Co-founder of Dolomite, Adam Knuckey, talks about decentralization and KYC compliance for DEXes.
Hello! What’s your background, and what are you working on?
Hi I’m Adam Knuckey, the COO and co-founder of Dolomite.
I initially came across cryptocurrencies on a programming forum during the bull run of 2013. I started doing some development work on early altcoin miners at the time, but in the end shifted to small investments in Bitcoin over the following years. My co-founder Corey Caplan started in 2015 first as a crypto user, then a crypto trader. Like many, Corey and I spent much of the latter half of 2017 and beginning of 2018 trading nearly every day.
By the end of 2017 we were regularly transferring relatively large amounts between exchanges, and started to really feel the shortcomings of centralized exchanges. Waiting 15 minutes for your deposit to appear on an exchange can be very stressful if you’re moving your whole portfolio and can also mean missing market opportunities. Leaving assets on an exchange meant exposure to potential hacks and fraud, which ran rampant throughout 2017 and 2018.
These shortcomings of the centralized exchange space led us to explore other options. We fell in love with the potential of decentralized exchange technology, but the options at the time were very lacking. This led us to create Dolomite. Dolomite aims to solve many of the problems that exist in the current decentralized exchange landscape and make great non-custodial tech accessible to as many people as possible. Essentially we wanted to create the DEX we had always wanted to use.
What’s Dolomite’s backstory?
Dolomite came out of a need we saw in the market and a strong relationship with the Loopring foundation. We’ve been working with Loopring since the end of 2017 when we started to explore the options in the decentralized exchange ecosystem. For the first few months of 2018, my co-founder and I worked on creating a decentralized exchange Android application for the Loopring foundation. This grew our understanding of their decentralized exchange tech and strengthened our relationship with the foundation. While the Android exchange was never completed, this ended up leading to an investment into us to create Dolomite.
Armed with our new knowledge of Loopring’s decentralized exchange tech, a couple of new hires, and an army of interns, we spent the following year developing Dolomite’s initial code base. Our approach was to offer as much as we could in a non-custodial exchange and make the UI/UX as clean and easy to adopt as possible. The bear market meant that we could take our time and create the vision for a better exchange we had back in 2017. Now, just over a year after founding, we’re approaching our full release.
What’s your business model?
We want to be able to offer the most powerful non-custodial trading experience on the market. We do this by offering a greater set of features than is found on other DEXs as well as solutions to liquidity and frontrunning issues that exist in the market.
As traders, we found it a pain to keep open multiple tabs with token information, price charts, and 3rd party portfolio tracking applications. We wanted to bring that all together into one place. That’s why Dolomite comes with a built-in portfolio tracker, completely free and open to use. By connecting your Ethereum wallet or simply entering your public address, we generate a portfolio overview for you with a graph of past portfolio value, wallet transactions with cost basis, trade history with a breakdown of your gain/loss, and information on thousands of tokens.
One of the major issues we wanted to tackle on the exchange is the liquidity and trade speed of non-custodial trading. We solve this by building on the Loopring Protocol, which enables us to offer an off-chain order book and on chain settlement. This means that we can offer instant and free order placing and cancelling, price-time priority order matching, and no frontrunning. As a result, we’ll be able to launch with a dedicated market maker, meaning tight spreads, good prices, and fleshed out order books. The Loopring Protocol also allows us to enable traders to trade right from their wallet, with no deposits, even to a smart contract. It’s the maximum amount of custody and control that can be offered by an exchange on Ethereum, while also allowing us to offer a stronger trading experience.
Our revenue comes from the same place as most other exchanges - trading fees. However, we have a unique fee structure for the DEX space. We take a 0.5% fee from takers, but a -0.1% fee from makers. We’ll be the first to offer a negative maker fee in the DEX space, meaning market makers make money by placing trades on the exchange. We hope this will encourage market making on the exchange and help to bring in liquidity to the space.
We always hated having to use Coinbase to transfer to and from our bank, so we wanted to make sure Dolomite launched with a good fiat on/off ramp. As such, we’ll be the first DEX to integrate Wyre natively into our platform, enabling traders to seamlessly cash in and out from their bank account or debit card directly to their wallet for a fee of only 0.75%. By reducing barriers to entry, we hope this will encourage more traders to enter the DeFi space.
By offering solutions to the problems that currently exist in the DEX space, smoothing the user experience, and adding essential quality-of-life features, we hope to bring non-custodial trading to the broader crypto trading market.
What’s your approach to decentralization?
“Decentralized” is often thrown around these days with many different definitions and levels of decentralization. Our approach with Dolomite is to balance the benefits of decentralization with those of centralization to bring the best of both worlds. With Dolomite you retain full control of your assets the entire time you use the exchange, with assets never leaving your wallet until the moment they are traded. Trades are matched quickly off-chain and settled securely on the Ethereum blockchain through the Loopring protocol.
This approach enables us to offer fast, liquid trading while traders keep complete custody of their funds. It also means we can launch with a dedicated market maker, something that has been expensive for existing on-chain order books.
What’s your position on the regulatory landscape today?
We take a more unique approach to regulation than many in the decentralized space. While many decentralized exchanges have moved away from serving US customers, we’ve made it our goal to be able to operate in the US in a compliant way. To do so we’ve integrated a KYC/AML process, but have tried to make it as unburdensome as possible. This is achieved through a multi-tiered KYC process. Anyone can start trading $300 a day or less on Dolomite by providing only their name, email, and date of birth. Each further tier of KYC unlocks a higher daily trade limit for a total of 4 tiers. At the highest tier you can trade an unlimited amount and also cash in or out directly from your bank account or debit card through our integration with Wyre.
We have a comprehensive token listing process to ensure that assets listed have a high degree of integrity. This helps protect consumers from interacting with assets that could be securities or are scams. Additionally, we intend to fully comply with money transmission laws (state and federal) that our legal counsel deems applicable to our exchange. We carefully watch the regulatory landscape and feel prepared for all of the potential upcoming changes that can come our way.
By taking a regulated approach and preventing bad actors on Dolomite, we will open the door for larger institutional traders as well as allow easier access for the American market.
What are your goals for the future?
We’ve got some exciting things coming up later this summer and towards the end of this year. Shortly after release we’ll be launching margin trading on several of our trading pairs, offering up to 5x leverage. By end of year, we’re looking to release our iOS and Android applications to bring smooth non-custodial trading to mobile. We’ve also been working with Loopring, providing feedback on version 3 of their protocol, which will enable over 600 trades to be settled per second for a fraction of the current cost.
Overall our goal is to grow adoption of decentralized and non-custodial solutions. I strongly believe that we’re reaching the point where decentralized options offer greater benefits for your average crypto trader. By educating the broader market and offering the best non-custodial exchange we can, we hope to drive greater DeFi adoption.
What are your future thoughts for the DeFi market?
I believe that we’ll be seeing significant growth in the DeFi market as we see apps and platforms come out that make great DeFi tech accessible to a broader audience. DeFi is reaching the tipping point where it’s able to offer significantly greater advantages over centralized solutions without the speed, liquidity, and UI/UX problems that it’s faced in the past. We’re hoping platforms like Dolomite help to bridge the gap to bring great DeFi tech to more people, but we’re only one part of a much larger movement. Overall I’m very excited to see where the space is going to go over the next year.