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THE DIGITAL ASSET INDUSTRY HAS EVOLVED, AND SO HAVE WE
The story of QUOINE and now Liquid Group reflects that of the blockchain industry in general. By that, we mean it involves working hard on achieving a vision... and also working hard reacting to external circumstances. Read on and we'll explain how we're now in a good position to realize our plans -- and also how we've improved them.
We launched QUOINE in mid-2014. It was only a few months after the infamous Mt. Gox shutdown, a saga that damaged the digital asset industry greatly (and sadly, continues to this day). That event made us determined to launch an exchange that was rock-solid secure, professional, and built with the future in mind. The "crypto wild west", for all its talk of freedom, had created a dangerous and risky environment that could never survive unless the industry adapted to this reality.
Our commitment to security was matched by regulation, particularly in Japan. Japan was the first country to draft formal laws for digital asset exchanges to follow, and QUOINE was one of the first to receive an operating license from the Financial Service Agency (FSA) for its Japanese operations.
QUOINE (now Liquid Group ) pushed ahead, launching the Liquid Exchange in Q3 2018 and making plans to expand the company into something far greater. We wanted nothing less than a new economic platform, a place where users could trade any asset they wished with liquidity from exchanges around the world. We launched a native currency unit called QASH that would tie it all together.
Those plans are still very much on track... in fact, we have even better ones.
Timing matters, though. External circumstances and the actions of others in the blockchain industry have impacted our plans at times. Right after we launched QASH, one of the largest exchanges in Japan was breached and lost US$530 million in its customers' assets. The "ICO craze" of 2017-18 saw projects launched that were often little more than "pump and dump" token scams. This also had a negative effect on the industry and attracted more regulatory attention.
The FSA realized its rules weren't stringent enough and applied further measures to reduce chances of such events happening again. New amendments to Japan’s Payment Services Act and Financial Instruments and Exchange Act (FIEA) came into effect on May 1st, 2020. These set limits on what percentage of an exchange customer’s digital assets must be kept in ‘cold wallets’, and how they must be segregated from its own assets. They also set new rules for marketing, communications, and trading information, and defined some digital assets as ‘Financial Instruments’ and others as ‘Paragraph 1 Securities’ or ‘Derivatives’.
As a result, Liquid is also now pursuing a Type 1 Securities license under the new regulations in Japan. Singapore, where Liquid operates its non-Japan business, also introduced its own Payment Services Act. This requires Liquid to take additional steps to meet the licensing requirements there as well.
These rules can be a burden. The industry in Japan these days is regulated much like that of "traditional" financial institutions -- at times, it's even stricter. Complying with these strict requirements often meant we had to divert a majority of our resources to reporting and risk monitoring, building the basics of our operation to be even more secure and convincing others we were capable of doing so.
But we see this as necessary for users' security and the industry's own reputation -- if security breaches and mistakes keep happening around us, our grander vision for the future would be unachievable.
Having operations both in Japan and Singapore has its advantages. These two countries have long been considered among the wealthiest and most stable societies in Asia, and the most reliable for financial services. Both have taken a responsible and mature approach to developing the blockchain industry. Under current circumstances, even the description "best places to do business in Asia" may be too narrow -- Japan and Singapore are two of the most trustworthy jurisdictions in the world.
Evolution, both for QUOINE/Liquid and the wider blockchain industry, isn't fast or simple. But it is producing a more professional environment for all. Next, let us explain how we're now in a position to push ahead with our original plans, and more.
We'll be releasing more details about these plans in the coming weeks, but here's a taste of what's to come:
Liquid Group has introduced new members to its leadership team. We've also re-written our plans in a way that sticks to our original vision, but also takes advantage of new technologies that have arisen in the past few years.
More Liquidity, Useful Apps: World Book and Quick Exchange (QEX)
Much has been happening with Liquid’s World Book. We’ve found new ways to make exchanges services more accessible to all, whether you’re a business or an individual. Adoption and use of cryptocurrencies and digital assets is the best way to do this, so we’ve built services that are simple to implement and easy to use.
