- Taoshi launches a new forex market.
- It uses a Bittensor subnet to attract liquidity.
- It will also use a similar token system to decentralised exchange Curve Finance.
Crypto players are back making a move for the $7.5 trillion foreign exchange market.
On Thursday, Taoshi, in partnership with General TAO Ventures, became the latest DeFi firm to attempt to blend the worlds of digital assets and international finance by launching 0xMarkets, a decentralised exchange, on Coinbase’s Base blockchain.
Taoshi is a firm focused on leveraging the Bittensor blockchain. Its new platform will let traders swap between several currencies, including US dollars, euros, British pounds, and Japanese yen, in addition to cryptocurrencies Bitcoin and Ethereum.
“Just building a decentralised exchange is not a unique thing, but acquiring liquidity is what unlocks success,” Arrash Yasavolian, founder and CEO of Taoshi, told DL News in an interview.
The platform will leverage the Bittensor blockchain to attract liquidity providers and use a token model similar to the one pioneered by the decentralised exchange Curve Finance to retain them, according to Yasavolian.
Forex is a global marketplace where national currencies are traded. It’s the world’s largest financial market, with a staggering average daily volume of around $7.5 trillion.
In short, tapping into this market would amount to a huge windfall, as it is typically walled off on centralised platforms.
The problem? It’s a tough nut to crack.
Several attempts have been made over the years to create a blockchain-based forex market, but they’ve mostly fizzled out.
500x leverage
The problem, Yasavolian said, is that forex markets need a large and stable liquidity base to be successful.
The daily price movements between national currencies are small, so most traders use high levels of leverage when trading them, which requires lots of liquidity.
“To do forex commodities successfully, you need to be able to allow traders to take [500-times] leveraged positions,” Yasavolian said.
0xMarkets will use a Bittensor subnet as a liquidity-as-a-service engine.
Here, liquidity providers can deposit Circle’s USDC stablecoin to the subnet to earn fees. When they do, they register as a miner on the subnet. That means they’ll also receive emissions of the subnet’s alpha token.
Alpha will have utility as a governance token. Those who own it can use it to vote on which markets distribute more alpha tokens through emissions, thereby incentivising liquidity.
The hope is that the double rewards will attract enough liquidity to make the market function and maintain it as other parties purchase the alpha token to incentivise future token emissions.
“You’re not only getting liquidity provider rewards, you’re also getting miner emissions from the Bittensor subnet,” Yasavolian said.
The entire system is permissionless, meaning anyone can sign up to provide liquidity or use the alpha token to incentivise liquidity.
Curve similarities
A similar system has worked well for Curve Finance since the decentralised exchange’s 2020 launch.
Deposits to Curve’s liquidity pools exceed $2.3 billion, and its CRV governance token has continued to see demand, despite challenging market conditions.
Yet critics have noted that Curve’s token system isn’t perfect.
They say it potentially centralises governance decisions among a few large token holders, and leans heavily on emissions of new tokens to incentivise liquidity providers.
“If, for any reason, the value of the CRV token were to plummet, the attractiveness of the protocol could wane, leading to reduced liquidity and potential instability,” Lisa JY Tan, founder of crypto consultancy Economics Design, said in a blog post.
AI trading
0xMarkets isn’t Taoshi’s first project.
It also built a decentralised proprietary trading firm called Subnet 8, which runs automated trading strategies that rely on artificial intelligence, powered through the Bittensor network.
The fact that Taoshi runs a trading firm and is launching a forex exchange could raise concerns around conflicts of interest. Traders may fear that Taoshi has access to privileged information that gives them an edge in the markets, for example.
Yasavolian said that the way he’s set up 0xMarkets makes it “pretty impossible” for his firm to trade against users.
Instead, the Taoshi CEO says he wants to open the playing field so that anyone can provide liquidity or market make on the platform. One plan is to allow the platform’s users to deposit funds into market-making vaults controlled by AI agents, which use the funds to earn a yield through trading.
It’s similar to how top perpetual futures platform Hyperliquid lets users deposit funds to its market-making HLP vault, although AI doesn’t control that vault.
“We want to make it so that everyone can be that hidden figure that’s monetising off traders,” Yasavolian said.
Disclaimer: The two co-founders of DL News were previously core contributors to the Curve protocol.
Tim Craig is DL News’ Edinburgh-based DeFi Correspondent. Reach out with tips at tim@dlnews.com.
