. This is something we consider a strong advantage for what we are looking to achieve together with the cross-chain transaction capability. Stellar in our opinion is a very robust platform offering efficient trading capabilities. The digitalized assets can be sold immediately on the platform without using external exchanges. This means that our clients will have one point of reference to buy, sell and the creation of new digitalized asset classes with the intent of reducing risks.
  • Stellar due to its less expressive language and atomic multi-operation transaction provides better security advantages and together with our non-functional language we are aiming to offer the most secure financial ecosystem on the ledger today. The security and investor protection is further enhanced by providing the ability to freeze the token in case of any issues or fraud. This decision-making power is at the end of the individual that can act without any miner’s involvement.

DCI ecosystem with the use of Stellar will be able to provide clients with the ability to create customized ITO’s. For instance, “issuing dividends, bonds, escrow, collateralized debt, inflation, and the lightning network are all possible on the Stellar network. Because of primitive support for atomic transactions, it is trivial to code something that says A sends to B if B sends to C” (source: https://www.stellar.org/blog/using-stellar-for-ITO/)

In addition to the security features, Stellar fits our specific needs for KYC (Know your customer) necessary to operate in any financial service industry. Finally, Stellar can be compared to others blockchain platform such as Ethereum, NEO where miners play an oligopoly role with the risk to create a possible cartel and manipulate fees makes the dream of a decentralized business model a simple, idyllic metaphor that in real term does not exist.

Charges have been exponentially increasing, and scalability on the blockchain has been a well-known issue and a primary limitation in specific business applications where transaction speed is a crucial requirement. Transaction fee on Stellar is of 0.00001 XLM only used only to discourage users to flood the network.

  • Quantitative risk rating (fundamental) of each Token portfolios, and funds listed on the platform or hold in the private wallets. Out of the box DCF (Discounted Cash Flow) and NAV (Net Asset Value). DCF for risk measurement offers the liquidity and asset risk and can, therefore, allocate capital to both. Capital allocation for liquidity risk should be conservative. In the case of over-commitments investors expecting liquidity shortfalls should assume defaults on their investments. NAV-based risk assessment quantifies the value at risk of an investment. The investor can allocate risk capital or budget for risk proportionate to the volatility of their investments’ NAV time series. The proportionality constant can increase or decrease depending on either the risk tolerance of the investor or on the regulatory requirements. The volatility can also be adjusted to account for stress scenarios or to avoid shortcomings stemming from the low frequency of valuation data (commonly known as the old pricing problem).
  • Reporting Capabilities for Regulatory requirements and private use.

Artificial Intelligence (AI)

Artificial intelligence engine is embedded everywhere in DCI ecosystem. We will use AI to help our clients to:

  • Stock Picking (AI) and investment optimization based on machine learning
  • Build ETF (Exchange trade Funds) using Robotic Algorithm (AI)
  • Portfolio Optimization (AI)
  • Robot advisor
  • Rating Indicator
  • And more!

While the above seems an extensive list of capabilities, it also indicates DCI has a robust long-term strategy and idea on how to develop the ecosystem. DCI has strategically built a secure network and identified vital partners in different areas that will be able to add value to the ecosystem and increase platform strength.

The Ecosystem will be able to offer APIs connection to a multitude of third-parties vendors. Legal and commercial agreement will be between the DCI and the third-party, the final user will never be affected by any extra charge, DCI will handle all. The client experience will be seamless as they will only need to add/activate these functionalities/services as an add-on in their profile to use them.

Real to Digital Asset Transformation (Securitization)

Where the real world meets the digital world. Defining a difference between utility tokens and an asset-backed token is signed. The utility token is designed to be used inside the ecosystem created. The value attributed to the token and its growth lies in the hands of the token holders. Most of the token for such reason are sold during ITOs proceed at discounted value to face value. The security tokens, instead, are very similar to asset-backed securities, and we could compare token to stocks/equities of a company, or any other real asset such as real estate. This means that their value

can be measured independently from the underneath cryptocurrency with which they are linked. While trading in utility token resulted in many speculative gain “pump and dump” investment behaviours, trading in security tokens is much less risky. We could say it is fundamentally focused on concrete results and a more realistic and positive correlation with underneath value.

The capability offered by the ecosystem is the ability given to the investor to transform a real asset/stock into a digital asset token. The reason we are proposing this capability is to achieve the creation of a fully digitalized portfolio and Fund that creates that linkage between the old world and crypto tokenised world. The creation of a mechanism that will help investors to have a 360 degrees view of their investment into one ecosystem and eliminate the friction between old and new financial world.

Efficient risk management of the volatile market

The ecosystem will offer investors the opportunity to limit their loss due to adverse currency fluctuations. This could be achieved with the transformation of the tradable asset-backed tokens into another bitcoin value backed token equivalent. We could also offer the opportunity to change it into fiat asset-backed token. Considering the current Bitcoin adoption in the this should not be necessary in the upcoming future.

The details of the contract for moving to an equivalent currency backed token will be expressively defined in the token; the individual might reduce currency risks but give up to related future earning of the token held transformed. Other capabilities we aim to create, and we hope will allow the creation of the “Derivatives utility tokens” to hedge their currency risk.

  • Currency ETFs - We feel that many countries and regulatory bodies will soon start to open-up to the Bitcoin ETFs idea and soon we will also be able to provide this instrument in the ecosystem. The availability of ETFs that has a specific currency as the underlying asset (e.g. Bitcoin) means that currency ETFs can be used to hedge exchange rate risk. This is an ideal instrument for individual investors as they can be used in a small quantity plus the fact that they are margin-eligible and can be traded on the long or short side, are significant benefits.
  • Currency-hedged ETF - like ETF but denominated in various fiat currency. These types of ETFs contain positions in currency forwards contract, which are essentially currency futures contracts. Forwards contracts allow the investor to lock in the price of currency at today date, regardless of future fluctuations. We need to note that in regular open market the Currency forwards contracts are not strictly defined as a future contract as they do not trade on the exchange. This could be a powerful instrument we could offer to investors in the ecosystem.
  • Currency forwards token - e.g. agree to sell cryptocurrency in an amount equal to what is stipulated in the token and buy other cryptocurrencies. Currency futures token - allow investors to hedge against foreign exchange risk because they trade on an exchange (Future market). These will work exactly in the same way they work with the future market today with fiat currencies.
  • Currency Options: - As in the regular market the option will give the investor the right to buy or sell a specific currency in a specified amount on or before the expiration date at the strike price.

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