World Book is running in production and is scaling as we expand the usage across our traded products. World Book not only sources and aggregates liquidity for our exchange and products, but also provides liquidity externally outside Liquid as well. As our first retail-focused application for World Book, we have built Quick Exchange (QEX) to do just that.
We embarked on the World Book project three years ago. Initially we wanted to build a prime brokerage business around it, offering services such as OMS (Order Management System), DMA (Direct Market Access), fiat management, crypto/fiat credit facilities, and real-time reporting. However, the market was still nascent at the time and only recently have we started to hear about digital asset firms slowly spinning up prime services for their customers.
So, instead of launching a full-fledged prime brokerage business, we have decided to put into action a retail strategy with our first application. It’s called QEX and is powered by our World Book. QEX uses our World Book technology to aggregate liquidity across all traded markets on Liquid. It also sources liquidity from other global exchanges or liquidity providers when needed, to offer end consumers the easiest and most seamless cryptocurrency buying experience in the world. QEX users can also enjoy a multitude of options to buy or swap into their favorite cryptocurrency, including bank wires, stablecoin on-ramps, and a VISA purchase option that serves 150+ countries and supports 50+ world currencies.
We’ve also democratized QEX. Any partner vetted by Liquid can tap into our QEX liquidity. In addition to QEX being available on Liquid through the Buy/Swap service, we are also offering a partner B2B widget with copy/paste code that allows any business, app, or website to easily offer their users the same buy/sell/swap service for digital assets. By offering this widget to anyone, business or otherwise, we believe we’ve found the quickest way to spread adoption of digital assets. This aligns with our company mission to make financial services available to all. There will be more announcements to come on this as we scale up our QEX product offerings, so watch this space
For QASH Holders
We continue to be committed to developing the QASH token ecosystem, and that has also evolved. We want our native digital asset to be something far more than a currency or payment token. And since we built it to be useful, we don't want it centralized or associated with the ICO craze of a few years ago. We'll soon be re-naming it "Liquid Token" or “LQT” to better reflect its role at the center of a decentralized network of digital banking and financial service providers.
In addition to the QASH token name rebranding to LQT, as part of the renewal of QASH, LQT will run on Liquid’s own native blockchain, Liquid Chain (previously named “Liquid Distributed Ledger”). Liquid Chain mainnet is now expected to launch in 1H 2021 as we are currently in the final stages of testing. Once mainnet launches, we will be facilitating a token swap from QASH to LQT through our exchange. Please keep reading for more details on Liquid Chain.
QASH, or LQT, will not be just another "exchange token" like you see elsewhere. We're eventually expecting to decouple it from Liquid Group and making it open source. Liquid's native asset will be independent -- other exchanges already list and trade QASH; we will support these exchanges in any transition to LQT after it is launched as well as seek other new partnerships.
After the LQT decouples from Liquid Group, its governance will be handled by a Foundation of community members. It will be an independent initiative, far greater and longer-lasting than any one company. Blockchains and their assets are supposed to live forever; too often others forget this. We don't.
LQT will have its own native blockchain and mainnet, to avoid the "algorithm wars" and protocol debates that have left others stagnant. We're inviting other decentralized projects to build on the platform in the financial services sector (CeFi), or decentralized finance (DeFi).
Once we have a solid foundation for embedding LQT to all our products and services at Liquid, we will continue to build our network of strategic partnerships where both parties will mutually benefit from adopting and using LQT. These partnerships will consist of off-platform LQT adoption and strategic listings of LQT on a network of reputable exchanges.
Offering a Safe Haven in Uncertain Times
Right at a time when technology promised to bring us closer together, it seems the world is becoming less united. Nationalism and protectionism are popular again. Travel and trade have been restricted in unprecedented ways as a result of the COVID-19 pandemic. Central banks have resorted to desperate measures to keep their economies functioning -- rather than being new and risky, blockchain technology is even looking like a safer haven due to the decentralized nature of many projects, including Bitcoin.
