DESCRIPTION OF BUSINESS

EXECUTIVE SUMMARY

DXone Ltd., registered in Cyprus, has developed the DXone cryptocurrency exchange and aims to raise €14 million with two sale stages: A private and a public sale. The sale is being conducted after the project has successfully secured a security prospectus approval by Liechtenstein’s FMA. 

The exchange features a range of tools for data analysis, pulling information from internal databases as well as from different cryptocurrency exchanges. It also allows users to access several advanced charting and trading tools: Users can have separate customisable dashboards for research and trading, as well as dashboards that combine both research and trading tools in the form of widgets. Widgets are divided between free-use and paid ones. 3rd party developers can create and make their widgets available on DXone’s widget library. DXone is a cloud-based, multi-exchange cryptocurrency platform based on HTML5. It provides information and trade execution, leveraging a fully-customisable web-based front-end. 

The Cryptocurrency exchange market is a fast-growing one, and one of the few business models proven to be profitable in the blockchain industry, even through prolonged bear cycles. Initially, cryptocurrency trading was dominated by centralised exchanges. However, over time, the blockchain ecosystem has evolved to produce a greater number of decentralised alternatives, with users also inclining towards decentralised trading. It is, therefore, safe to say that DXone faces fierce competition, as the number of new cryptocurrency exchanges has never stopped growing. The sector is dominated by names such as Binance, Coinbase, Kraken, Bitstamp, Gemini, Poloniex, Bitmex, and others.

The team consists of members coming from crypto advisory and education. More importantly, they showcase technology and technical expertise, particularly within the niche of state-of-the-art front-end technology and automated trading systems. Some team members have tech consulting experience and have also functioned as tech leads. Most of them have played Senior leadership roles in CEO/CTO capacities within other companies, having founded startups in crypto, traditional financial information, trading, and capital allocation.

From DXone’s security prospectus: ‘The Issuer DXone Ltd., Cyprus, is a 100% subsidiary of DXone Holding Ltd., Oroklini, Cyprus, and will develop, implement and operate the DXone Exchange. DXone Holding has signed a contract to acquire the IP and two 100% subsidiaries of Xinfinit GmbH, Munich, Germany.’

DXone avoids the classification uncertainty that other blockchain projects inevitably go through by issuing two tokens: a Security (DX1S) and a Utility (DX1U) token. DX1S is a security token representing a claim of 25% of the trading commissions of the DXone Exchange. The total supply of DX1S tokens is of 100 million tokens, and the total supply of DX1U tokens is of 200 million. There will be 100 million DX1U tokens distributed to DX1S investors (on a 1:1 basis) and 100 million DX1U available for distribution to contributors solely on the discretion of the company. 

The project generally lacks the visibility and social buzz that crypto exchanges need to create to attract investors, both for the token sales and to encourage users to use the platform. The lack of hype can be explained partly by the nature of a regulated security token offering, especially one that is focused in just a few countries such as this one. The company’s CIO also told D-CORE that the marketing budget for the project is still small since the exchange currently has only three tradable pairs. 

Our researchers gave DXone a final rating of 61.2%. The breakdown of this rating is available at the end of this report.

PRODUCT & COMPANY DESCRIPTION

Product

DXone Ltd. is building the DXone cryptocurrency exchange, with enhanced data and trading tools. Additionally, the exchange allows traders to create custom trading dashboards. The company got a prospectus approved by the Liechtenstein Financial Market Authority (FMA) in June 2020.

Objectives

DXone’s publicly mentioned objectives are:

  • To provide users with real-time data and research across the market.
  • To create a trading dashboard that is fully customisable.
  • To remain intuitive and user-friendly. 
  • To create a revenue-sharing model via a security token.
  • To issue a utility token that offers a discount on trading fees.
  • To be a high-security framework.

