Will Twitter, Square and Jack Dorsey break new ground in the crypto industry?

    05 Jan 2022

    Twitter founder and Square CEO Jack Dorsey announced the creation and presented technical documentation of a new type of decentralized exchange. It is a fascinating project definitely worth paying attention to.

    Jack Dorsey, the creator of Twitter, co-founder and CEO of payment company Square, is a frequent guest on our pages. More than once have we mentioned (https://cryptoinsight.ae/jack-dorsey-sees-integrating-bitcoin-into-twitter-services/) his plans to integrate bitcoin payments directly into the Twitter structure – and it actually started to happen, to the delight of the entire crypto community. However, now the entrepreneur decided to go further. And his intentions may well have a considerable impact on the development of DeFi as a whole.

    Dorsey has recently introduced to the general public the technical documentation (“white paper”) for Square tbDEX – a decentralized bitcoin exchange. However, this is not quite a regular DEX, as it has too many atypical elements and innovations.

    The head of Square describes his new brainchild as “a protocol for discovering liquidity and exchanging assets (such as bitcoin, fiat money, or real world goods).” According to Dorsey, the platform will use decentralized networks of exchange between assets by providing a framework for establishing social trust. What does social trust have to do with it? It’s simple: commissions for transactions will be determined by the market and depend on the amount of information provided: anonymous exchange will cost more. The document also mentions the possibility of refunding payments, which most DEXes do not allow – it is more similar to a centralized exchange (CEX).

    The difference between tbDEX and other decentralized exchanges is that it doesn’t have its own control token. Instead, the developers suggest that participants establish trust directly with each other or, by mutual agreement, contract a third party to vouch for one of them.

    Also contrary to the usual DEX practices, the protocol requires users to go through the KYC procedure to confirm their compliance with specific local rules. (That is, the exchange wants to ensure that certain operations with cryptocurrencies are not prohibited in the jurisdiction where the user lives.) Only then are they able to connect their wallets to the exchange.

    Another controversial feature of tbDEX is built-in blockchain analysis solutions that will allow the exchange administration to track transactions on the platform. It essentially gives US law enforcement and regulatory agencies the ability to match payment IDs and public wallet addresses with KYC information to reveal the identity of transaction parties. The issue is severe since one of the key advantages of DEX over CEX is being lost, so the brainchild of Jack Dorsey must really offer some significant benefits over the former and the latter.

    One of those advantages for the crypto exchange-to-be is that it will be aggregated with Twitter from the outset, providing it with a massive audience of potential users.

    In terms of strategy, Jack Dorsey wants to use Square to connect the BTC ecosystem with traditional finance. The tbDEX “white paper” states so plainly: “We are developing a protocol for discovering liquidity and exchanging assets (Bitcoin, fiat money, and real world goods) based on security and anonymity. Financial intermediaries and centralized exchanges will be linked to the protocol, helping to connect fiat and decentralized assets. The entire structure of tbDEX is designed for Bitcoin, but the exchange will not be located on the main cryptocurrency blockchain.”

    The words “the entire structure of tbDEX is designed for Bitcoin” immediately catch the eye. Jack Dorsey is known in the crypto community as a big fan of Bitcoin, to the detriment of other cryptocurrencies. He often “ignores” Ethereum, constantly praising only BTC and calling for its wider application. For example, six months ago, Dorsey said: “I plan to spend the rest of my life making Bitcoin available to as many people on the planet as possible. If I didn’t work at Square and Twitter, I would be doing Bitcoin projects.”

    Everything seems only natural: Square has created a financial application for quick money transfers between individuals, banks, and vendors. Now, in the next step, tbDEX will expand this functionality to the cryptocurrency space, allowing newcomers to crypto to buy digital currencies with fiat money. Using Square, users will immediately be able to deposit money to a decentralized service or a wallet, the keys for which they will control themselves.

    Among the advantages of the project is that at the current early stages of building the exchange (it is not even clear what blockchain it will be on) – ordinary users and financial companies are involved in the process. As a result, tbDEX should become a simple and convenient “bridge” between fiat money and decentralized finance.

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