A comprehensive review of Worldwide Asset eXchange (WAX)
I am trying to find some place I can buy a knife without worrying about someone trying to scam me. - a Reddit user
No matter how alarming it may sound, the motive of the Reddit user looking to buy a knife is completely benign. The user is discussing whether OPSkins, a popular marketplace, is safe to buy a virtual knife, an accessory for video games. Allow us to explain.
We all know that online games are extremely popular with more than 1.8 billion users (as reported by ESA in 2015). In addition, players are rewarded by in-game items, often solely for ornamentation that does not affect the gameplay. These virtual goods can also be traded among players. They can easily go from a few dollars to a few thousand. According to research from the consultancy firm Super Data Research (as reported by Reuters), this secondary market was of size $46 billion dollars in 2016 with a compound annual growth rate of more than 6%.
OPSkins is a marketplace for trusted trading of in-game virtual goods. They claim to be the largest such marketplace, generating over 100+ million purchases annually for millions of customers. In the aforementioned Reddit discussion, other users gave OPSkins a superior rating as a trusted and fast trading marketplace.
This is precisely where the issue of trust lies. Online gaming is not exactly the place for reliability among the users, and a great amount of distrust to trade real money for virtual good remains. The team behind OPSkins is proposing a solution - a decentralized marketplace on Blockchain called Worldwide Asset eXchange (WAX). They propose a new cryptocurrency - WAX tokens - for purchasing and selling these assets.
Blockchain based platforms are a good solution to overcome the intrinsic trust deficit. Also, since many games already have some in-game currency to buy and sell items, it makes sense to create a global cryptocurrency to exchange digital items. The asset exchange would be peer-to-peer, which would remove any “middleman”. Naively, this seems counter-intuitive to OPSkins, which is a middleman of its own. However, creating a decentralized platform is arguably more sustainable and future-proof.
Another advantage of blockchain based asset management is that the viewer can see the purchasing history of the asset and its prices over a period of time. So if he feels that he is being overcharged, he can look through the ledger to see prices of similar items as well.
Consensus algorithm for the WAX platform
The crux of a decentralized platform is its consensus protocol. Bitcoin uses Proof-of-Work (PoW) and Ethereum uses Proof-of-stake (PoS) algorithm to reach consensus among its users. As noted by WAX, these algorithms currently do not scale rapidly and thus may not be suitable for high-throughput platform such as virtual items trading. Instead, WAX vows to use a novel algorithm called Delegated Proof of Stake (DPoS), originally proposed by Daniel Larimer of Bitshares. It is not clear how much of this algorithm WAX will adopt and whether it will mix it with other approaches. Controversies around DPoS usage is vibrant, for example, see coindesk’s coverage of EOS and a claim of libel raised at steemit or attack vectors discussed. Without seeing a technical implementation of WAX, we do not wish to indulge into the technicalities of the protocol.
How WAX platform works
The buyers and sellers constitute as user accounts in WAX. They can hold WAX tokens as well as virtual goods. The users then elect guilds, which act as confirming nodes in the WAX platform. Their responsibility is to confirm transactions and add blocks. The number of guilds is orders of magnitude smaller than the users and each guild represents a large set of stakeholder users who vote for them. Each guild focuses on a single virtual good platform, which allows for homogeneity among its supporters. The voting power of an user is proportional to tokens held by the user.
Each guild in turn selects a set of transfer agents, a special type of nodes whose primary responsibility is to validate virtual goods and execute settlement contracts. The quality of these agents are rated by buyers and sellers, and their obligation to execute the contracts come from - which we can only assume so far - the smart contracts in the platform. It is unclear how the guild selects and monitors a transfer agent, although this is supposedly part of the proposal of the guild.
While poorly rated agents are in risk of removal of their duty, it is unclear how the removal process is executed and by whom, the users or the guilds, or both. It is also not clear if the rating system is voluntary, or what is the incentivization of such rating system (other than being good samaritan in the network). We would also be interested to know whether rating capability is proportional to the volume of settlements from the user, or is also affected by the number of tokens held by the user.
The settlements, voting, guild proposals, listing of virtual goods are formed as smart contracts. This is definitely towards a good direction, since smart contracts have a proven track record for precisely such use cases. WAX mentions that the design and implementation of smart contracts is in a rolling basis, with voting mechanism employed for decisions. However, history suggests that a key issue of rapid use of smart contracts is that a bug introduced in such contracts can turn out to be fatal if exploited. The verification of code quality and the responsibility in such incidents is a serious low-level issue, and we wish to know more about how WAX plans to tackle them.