The new hostile environment can increase uncertainty for businesses and risk across assets that are tied to specific countries; however, at Liquid, we see this as an opportunity. We are starting to see a new breed of decentralized services free from government intervention getting a lot of traction, and believe this new truly global and independent marketplace will act as a safe haven from geopolitical conflicts. Even with regulation, blockchain and digital asset technology offer far greater freedom than has existed previously. This new economy is creating more opportunities to create wealth, in new ways through blockchain technology and surge in mobile phone adoption, globally.
Liquid Token project: Bringing DeFi and Financial Service Partners Together
As part of building the Liquid Token ecosystem, we aim to bring together a network of next generation financial service providers. And we wanted to do it in a way that ensures market independence and economic freedom for everyone. Our token and our underlying native blockchain, Liquid Chain, will be a foundational pillars of the Liquid platform, and will act as a bridge for Liquid’s products and services to integrate into other financial services platforms... and vice versa.
The Liquid Token project will initially be managed by Liquid Group; however, our plan is to decouple the project from the company, making it a truly decentralized open source platform that will be fully controlled by token holders, validators, researchers, and developers. We believe that creating a fully decentralized and open-source network is key to making financial services become truly borderless and democratized.
The Liquid Token project’s main focus is to help develop the decentralized finance ecosystem, but it also aims to help centralized financial service providers innovate through the adoption of Liquid Chain as we see more and more institutions integrating blockchain technology to improve their business.
Finally, Bitcoin's mission is to shift economic control and power over to the hands of individuals and communities; Liquid Token project’s mission is to shift control and power of financial services to the hands of individuals and communities.
An Introduction to Liquid Chain: The Best of All Worlds
Watch this space for more details on how all this will happen. First, though, here’s an introduction to our most significant project: Liquid Chain.
If you’re reading this, you may be aware of our plans to build a “QUOINE Liquid Platform”. We aimed high – it was to be nothing less than a complete financial ecosystem for the crypto economy, a blockchain that actually works.
Liquid Chain is Liquid’s most ambitious project that we have been working on for years to help develop the next generation financial services ecosystem, or Finance 2.0. We are introducing a new class of institutional-grade blockchain that offers flexibility and modularization, capable of running applications developed in a wide range of well-established programming languages, and compatible with any type of consensus engine, PoW or PoS.
We’ve spent years analyzing other blockchains and working out what their advantages and disadvantages are for financial industry applications (and in general). So, to provide the industry with exactly the technology and features it needs, we’re building a new system to be the “best of all worlds”. A blockchain that’s efficient, secure and modular – and importantly, accessible to more potential developers. People will want to build on this system, and organizations large and small will want to use it.
Here’s a link to the Liquid Chain white paper for all the technical details.
Liquid Chain Use Cases
Earn POS staking rewards automatically by just holding LQT.
Unlock the lowest transaction cost and increase your top line
Secure loans through smart onchain collateral management
Tokenized securities & assets:
Build complex financial instruments through a high-performing versatile smart contract platform to improve distribution through fractionalization
Enable escrow without a trusted 3rd party and save cost
Blockchain in general consists of two major building blocks. First, is a state machine dictating how data changes from one state to the next; and second is a consensus engine to reach an agreement on that canonical next state.
In 2009 Bitcoin started the blockchain craze with its transaction-based state machine and Proof-of-Work consensus (PoW). Six years later Ethereum was born, using the same PoW but with a much-improved state machine. It became the first blockchain to offer an easy-to-use smart contract platform with an extensive ecosystem.
However, we feel Ethereum hasn’t fulfilled its promise. Several years in, the number of applications developed on Ethereum is still very small compared to the vast non-blockchain applications in the market. It has serious scalability issues that can be attributed to Solidity, Ethereum's native programming language, as well as a lack of proper available tools, slow network speed, and gas fees, especially when the network gets congested.
With Liquid Chain, we are introducing a new class of blockchain that provides modularization. That means something capable of running applications developed in a wide range of well-established programming languages, and interoperable with any type of consensus engine, PoW or PoS.
