On 04 Jul, 2018Welcome to the Lykke Exchange Review. Interested in? Make sure to take a look through our other crypto related material before you start!
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How Is The Lykke Exchange Different?
Lykke aims to be the first global marketplace where all asset classes and instruments can be traded. The Lykke exchange will be a combination of a stock market, a bond market, a foreign currency market, and a cryptocurrency market all in one. Investors will have access to all these different types of assets and will barely have to pay a transaction fee in order to trade in any of them.
Lykke will utilize the Bitcoin and Ethereum blockchain networks in order to accomplish this. The Lykke marketplace will not be completely decentralized. It will be a semi-decentralized marketplace. This means that the exchange will not take possession of assets like a centralized marketplace normally does. The function of pairing buyers and sellers will remain solely with the exchange.
Individuals and organizations using the Lykke exchange will not deposit their assets onto the exchange in the ordinary sense. These assets on the exchange will be “locked up”. This means they cannot be spent by the issuer outside of the exchange. For the assets to be transacted in both the issuer of the asset and the exchange will need to approve the transaction using their private keys. This means the exchange cannot take possession of the assets that the exchange was not entitled to. A hacker or other party who gets a hold of the exchange’s private key will not be able to take the assets either.
Market participants will use “colored coins” and these will represent whatever assets the participant is trying to sell in the marketplace. Colored coins are small pieces of Bitcoin, also known as a Satoshi. The Bitcoin platform allows users of coins to write messages in them that others can see. A colored coin is a Satoshi that has a message included in it. For example, a coin can contain the message “The holder of this coin is entitled to 25 shares of Microsoft common stock”. Purchasing this colored coin would essentially be identical to purchasing 25 shares of Microsoft stock.
The concept of colored coins is not new. It has been understood for some time that colored coins could be used to create digital representations of assets. This gives rise to a project in which the blockchain solution is not the key hurdle. The major challenge is understanding how to operate the other parts of the exchange. Lykke will use the Bitcoin blockchain network because of its robustness, its security features, and the immutability of data contained on it.
Development and Management Team
Richard Olsen is the founder and CEO of the Lykke Corporation. The Lykke Corporation is a registered company located in Switzerland. Richard Olsen has extensive experience in the financial technology space.
After being awarded a PhD from the University of Zurich he founded Olsen and Associates. The purpose of the organization was to collect, filter, and analyze pricing information for a variety of different financial instruments. This venture was a success and OlsenData is now one of the world’s largest information depositories as it relates to foreign currency, futures, and interest rate transactions.
In 1996 Richard moved on to create OANDA. Richard’s vision was to use OANDA to commercialize the data that was being collected by OlsenData. It is now one of the largest and most respected FX trading platforms in the world. Richard Olsen has experience in building an exchange from nothing and he will use this experience to help navigate the Lykke platform towards success.
Nick Gogerty came over as Chief Strategist in mid 2017. His skill set and experience in the blockchain and cryptocurrency space will help drive the Lykke project forward. He helped found SolarCoin in January 2014 and since then SolarCoin has been awarded to individuals and organizations in 54 different countries.
Solarcoin works like a reward program for those who produce solar energy to power their home or business. Those that produce electricity this way will get a certain amount of SolarCoin and they can use the coins to generate cash. It is an alternative way to subsidize the generation of solar power.
Obviously Nick Gogerty is passionate about using blockchain and cryptocurrency to change the way the world works in a positive way. His experience is not only limited to blockchain and cryptocurrency though. He is a recognized leader in the financial technology space and has worked for some of the largest banks and hedge funds in the world. He has served as a financial advisor to a variety of different United Nations programs and the G20.
Partnerships and Other Influences
Heinrich Zetlmayer is an early angel investor in the Lykke exchange and currently sits on the board of the company. He is also an executive board member for Turtle Entertainment which is the largest ESports related company in the world. His prior experience in the financial sector is extensive. He was a member of the executive board with IBM in Switzerland and seems to be well connected within the company. IBM is making a big play in the blockchain space and it seems likely that Zetlmayer’s connections there can play a part in Lykke’s development.
The project recently partnered up with the government of Bangladesh. The goal of the partnership is to help the government use blockchain to provide public services more effectively to citizens.
Richard Olsen said of the partnership, “Lykke is honored to partner with Bangladesh and proud to play a role in this transformative effort. Blockchain technology holds the potential to reduce the time, cost and effort required to access vital public services online, including financial services, but also identification, land records and so on. We believe that this will truly accelerate many of the advancements that the Government of Bangladesh has already made in these areas. It can also help to establish a model for other countries to emulate.”
Bangladesh is not a global leader in technology by any means. But this partnership gives Lykke the opportunity to prove itself in the marketplace. The team will gain valuable experience as Lykke is made available in more countries around the world.
Competition and Risks
Competitors
True competitors for Lykke don’t currently exist because exchanges are normally concentrated on a particular financial instrument or asset. For example, a stock exchange is not a true competitor to an exchange that offers participants the opportunity to purchase and sell commodities like oil and gold. And exchanges that offer bonds are not necessarily competing with the variety of cryptocurrency exchanges that have hit the market recently.
The Lykke exchange will eventually compete will all types of asset exchanges if the company’s vision is realized. This makes sense because the project hopes to become an exchange in which all types of assets will be available to buyers and sellers. However, at least initially, it seems that foreign currency exchanges and cryptocurrency exchanges will be the project’s main competitors.