Can a monopoly be formed
It is a prime requirement of a decentralized system to ensure that no outsider entity can form a monopoly in the platform, regardless of computing and financial power. While WAX claims to go to a great length to ensure sufficient degree of decentralization, some particular attack vectors may turn out to be fatal to the platform. Only 64 guilds are to be formed at start to represent the entire user base. To play the devil’s advocate, WAX development team, founders, contributors and advisors collectively hold 35% (although the founding team only holds 20%). Even though their use of token is restricted over time, it is unclear if the voting rights associated with the tokens is also restricted or not.
The process towards dissolving the guilds is not clear at this stage either. Since a guild provides dividends to its stakeholders (who had the power to elect it in the first place), it is not obvious how a malignant guild can be removed. Also, each guild is roughly represented by 1% (1/64th) of the total community. Thus a financially well-endowed entity should be able to capture a significant amount of decision making rights in the platform. This allows a malignant entity to choose malignant transfer agents who can then in turn provide undesirable services to the honest sellers and buyers. Before the rating system alerts the rest of the platform and a correction measure is employed, honest users may be taken hostage of the situation.
It would also be interesting to see if a case of block withholding attack (raised by mining pools in Bitcoins) can be adopted by the guilds. For example, a malicious entity may choose to represent multiple guilds and withhold certain blocks in one guild, depriving the stakeholder users. The fact that the guild proposes the stakeholder shares in a form of tenders complicates the scenario even more. Since guilds work in a round robin fashion, it is an interesting research problem to see whether one entity gains from such activity from other guilds it is associated with.
Another curious case would be to see how a 51% attack is avoided in such a system. To achieve 51% of the set of guilds, an entity have to get 33 (>64⁄2) guilds elected. Since selecting guilds is proportional to the cumulative tokens of the users, the entity needs to have around 33% of the WAX tokens, less than, say the amount WAX founders and advisors possess. The implications of a 51% attack in the network is dependent on the implementation details, which is yet to be seen.
Yet another new currency
The easy question that immediately follows is: why a brand new cryptocurrency? Trading with existing popular coins such as Bitcoin and Ether does not provide any trustworthiness to the trade (in fact anonymize further than fiat currency). Along with that, consensus protocols provided by the platforms are claimed to be not suitable for high-throughput services. Also, the prosperity of the platform needs to be tied closely to an in-platform incentivization, rather than the volatility of a all-rounder currency.
Quality assurance and legal conformity of virtual goods
Transferring virtual items is tricky, since the quality and legality of such items need to be verified by a trusted third-party. WAX claims to use transfer agents for verifying the digital asset, execute settlement contracts. They also put up a bond of WAX tokens, and are not allowed to execute contracts more than 25% of the bond value.
Micropayment and tiny trades
Using traditional marketplaces and escrow services for small settlements is often a waste and hassle. WAX token is claimed to be divisible up to 18 decimal places, which opens up faster micropayments even with a potential rise in their token valuation.
Unique features proposed
WAX proposes to support reverse bidding, where a minimum price to sell at is reserved before the bidding. This seems to be well within the capabilities of smart contracts. They also claim to support multi-party payout, where the cost is divided into many parties. The details is not clear, and with multiple guilds, it would be interesting to know how they plan to implement this feature. Although most of their platform offering is around virtual in-game items, WAX also boasts to be asset-agnostic. This feature is also not explained in detail either, so we are not sure if this means cross game assets, or other virtual items altogether.
A number of similar platforms emerging, including 0x, Digi and Kyber. FLIP is another in-game focused platform. In this review, we do not intend to compare them with WAX, since they are in different stages of production and a pre-emptive comparison would be futile.
The WAX platform is backed by the experienced team behind OPSkins. Along with that, the inclusion of online gaming veterans guarantees influx of domain knowledge. The list of advisors include experienced Blockchain developers and researchers. The core development team is yet to be announced.
On one hand, the cryptocurrency seems to be focused for a single purpose, whereas it does give voting rights among the users to select representative guilds. The legality of such platforms, as duly noted by WAX, is unclear at this point and can widely vary over countries and regulatory bodies. Buyer caution is advised.
WAX is in very early stage. At this moment, they are arranging pre-sale of their tokens. Most of their plan is still not public, except what is discussed in their whitepaper and a YouTube AMA. We believe that the team is their best asset, with vast experience in online gaming and cryptocurrencies. The technical details are needed to be planned meticulously, which is likely to come in due time. The whitepaper does not do justice to the technical details, nor did they release any technical paper at this point. In conclusion, we are hopeful.
- Added the mention that WAX founding team only hold 20% of the token, to avoid confusion.
Contributions and disclosure
(Kaustubh Shamshery contributed to this article. Read about our rules and guidelines for articles.)