How to achieve true network effect in the digital age is the million-dollar question all companies ask, no matter the industry. Digitex Futures realizes that in the crypto space it takes more than just a “build it and they will come” mentality. Here we explore what exactly is meant by “network effect,” and how the Digitex exchange will achieve it.
First of All, What Is Network Effect?
Network effect at first sounds technical. But even though it comes from the economic lexicon, it really has a simple core meaning. It’s when the growth in value of something (product or service) rises to its users as more people begin using it.
Here’s a non-monetary example, the security of the Bitcoin blockchain. As more miners and nodes joined the network, the users valued the security it provided, in turn, attracting more users. Its value is more than monetary.
However, in the same example, the monetary value increased as the number of users grew. This is reflected by BTC’s market dominance which is at about 53% at the time of writing.
Now that we have the baseline of understanding, we can look at different types of network effect and how the Digitex Futures exchange plans to benefit from them.
Different Types of Network Effects
This list as presented here isn’t the end all be all. This is just a breakdown of several categories of network effect and how they will relate to the Digitex exchange once it goes live in Q4.
Picture an onion in your mind. We’ll start at the core and each layer of the onion is a different subset of the network effect. Don’t worry, there aren’t that many effects!
So, first, we have the physical effect. This is where the value is added by the number of token holders. The value comes directly from each user. Remember, in order to enjoy zero trading fees, the user must hold DGTX tokens. This is the core and considered to have the strongest effect.
Protocol Layer Effect
Around the core is the protocol layer, which is very fitting in terms of Digitex. The exchange will use a hybrid model combining the Ethereum blockchain for security and centralized data storage for order matching and other functions requiring speed.
The decentralized blockchain is used by traders to open futures contracts by implementing smart contracts. For new and seasoned traders, this innovation to create a balance of speed and security should present a new value not seen on other platforms.
Personal Utility Effect
Tools like one-click trading, aggressive trading calls, and creative strategies are the personal utility effect layer. This effect is usually connected with personal identifiers such as a real name, although that is not needed to place trades on the exchange.
But once traders start to experience the enhanced UX for real-time trading, that benefit will be shared with others regardless of what the user’s real name is. Whether a day or swing trader, trader templates will be developed based on strategies that show a higher consistency in making a profit. Better communication alerts and tools will be incorporated for traders who “need to be in the know.”
Past the Inner Core Layers
The next layer plays off the previous layer. The personal effect will be people sharing their experiences on the exchange. Novice users will hear about unlimited commission-free trading and want to see if that’s really true. In the social media space, content creators who trade in crypto futures will have followers who trust their recommendation. And there goes the snowball down the hill.
Market Network Effect
Digitex Futures exchange plans to lower the barrier to entry for futures trading. This is called the market network effect. With more users able to access the market of trading futures contracts, it can only be reasoned that more people will trade. In turn, creating more liquidity in the exchange because of the expanding network of users.
This is where the DGTX community’s ability to vote on the minting and dispensing of tokens will come into play and have a direct effect on the balance of supply and demand for the ecosystem.
Digitex plans to maintain a steady volume of trading by using automated market makers to match every buy and sell order if there is no human trader to match. This technology is more on the back side of the exchange but is relevant to the two following layers that are the marketplace 2-sided effect and the platform 2-sided effect.
This should work to help keep traders happy with the supply and demand level because the liquidity will stay consistent. On the backend, the Digitex developers will create better algorithms to help match trades based on what they see the users do.
Outer Layers of the Network
Jumping to the outer layers, there are two effects that can apply to Digitex Futures. They are tech performance and the bandwagon effect.
Tech Performance Effect
The first deals with technology and how, if inefficient, could hamper a positive network effect. Using its hybrid model, Digitex is combining centralized and decentralized technology to deal with any potential scaling issues. And also looking to adopt scaling solutions like Plasma sides chains to expand its capability.
The Bandwagon Effect
The bandwagon is exactly how it sounds. People looking to get in because of hearing others talking about something. With over 40,000 members in our Telegram group and the live demo being unveiled at the Malta Blockchain Summit 2018 next month, this will have a positive effect because traders will want to try zero fee trading.
Making Sense of it All
As explained, there are different types of network effects. When applying them to the Digitex Futures exchange, there is definitely validity to the statement “the network effects will be positive for the exchange.”
At the core, it’s all based on two things: 1- traders always desire an edge to help make a profit. On the exchange, they will be able to make unlimited trades with zero trading fees. 2- people will always talk about how something is making money for them.
Going by the recent price rise over the last couple of weeks, there’s no question that one or more network effects are taking place. The DGTX token has gone up more than 200%. The word is getting out about how Digitex plans to change the crypto futures exchange market and hit the network effect out of the park.