How to make a Cryptocurrency Exchange on the Stellar Blockchain?
The impact of blockchain and distributed ledger technologies has been significantly felt on the fintech sector. In olden times, and even in more recent times in some places, money is transferred from one place to another as if the internet does not exist. Moving money faster and cheaper is the whole idea behind developing new payment methods, as the existing ones cannot work together without friction.
Current payment networks like Venmo, Mpesa, and PayPal don’t have the ability to coexist, and if they try to do so, they experience friction in the form of large transaction transfer times, high fees, and multiple failures. Middlemen and the obligation to trust the third party with your money is another big reason why the blockchain and other crypto-fuelled ventures are taking off. In this post, we are going to explain the process of how to make a cryptocurrency exchange on the stellar blockchain. To understand the real potential of exchanges built on the stellar platform, have a look at this post by the CEO of Stellar network.
The Stellar DEX is an open-source internet protocol developed by a non-profit organization, to do exactly what we cannot do right now- move money faster and cheaper. It works in a way similar to how emailing works, with protocols on the lines of the Simple Mail Transfer Protocol acting as base layer protocols for Stellar. The network, being open, allows for a frictionless transfer of money from one party to another, taking just about 3-5 seconds to do so, and costing as little as USD 0.000005.
The decentralized principle acts as a guiding light for the Stellar protocol. Anyone can run a Stellar node, and all the data is stored in a distributed manner across many different nodes. The ledger is thus distributed as widely as possible. All of this is powered by the Stellar consensus protocol, about which we will discuss later in this article. So, without further ado, let’s discuss the process of how to make a cryptocurrency exchange on the stellar blockchain. We will also try and put some light on the process of making a decentralized exchange in general too.
How the Stellar DEX works
The Stellar DEX protocols take the decentralized nature of the blockchain to a whole new level. Independent servers with fault tolerance systems participate in the network, adding security to the whole network. The Stellar DEX essentially acts as a database for storing data of each and every account on the network, with a complete copy being hosted on each and every node on the network. To aid ease of conversion between currencies, Stellar has its own currency, Lumens. It acts as a bridge between other currencies to aid in the conversion process. This was another compelling reason for you to go ahead and make a cryptocurrency exchange on the stellar blockchain.
The Stellar DEX can be thought of as a global database, which stores more than just account balances. Orders to buy and sell assets, their values and exchange rates, all of this good stuff is stored right on the database. Stellar can be thought of as a decentralized version of exchanges like Binance. The rising popularity of these exchanges have triggered an interest among people about how to make a cryptocurrency exchange on the stellar network.
The main difference between Stellar DEX and other centralized, or decentralized exchanges is that you control your own money. Your private key is in control of you and you alone. Unlike centralized exchanges, where these are stored in centralized servers, or Ethereum based exchanges, where these are stored in smart contracts, Stellar DEX gives you full power to control your money. This means no amount of hacking into the central servers or manipulation of smart contracts is going to make you lose your money. Things like this is what makes the idea to make a cryptocurrency exchange on the stellar blockchain a great idea.
Enable Matching for Cryptocurrency Exchange made on Stellar Blockchain.
Due to built-in matchmaking and an order book built in at the protocol level, on-ledger offers are simple additions to the decentralized database of the Stellar DEX. As opposed to other exchanges where order books may be forced to be stored off-ledger, due to faulty servers or any other reason, Stellar DEX avoids all such problems due to the very protocol it works on.
As stated before, another major difference between the Stellar DEXs and other exchanges is the transaction costs. For every USD 100 transaction that occurs on the network, centralized exchanges charge about USD 0.25 as transaction fee. This is going to be an extremely important factor when you set out to make a cryptocurrency exchange on the stellar blockchain.
When it comes to the Stellar DEX, this fee is as low as USD 0.000005. this may not appear as a large enough difference for a single transaction, but when it comes to millions of transactions, the difference becomes very noticeable. For instance, every 100000 USD 100 transactions cost about USD 25000 on a centralized exchange, as opposed to just 40 cents for the Stellar DEX.
Another reason for choosing to develop exchanges on the Stellar DEX is the transaction speed. These things should always be kept in mind while you make a cryptocurrency exchange on the stellar blockchain.
As opposed to other DEXs, such as the ones based on Ethereum, Stellar takes only about 3-5 seconds to complete a transaction. This may be slower than centralized exchanges, which usually take about 1-3 seconds, but when all the features are lined up together, the Stellar DEX turns out to be a clear winner.
Building your exchange based on the Stellar network-
Before we go ahead, let us talk about a few terms developers should know about. These include basic Stellar terms, such as the Stellar consensus protocol, transactions, ledgers, and so forth.
As defined on the official Stellar website, a ledger represents the state of the Stellar universe at any given point of time. All orders, account balances, and exchange rates are stored on this decentralized ledger. For every transaction set completed, the ledger is updated to a ‘last closed’ state, being cryptographically linked to the previous state of the ledger. This chain continues until we reach the first ledger ever created, called the genesis ledger. The sequence number of the genesis ledger is 1, with other following ledgers having subsequent numbers.
A command that modifies the ledger state is called a transaction. Changing settings in accounts, sending orders for buying and selling, entering orders and all other operations are performed using transactions. The source account initiates a transaction, pays a transaction fee, and then a sequence number is assigned to a transaction. Strict numbering and ordering rules are followed when it comes to executing transactions. It can very much be likened to SQL commands, when it comes to the database concept.
The Stellar Consensus Protocol
The basis of how the Stellar network actually works. The Stellar Consensus Protocol dictates how to reach consensus in the network without the need of accurately recording transactions on a closed system. Decentralized control, low latency, fixed trust and asymptotic security are some of the properties of this protocol.
Safety features built into the protocol include halting the entire network in the event of misbehaving or hacked nodes. This helps establish a state of consensus in the entire network, and then continue the operations.
In this guide here, we have talked about the Stellar DEX, its working and features, and what makes it such an excellent choice to build an exchange around. Speed, transaction fees and on-ledger order books are some of the X-factors of this protocol. Now that you know how to integrate Stellar into your exchange, what are you waiting for?
Get in Touch with Sodio!
Sodio has been involved in doing extensive RnD on cryptocurrency exchange development. Our process and the products when it comes to blockchain implementation has been regarded across the world. Products in the cryptocurrency exchange space made by us have been backed and recognized by key figures in the industry. If you have any questions regarding the process of making a DEX on stellar blockchain, feel free to get in touch with us. Our team of Stellar experts and blockchain developers will be more than happy to help you out with creating a decentralized exchange on the stellar blockchain.