Mission

Verbatim, DXone’s mission is as follows:

“DXone provides real value for traders and investors because we understand their needs. Our solution is designed to provide an outstanding user experience (UX) and to benefit traders and investors. Doing so will attract traders and investors to our platform.”

MARKET CONDITIONS AND COMPETITION

Market Conditions

The crypto exchange industry is growing in value, as a whole. The cryptocurrency industry also seems to be growing exponentially every market cycle, each of which lasts approximately four years.  Cyrpto exchanges, in general, rely on new participants in the market joining it, with asset prices and trading volumes increasing dramatically, to make a profit. 

The cryptocurrency exchange market is a fast-growing one, and one of the few business models proven to be profitable in cryptocurrencies. Initially, trading was mainly concentrated on centralised exchanges, with a growing trend towards decentralised trading emerging recently. As per CryptoSlate, the market capitalisation for exchange coins is of around USD 12.12 billion, with 166 exchange-issued tokens. For a nascent industry like cryptocurrencies, this represents a considerable growth. Crypto exchanges have also started an incursion into the derivatives market, as well. As a result, more exchanges and companies have joined the derivatives segment to address the growing demand.

Competition

Exchanges are considered to be independent of the market’s performance in their ability to generate profits. In fact, during the bear market that started in 2018, this capability remained largely on display. DXone faces fierce competition, as the number of new cryptocurrency exchanges seems to never stop growing. 

DXone faces the emerging competition from Decentralised Exchanges (DEXes) as well, such as Uniswap, Serum DEX, etc. These DEXes either offer order book or swap-based facilitation using algorithms and empowering the Decentralised Finance growing sector.

How is DXone different from its competitors?

The main difference from the main competitors is that DXone offers customisable dashboards, advanced trading and charting tools, and the availability of research data in the trading window. The user interface of DXone is highly customisable, as well. Traders can add and remove widgets as needed. 

DXone aims to combine the functionality of a crypto exchange with those of data analysis tools, such as Messari and Santiments.

TECHNOLOGY REVIEW

Products

DXone is a cloud-based, multi-exchange cryptocurrency platform based on HTML5. It provides information and trade execution, leveraging a fully customisable web-based front-end. It does not require any installation of software or servers to operate, so traders will be able to trade from anywhere using any web-enabled device (such as a desktop computer or a smartphone) working with a web browser that is up-to-date and HTML5-compatible. Xinfinit originally developed this technology.

 

A look into DXone’s dashboard.

 

DXone offers a range of research tools pulling data from multiple exchanges to help users make trading decisions. Users can rearrange their research dashboard and choose to add or remove tools from the widget library. At the moment, all of the widgets in this library are available for free and developed by Xinfinit Pvt. Ltd. It is in the plans for Q2 2021 to add paid widgets, developed by others, as well. 

Both research and trading tools can be combined in a fully customizable dashboard.

DXone’s customisable trading dashboard.

Blockchain

There is no mention of 3rd-party audits of DXone’s technology or smart contract code. Although, by communicating with the CEO and CIO, we were able to find that their smart contract and token development have been outsourced to Tokeny. Tokeny is therefore responsible for carrying out the necessary audits. There is no mention of any technical details in the whitepaper or the website regarding the consensus mechanism used by DXone, although the founders revealed that both tokens will be based on several ERC standards. 

We have been able to verify the extent of the partnership with Tokeny under a Non-Disclosure Agreement.

ROADMAP

Although the roadmap is quite detailed, it appears only to cover the year 2020. It does not project milestones to be achieved in the medium to long term. Additionally, there are no indications to know the project has stayed on course to achieve what it projected to do in the beginning of a highly turbulent year.

DXone has presented roadmaps for the token sale and the project development separately. Whilst the token sale roadmap is time-bound, the development roadmap is only partly so. (Source: Prospectus, pp. 23 – 25. Whitepaper, pp. 13 – 14).

