The world of financial prediction trading is currently marred with corruption. Brokers that facilitate the trades are in direct competition with the trader and therefore often employ a range of tactics to swing trades in their favor – at the expense of the trader.
Spectre.ai, however, has a plan to solve this problem by completely removing the broker. They have developed a blockchain-based speculative trading platform where all trades are governed by smart contracts and backed by a decentralized liquidity pool, thereby eliminating any corruption and conflict of interest.
Spectre promises a win-win scenario for both traders and pre-launch investors. This article takes a closer look at the problem Spectre aims to solve and investigates Spectre as an investment.
The Problem Scenario: Unethical Brokers
Here’s how speculative trading works at the moment: In a binary option trade, a trader can speculate on the movement of the price of a stock, commodity, or currency. The trader makes a prediction whether the price will go up or down within a specified amount of time (ranging from minutes to several days) and bets a certain amount of money on his prediction.
For example, let’s say the trader decides to bet $1000 that the stock price of Apple will increase over the next 15 minutes.
Currently, this deal is facilitated by a broker who bets $1000 of his own money against the trader’s bet. He takes the position opposite that of the trader. In our example, he must bet that the stock price of Google will decrease over the next 15 minutes.
If the trader wins, he gets around 75% of the trade amount plus his initial investment. If the broker wins, he keeps the trader’s entire investment. In other words, the broker and the trader are betting directly against each other.
Can you see why there is a complete conflict of interest between the parties involved? In order for the broker to make a profit, the trader must lose.
This creates various avenues for fraud and corruption:
- The broker could manipulate prices on his platform and show the trader a different price than the true price.
- The broker could delay making a trade and so make sure that the deal turns in his favor.
- Some brokers might not have enough money in their account (called the “liquidity pool”) to bet against the trader. This leads to further delays in payouts to the trader.
Spectre Provides A Solution
Spectre, short for Speculative Tokenized Trading Exchange, plans to embed the trading process on the blockchain and thereby remove the broker entirely.
The company has developed a trading platform (currently in alpha testing) where traders trade against a large liquidity pool that is decentralized in the Ethereum blockchain, and thereby owned by the masses.
All trades are secured through smart contracts and are therefore entirely secured against human intervention or fraud.
Traders can therefore place bets with peace of mind due to the following reasons:
- Spectre never actually receives any trading funds. Instead, traders trade from their own Ethereum wallets.
- Since the platform is entirely decentralized, Spectre does not take the opposite side of a trade. There is therefore no conflict of interest, and trades depend 100% on price movement.
- Everything is governed by smart contracts which prevents any party from committing fraud.
The Spectre team has already developed a trading platform (pictured below) that is currently in an alpha testing phase. The platform is an advanced tool with various technical analysis features, trade ideas, and AI algorithms that learn a trader’s preferences and suggest trades accordingly.
When a trader makes a winning trade, he/she will receive between 75% and 90% on his original investment, depending on the trade. If he loses, 96% of his investment goes to expand the liquidity pool. In both scenarios a commission of 4% is levied of which 2% goes to Spectre as a technology fee and 2% goes to token holders.
Spectre as an Investment
As mentioned, Spectre’s initial liquidity pool is funded by selling tokens to investors in a public token sale or ICO.
According to the whitepaper, investors are offered a choice between two tokens – a dividend token and a utility token.
- The dividend token entitles token holders to 2% commission on all trades made on the platform – whether winning or losing trades. This token therefore provides a perpetual passive income stream tied to the volume of trades on the exchange.
- The utility token can be used on the platform itself and gives token holders a certain advantages to improve their chances of making a winning trade. A certain percentage of Spectre’s commission will be used to buy back this token thereby increasing value.
Investors can specify how much of their investment should be divided between dividend and utility tokens at the end of the ICO.
The token sale is currently in progress and will complete on 10 December 2017.
The Spectre team is composed of 10 members based out of the UK. The team is headed by Karan (Kay) Khemani who has completed degrees at the London School of Economics and has been a employee of JP Morgan and executive director of Goldman Sachs.
The team also contains various financial engineers, blockchain experts, and marketing managers.
Spectre plans to disrupt the financial prediction trading industry by introducing a platform that is new and intuitive. Their platform will eliminate all fraud and corruption from the speculative trading industry and therefore render broker-based platforms useless.
By eliminating all forms of corruption and fraud, Spectre promises to provide a win-win for all involved – traders and investors.