Liquid Chain’s Unique State Machine
What makes Liquid Chain's State Machine unique is its Virtual Machine (“VM”), or smart contract execution unit. It is versatile, high-performing, and secure. Let’s go into a bit more detail about what that means.
- Versatile: One of the biggest challenges for blockchain application development is language adoption. Even with Ethereum being the largest smart contract blockchain, Solidity’s development ecosystem is still very small and it lacks the tooling and performance tuning often seen in the more popular non-blockchain languages such as C, C++, or Rust. This is where WebAssembly (“WASM”) comes into play. WASM is an open language standard designed to be the compiled target of other languages meaning developers, in addition to Solidity, can build and deploy smart contracts in various languages. More developers means more apps, and more usage.
- High-performing: Execution latency is low compared to other native blockchain counterparts. This is because WASM is designed to match machine code, hence it is capable of high performance, which is essential in many financial industry applications.
- Secure: Changes made by the VM only impact an isolated sandboxed environment and no one can use smart contract code to exploit the host environment. This means applications can only modify their internal state and cannot affect the host environment without going through controlled APIs.
Using the Tendermint Consensus Engine
While PoW (in principle) also enables decentralized execution of smart contracts, a high-performance smart contract platform only makes sense when it is accompanied by a low-latency consensus engine. We chose to use Tendermint for Liquid Chain’s consensus engine due to these advantages:
- Low-latency: With Tendermint BFT (Byzantine Fault Tolerance) Proof-of-Stake, consensus can be reached in just [~200ms] within a group of Validators placed across the network.
- Fair: Every round a block proposer is selected using weighted round-robin.
- Secure: The network cannot be compromised if fewer than one-third of the validators are malicious.
- Decoupled: The consensus does not require internal knowledge of the state machine in order to perform correctly
Although Tendermint will initially be our default consensus engine, Liquid Chain is designed so that its consensus engine can be decoupled and be replaced by the latest and most advanced consensus protocol technology, should one emerge. The state machine interacts with Tendermint consensus via its Application BlockChain Interface (ABCI). This allows future enhancement in the consensus department and enables aspiring developers to experiment with other consensus models on top of Liquid Chain’s state machine.
Similar to what Moore’s law predicted – the number of transistors on a microchip doubles about every two years – consensus engines will also rapidly evolve. New and more dominant engines will continuously be released in the market as mainstream demand and requirements increase. This is why with Liquid Chain, we believe in the importance of modularization and decoupling of the consensus engine from the smart contract platform.
The fee model within Liquid Chain is designed such that each transaction must pay a small amount to fund transaction costs. This is to protect the network from getting abused or Denial-of-Service (DoS) attacked. This transaction cost increases depending on the transaction execution time and the load on the network, making it unrealistic to deliberately overload the network. Under the current network fee model, the transaction cost is not paid to any party, but rather irrevocably burnt.
Unlike many popular blockchains, Liquid Chain does not have a native currency. Since every application or asset on Liquid Chain is a contract, we designate a single contract token to be the default ("native") fee currency and the fee payment is conducted via this single contract. This gives us the flexibility to add or modify functionality into our fee payment mechanism with ease, by deploying or upgrading contracts.
- Fee Distribution and Asset Staking: The fee is burnt in the current implementation. This may change in a future software iteration. One of the proposed improvements is to have fees distributed to block proposers, to encourage network participation via asset Staking.
All guest authors’ opinions are their own. Liquid does not endorse or adopt any such opinions, and we cannot guarantee any claims made in content written by guest authors.
This content is not financial advice and it is not a recommendation to buy or sell any cryptocurrency or engage in any trading or other activities. You must not rely on this content for any financial decisions. Acquiring, trading, and otherwise transacting with cryptocurrency involves significant risks. We strongly advise our readers to conduct their own independent research before engaging in any such activities.
Liquid does not guarantee or imply that any cryptocurrency or activity described in this content is available or legal in any specific reader’s location. It is the reader’s responsibility to know the applicable laws in his or her own country.
Providing liquidity for the crypto economy.