TEAM

Outstanding members:

Luciano Nonnis, CEO: He was the CEO of BDXAlliance for a year until October 2019, when the project announced the closure of its ICO and offered alternative investment choices for the investors. Lucianos’s LinkedIn profile also states that he is the CEO of Crypto Coach (see below).

Mario Urschitz, Cofounder and CIO: He is the Founder of Crypto Coach, a company offering training to interested crypto investors. This is his only past professional experience according to his LinkedIn profile.

Matthias Wiederwach, CTO: He is the Founder and Managing Director of Xinfinit, the company that developed the technology on top of which the DXone exchange is built. He has a 27 year-old track record of founding companies that develop different things, from computer games in the 90s to complex financial tech infrastructure and services. He also has experience in the financial world, as he was the founder of QuantumRock a BaFin-licensed asset manager.

General Comments on the Team

The team consists of members coming from crypto advisory and education. More importantly, they showcase technology and technical expertise, particularly within the niche of state-of-the-art front-end technology and automated trading systems. Some team members have tech consulting experience and have also functioned as tech leads. Most of them have played Senior leadership roles in CEO/CTO capacities within other companies, having founded startups in crypto, traditional financial information, trading, and capital allocation.

The whitepaper provides information on the company that has been developing the project over the last four years. It mentions that Xinfinit GmbH used to be DXone’s software development partner before both parties striking a purchase agreement that led to DXone’s mother company to buy all relevant assets from Xinfinit GmbH. The leadership of the project consists of people with experience in financial data distribution, some crypto traders, trading engine developers, and crypto investors.

In the past, CEO Luciano Nonnis and CIO Mario Urschitz were involved with a controversial ICO, BDXAlliance. Luciano was the CEO of the project. The project closed doors on September 13, 2019. The controversial part is that the raised funds (or at least part of them) were not returned to investors, who instead got offered alternative investment choices, according to the project’s website. Luciano and Mario both state that all of the investors got their money back. BDXAlliance’s ICO was not an initiative from Luciano or Mario and was closely associated with BDO Alliance, a global accounting alliance network.

There are no advisors listed on the project’s website or whitepaper.

LEGAL AND COMPLIANCE SPECIFICS

The project has published a very detailed security prospectus which received approval by Liechtenstein’s Financial Authority, FMA. You can find the full prospectus and relative documents here: https://DXone.com/security-token  

As taken from the prospectus:

The Issuer DXone Ltd., Cyprus, is a 100% subsidiary of DXone Holding Ltd., Oroklini, Cyprus, and will develop, implement and operate the DXone Exchange.

DXone Holding Ltd., Oroklini , Cyprus, was established at the end of 2019. DXone Holding is in the process of acquiring the IP and two 100% subsidiaries of Xinfinit GmbH, Munich, Germany, namely:

  • Coinvista AG, Zug, Switzerland, created as a vehicle for an intended (but never implemented) Xinfinit STO.
  • Xinfinit pvt. Ltd, Colombo, Sri Lanka, the company employing most of Xinfinit’s developers and data managers.

Xinfinit GmbH, Munich, Germany, created an MVP (minimum viable product) of the exchange platform for DXone Holding Ltd. on behalf of DXone Ltd. DXone Holding Ltd. will have an option to buy the IP from Xinfinit GmbH.

Update: The purchase contract between DXone Holding Ltd. and Xinfinit GmbH was signed. Furthermore DXone Holding Ltd. was renamed to AssetGeek Ltd. although the filing at the Cyprus Court is still pending due to delays caused by Covid-19.

Jurisdiction

DXone raises funds to develop and operate the so-called DXone Exchange, a crypto exchange of cryptocurrencies and tokens (except security tokens) [as per Prospectus pp. 5, 11, and 19]. 