Platforms like Forex and TD Ameritrade that offer foreign currency trading are going to present a challenge. These service providers are first movers and have already built up a base of customers that, based on reviews, are generally happy with the support provided by these platforms. Lykke will need to provide something that these platforms do not in order to entice customers to jump ship.
Cryptocurrency exchanges like CoinBase, Bittrex, and Binance also represent an obstacle. Lykke, even if they are able to add more cryptocurrencies to their platform, will find it challenging to convert investors and traders that use these platforms. Binance, Bittrex, and Cryptopia have become popular because of the sheer amount of cryptocurrencies they provide their users to trade in.
CoinBase is popular because it is easy to use for investors that are new to the cryptocurrency space. Lykke will need to have a user friendly platform as well as a wide variety of investment options if it is to build its user base.
Competitive Advantages
- Owning 100 Lykke is the equivalent of owning 1 share of Lykke Corp. Shareholders will be entitled to vote on important issues. Lykke Corp could potentially pay dividends on their shares when they are profitable. Lykke Corp will provide other services other than the exchange and could become a profitable business. This means that Lykke coins will have a value that isn’t necessarily tied to the pure price movement of the coin.
- The Lykke exchange will leverage both the Bitcoin and Ethereum blockchains in order to execute it’s vision of a semi-centralized exchange. Lykke will not have to expend resources ensuring the underlying blockchain is secure and operating effectively.
- Lykke’s semi-centralized model has advantages over both centralized and decentralized exchanges. Centralized exchanges take custody of the participants assets and normally it takes time for trades to fully clear. Lykke will not take custody of assets and the risk of theft will be eliminated through the use of multi-signature wallets. This type of theft is a major concern for centralized cryptocurrency exchanges.
- The Lykke exchange will also have competitive advantages over decentralized exchanges. The matching engine on Lykke platform will be centralized and will work more efficiently than the matching mechanism used on decentralized exchanges. Normally decentralized exchanges are difficult to use and do not offer important features like margin trading and limit orders. The Lykke wallet is already user friendly. Margin trading and limit orders have been implemented on the Lykke platform already.
- The strength of the management team will make a difference. Lykke has an all-star team compared to the largest cryptocurrency exchanges. Richard has the experience and connections to build a top cryptocurrency exchange. With the support of Nick Gogerty the team will have an excellent chance of realizing it’s vision.
Risks
- Using another blockchain can also be considered a risk. What if the Bitcoin or Ethereum blockchain is compromised or is experiencing network traffic? Problems with the underlying blockchain will directly affect the Lykke platform.
- The Lykke exchange is behind the curve when compared to competitors. Whether that be equity exchanges, bond exchanges, foreign currency exchanges, or cryptocurrency exchanges, Lykke simply does not have the first mover advantage. In order for Lykke to succeed they must produce a product that is undeniably better.
- Lykke tokens represent ownership in Lykke Corp which is unique. It allows users to have immediate liquidity even though Lykke shares are not available for trading on equity markets. However, this poses legal issues for the company and stakeholders. Lykke is not available in a variety of large countries because of this. For example, citizens of the United States and Canada are unable to buy Lykke tokens and use the Lykke exchange because laws and regulations will not allow it.
Network and User Trends
It should be considered that Network Hashrate and Mining Distribution are not relevant to our review of Lykke. As previously stated Lykke will leverage the Bitcoin and Ethereum blockchain networks. The hashrate and approval distribution of those networks should be considered to gain an understanding of the security and decentralization of the Lykke platform.
Information concerning daily transactions and active user accounts were not readily available. Lykke is an exchange comparable to GDAX and Binance. In order to analyze user adoption we compared the total BTC and ETH volume to these larger exchanges.
Please keep the above in mind when forming your own conclusions.
Transactions
As of late June 2018 the Lykke exchange had approximately .3% of the Bitcoin trading volume as compared to Coinbase. ETH volume came in at .06%. Lykke has a very small market share at the moment and might be able to gain more as the platform is made available in the United States and other large Asian markets.
Transaction Fees
Currently the maximum fee on the exchange is .19%. This fee would apply to you if you are a “taker”. This means that you execute an order at market and it is filled right away. Fees on the Lykke exchange are low when compared to CoinBase which charges a 1.49% transaction fee. However, other cryptocurrency exchanges, like Binance, beat out Lykke in this department.
Community Growth
Lykke currently has approximately 11,000 followers across Reddit, Facebook, and Twitter at the moment. It’s obvious that the product is not well known. The excitement surrounding this project in the communities that are aware of this application cannot be denied. Each coin offering has been quickly sold out over the past several years.
Is Lykke For You?
Lykke is an exciting product for a variety of reasons. Richard Olsen is a successful entrepreneur and already has experience building a similar idea from scratch. The team has a good mix of finance and blockchain related experience.
The fact that the coin represents a share in the corporation makes it unique. Very few coins offer ownership stake in the underlying project because of legal restrictions. Owning the underlying company is an advantage because it gives the holder a share in the profits of other business activities.
There’s no denying that the exchange has several large obstacles to overcome. Getting through the maze of legal restrictions that prevent the Lykke exchange from doing business in several large countries is first on that list. From there Lykke will have to differentiate itself from a large field of cryptocurrency exchanges.
Capturing market share within the foreign currency market is a long term proposition. This is not going to happen over night. This is a longer term play and investors should understand that before investing in Lykke.
If you’re looking for a coin with a good use case and a proven team then Lykke is the coin for you. Just understand the time horizon that comes with this type of investment.
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