IDEX staking: lessons learned

In our last part on IDEX, we discussed how the decentralized exchange aims to incentivise their infrastructure roadmap with staking. In this part, we talk about our experiences implementing our node.

For the past 18 months or so we’d been running an XDNA masternode on an Amazon AWS instance. In July, following a 90% drop in price of XDNA during that time, we decided to try and rollout the IDEX node. Unfortunately, we ran into some compatibility issues between XDNA, which was written for the Ubuntu 16 Boost libraries, and IDEX, which was supported on 18. Rather than spend a lot of time trying to enable legacy Boost libraries for Ubuntu 18, we decided to dump the XDNA masternode and just focus on IDEX instead.

The deployment from Github to implementation was simple enough. The only issue that we encountered at first was that we were still holding legacy AURA tokens, which had to be swapped for the newer IDEX tokens. This delayed our staking by 7 days due to the staking requirement, but once we waited and signed our proof of stake we were good to go. All we had to do from there was make sure our server was up, and collect our rewards.

We immediately started having stability issues. The node wasn’t able to keep up with the data and stay in sync. Even though the hardware requirements suggested 2GB of memory, it appeared that others were having problems as well, so I bumped things up to a larger instance. The system was able to run better, but still experienced intermittent issues. While issues on the IDEX Github repo seemed to be going without response, there were several IDEX staff on the project Discord server that actually seemed to respond to people asking for help.

The issue with these small VPS nodes is that IDEX required a connection to a full-fledged Ethereum node, which is a bit much for a VPS with only 2GB of RAM to handle. I was actually referred to Infura, which provides Ethereum and IPFS APIs. Basically, they run the Ethereum node, and provide an API key that you can use for your web 3.0 applications. Ethereum as a service, basically. The free Core tier allows 100,000 requests a day, which is more than sufficient for the IDEX node, which averages about 82,000/day.

Once we implemented Infura, we were able to reduce our AWS instance down to a t2.micro instance. Bring our total monthly cost down to just over $9/month, about a third of what we had been running before.

IDEX payouts are based on two week periods. Nodes earn credits based on their uptime and stake size, and these tier 3 nodes split one quarter of the fees of the IDEX market amongst themselves. Our payout for the minimal stake amount was less than a hundredth of an Ethereum, and our shock at seeing this caused us to do some more research into how the staking model and payouts operated. I was able to find a earnings calculator, but the results weren’t promising.

IDEX staking earnings estimate, minimum 10,000 IDEX stake. Figures 9/4/2019

So it’s obvious that the doing the absolute minimum staking amount is not really worth the effort. And if I had done my due diligence from the start I may have realized this and maybe reconsidered my investment of time and money. I don’t consider this exercise to be a waste though. Beyond the the drawdown in value of the IDEX stake itself, I really haven’t lost much that I’m worried about in and of itself. With the hemorrhaging that altcoins have had over the last 18 months, daily volume on the exchange is down considerably from it’s all time highs. If this Redditor is to be believed, IDEX was doing ‘upward of 25 mil a day in volume’, which would considerably change the value of this calculation. There are lot of factors that need to be taken into consideration as to whether the market will come back and whether IDEX can maintain their lead, but one of my core beliefs is that during a gold rush, the sure money is on those selling the pickaxes. BNB token, IDEX and other tokens that allow taking profits from the trading volume of the exchange itself may be a better long term strategy than many of the various crypto projects that are born and die during the market cycle.

Ultimately, I considered IDEX’s long term roadmap when deciding to increase my stake. Although there has been no official word on when the tier 2 staking application will be available, those participating will earn 33% of the fees rewards, and 42% for the tier 1 when IDEX becomes fully decentralized. Ultimately, if IDEX is successful, ownership of a tier 1 masternode could be very lucrative. Plus I love these type of infrastructure projects, running mining pools and masternodes. I have decided to increase my holding of IDEX tokens to ensure break-even on the tier 3 node, which will hopefully put me into a position where I will be in a position to operate a tier 1 node.

With over two million dollars worth of IDEX tokens currently being staked, I may not be in the best position to participate, but if they do implement pooled staking then I should be in a pretty good position.

There are several concerns that we’re watching, mainly around auditability and the stability of the platform software, which we will leave for another update. For now, we’ll continue layering our limit orders to pick up more IDEX and figure out how we can manage our exposure to any further market downturns.

IDEX staking: decentralized crypto exchange incentives

In the first part of this series, we discuss how decentralized exchanges work, and how IDEX operates their incentive plan.

It’s been a while since we talked about cryptoassets here, so today I want to talk about some of my experiences staking with the IDEX platform. IDEX is a decentralized exchange platform, which means that it is a non-custodial platform for crypto exchanges. This is in contrast to custodial exchanges where your money is kept on the platform itself. This is traditional method of asset exchange, where the exchange holds your assets and executes your trades. This is how the equities markets have worked since for ever, and how the first generation of bitcoin trading sites worked: Mt. Gox, Coinbase, Gemini, Poloniex, et cetera. With the advent of smart contracts on the Ethereum platform, these types of non-custodial brokerages have sprung up, with the first, EtherDelta, being the first.

Instead of the exchange holding custody of the assets, which can lead to theft, as was the case with Mt. Gox and other exchanges, the users retain custody of their tokens. Operations are performed via the smart contract, which, while it does have it’s risks — the DAO hack for example — the exchange operator does not have access to the tokens. Users deposit their funds with the smart contract, buy and sell orders are matched on the order book — more on that shortly — and the smart contract makes the trade, minus a small fee, of course. Users can cancel their open orders and withdrawal funds at any time. Minus the risk of a black swan event like a contract failure or other hack, users funds are completely under their control and are safe at all times.

Now with Etherdelta, the first generation DEX platform, the order book was contained on-chain, meaning that posting buy and sell orders, or cancelling them, cost gas. This was expensive, and was subject to delays when the Ethereum blockchain became congested. What IDEX has done with their exchange is to keep the orderbooks off chain, which removes these two limitations. Now critics will say that this type of centralized order book isn’t decentralized, which is why IDEX has a roadmap to offload this infrastructure in a fully decentralized manner.

Phase one of this three part plan is offloading the trade history, which they’re incentivising through a staking masternode model. Those participating in this process split twenty five percent of all fees on the IDEX platform, which is 0.3 percent of trade volume on the platform. Payouts are about every two weeks, based on node uptime and amount staked. There’s a seven day freeze period on funds as well, which is important to note.

Our initial entry into IDEX was around July of last year. The minimum required staking amount of ten thousand IDEX tokens, was around fifteen hundred dollars at the time, and we averaged into our position over several months for around sixty percent of that. This was several months before the staking software was actually released, and not only was the general altcoin market tanking, but IDEX took a further hit after implementing KYC protocols to stay ahead of regulatory issues. The staking nodes actually went live in January of this year, but by the time we actually started operating our node, the value of our IDEX tokens, (and our stake) had dropped to less than a third of what it had been a year earlier.

In our next part, we’ll talk about our experience setting up our node infrastructure, and our profit results.