At the time of writing, there is no specific regulation for Cryptocurrencies and Blockchain technology in Cyprus. Despite this, tokens operating as, and having characteristics of “traditional” securities may be subject to existing securities and investment laws and regulations, as per the Cyprus Securities and Exchanges Commission (CySEC). Also, despite the lack of specific cryptocurrency and blockchain regulation, the government, in line with the Parliament, issued a national strategy for Blockchain technology and called the private industry of the island to comment and propose solutions in line with the strategy. It is anticipated that Cyprus will pass a relevant legislation in accordance with the referred national strategy that might impact the operation of a crypto exchange working in similar ways with DXone’s Exchange. Cyprus is also expected to adopt the European regulatory framework along with the other member states when it is available from the Union. The above might result in the imposition of licensing or other requirements, obligations, or rules on the operation of the DXone Exchange, if this exchange were to operate in Cyprus, either because of new laws or because existing laws are taken to apply to the exchange and the tokens traded there.  

The Prospectus, mainly at p.6, acknowledges the risk of potential legal and regulatory requirements imposed on the DXone exchange, either because specific, existing legal provisions of financial and securities services “may become or may be interpreted to become applicable” to the business operation of DXone, meaning the DXone exchange, or because new provisions may enter into force in the future.  

Banks in Cyprus do not have a favourable stance towards cryptocurrencies and crypto exchanges as a result of a directive from the Cypriot Central Bank highlighting AML concerns. Commercial banks in Cyprus do not process transactions to and from crypto exchanges bank accounts. At this point, it is worth raising that Cyprus has yet to transpose the 5th AML Directive, which brings exchange providers of fiat to crypto and custodian wallet providers under the ambit of the AML regime. The 5th AML directive is expected to be transposed soon, along with the referred legal and regulatory development on crypto exchange and custodian wallet providers, which might affect and lead to the update of the Central Bank’s disposition towards cryptocurrencies’ trading and exchange.

The management says it is aware of these developments and prepared to meet the requirements to come. e.g. KYC and AML-procedures are already executed in expectation of certain future standards.

Token Classifications

DXone avoids the classification uncertainty that other blockchain projects inevitably go through by issuing two tokens: a Security token and a Utility token.

DX1S holders are entitled to a 25% share of DXone’s Exchange in trading commissions. It is safe to assume that the company will try to buy back a portion of DX1S to avoid renouncing such a big share of its revenue stream.

DX1U is the utility token of the exchange, and it is given to investors in the security token on a 1:1 basis. It will be traded on the exchange right after the end of this sale. The purpose of this token is to give its holders discounts on trading fees, meaning that traders on DXone exchange can hold DX1U in their exchange wallets to be eligible for a 25-50% discount on trading fees, depending on the amount of tokens they hold. 

KYC and AML

The token offering is only available for investors domiciled in Switzerland, Liechtenstein, Austria and Germany (source: website and Prospectus, pp. 37 & 40). Every investor is directed to complete a three-step KYC process upon registration with a username and password. The Legal Notices and prospectus section carries details in regard to the KYC/AML procedure. 

Partnerships

DXone has mentioned partnerships with several parties. These include BitGo for cryptocurrency custody services and Xinfinit for software development. DXone has also proposed to acquire two of Xinfinit’s subsidiaries through DXone Holding, as well as the Intellectual Property of the IT solutions developed by said companies. DXone attempts to offer said solutions on a white-label basis (Source: Prospectus, pp. 25-26), KÖNIG.REBHOLZ.ZECHBERGER for legal services and IDNow for KYC related matters of users. 

DXone also has a workin partnership with CoinAnalyst, which could help the users of DXone access value added services when using the exchange (e.g., AI based big data analysis).

We were able to verify these agreements by either an announcement from the relevant counterparty that DXone entered an agreement with or by reviewing relevant contracts provided by DXone under a Non-Disclosure Agreement. 

Legal Partnerships

Legal Risks

By registering DX1S as a security, DXone avoids the legal risks of token classification. However, the project is far from being risk-free from a legal perspective. 

Legal risks identified: 

  • Regulatory risk from the chosen Jurisdiction for the exchange’s operation (Cyprus). 
  • Risk of not being able to facilitate trading of its own security token on the exchange. 
  • Risk of not being able to establish a secondary market for other security tokens. 
  • Since security tokens are novel, laws and regulations around them are still developing. This might lead to legal and regulatory changes in the tokenholders’ jurisdictions that might affect their holding (such as changes to tax regime).

TOKEN OFFERING

DXone aims to raise a total of €14 million in two sale rounds: A private sale and a public sale. 

The total supply of DX1S tokens is of 100 million tokens. The total supply of DX1U tokens is of 200 million. There will be 100 million DX1U tokens distributed to DX1S investors (1:1 basis), and 100 million DX1U available for distribution to contributors solely on the discretion of the company (whitepaper, p. 9). 

DX1S holders are entitled to a 25% share of DXone’s revenue. It is safe to assume that the company will try to buy back a portion of DX1S to avoid renouncing such a big share of its revenue stream. 

As per the token distribution:

  • 75% of the issued security tokens will be available for sale. Unsold tokens will be distributed to investors. 
  • 5% will go to the team.
  • 10% will be reserved for partnerships.
  • 10% will be reserved for contributors. 

 

Marketing will play a big role in the success of the project, as the cost of user acquisition for exchanges is usually very high. It involves offering referral rewards, organising trading competitions, and targeted marketing campaigns. Logically, the marketing allocation of funds will be of 30% to achieve the desired success. 

As of 22/11/2020, the management team claims to have raised 2 million in a private sale and expect to raise the same amount in the public sale. 

SOCIAL MEDIA AND VIRALITY

The project generally lacks the visibility and social buzz that crypto exchanges need to create to attract investors tofor their token sale and acquire users for their platforms. This can be explained partly by the nature of a regulated security token offering, especially when it is focused on just a few countries and by the lack of marketing efforts thus far. 

The project currently has 1115 followers on Twitter, a respectable but low number for the project’s intention.  DXone is doing much better on LinkedIn, with over 4k followers on the project’s page. 

There are 7,104 followers on their Facebook page, and 7,148 likes. It is an active channel with daily posts on it. However, the posts do not receive much social engagement.

The project has a presence on YouTube with 5 videos uploaded so far.

Other parties have also produced videos about the project, mostly in German. For example:

RATINGS

Everything you see in this report is the aggregate result of an extensive research process carried out by a distributed team of researchers and crypto enthusiasts around the world. The process consists of 60 questions divided into three phases. Researchers are called to answer these questions about a project, while providing links or screenshots as evidence to support their answers. For every answer, they also provide a rating from zero to five. The average of their ratings is detailed below. 

Our researchers gave DXone a final rating of 61.2%.

DISCLAIMER

This Report is for informational purposes only and/or all or any of its content thereof, should not, may not and will not be taken to constitute, either as a whole or in part, any investment advice or recommendation or similar, regulated, or authorized advice, and D-Core by producing, disseminating, giving away, or making available this Report does not, should not, may not and will not be taken to advise on investments, or carry out any similar activity, or any regulated activity or any other authorized activity. D-Core is not authorized by the Financial Conduct Authority or by any other competent EU or elsewhere or otherwise competent authority to carry out any regulated activities and/or any activities within the scope of these authorities’ competence.

D-Core excludes and disclaims all liability and/or responsibility whatsoever and/or howsoever caused, arising out of any actions, or omissions taken, or made by any authorized and/or other recipient of this Report in reliance on, or arising out of, or in connection with any or all content of this Report. Any authorized and/or other recipient of this Report acknowledges, accepts and agrees that they carry out their own independent research and act in their own sole risk in reading or using any or all information contained in this Report. In any event, recipients of this Report are urged to seek professional advice before making any potential investment decision in relation to the project described herein. Any authorized and/or other recipient of this Report accepts this Disclaimer in full. For the avoidance of doubt, this Disclaimer is binding against any recipient of this Report whatsoever.