Spectre.ai proclaims itself “the world’s first broker-less financial trading platform” and while accurate indeed, that statement does not even begin to describe what the Spectre team has embarked upon with this project. If successful – and it certainly looks very likely that it will be – Spectre will completely disrupt the currently prevailing (and failing) binary option business model, by solving almost every one of the problems plaguing it. It is set to do it in style too, by making use of blockchain technology and funding its efforts through an ICO that will actually yield useful tokens for a change.
Indeed, the growth of the digital options industry has been hindered and imperiled for years by the lack of trust stemming from the very nature of the business model used by most brokers. The conflicts of interest at the core of this business model are numerous and quite revoltingly obvious. Most brokers don’t shy away from taking full advantage of every one of these paths of abuse either.
To better understand what Spectre.ai and its Ethereum blockchain-based smart contracts bring to the table, let us step back and take a second look at what it is looking to replace.
The Problems Spectre is Set to Solve
The current binary/digital options trading model is built around 4 core elements. We have the trader, the trading platform (where the action goes down), the liquidity pool and the broker. The broker is the one piece of this puzzle, which exercises full control over all the other pieces. Why is that wrong? Let’s put it like this: in this setup, the broker trades directly against its clients, on a platform it fully controls, matching individual trades out of a pool it fully controls as well.
This way, the broker can choose from several different ways of defrauding its clients, and indeed, most rank-and-file binary option brokers do take advantage of every one of these “opportunities.” Tampering with the price-feed is one of the oldest tricks in this regard. Most such brokers do not use price-feeds from an auditable and reputable source. They delay trade execution, and they simply feature different pricing than the one shown to the client, when it comes to settling trades.
Once a trader makes a deposit, he/she effectively relinquishes control of the funds, transferring it to the broker. The broker will then delay honoring withdrawals, and sometimes it will squarely refuse its traders’ requests in this regard.
Above and beyond all that, most scam brokers will hire “account managers” who will deceive the traders, shamelessly executing losing trades on their accounts, in their names, and aggressively trying to convince them to deposit more money.
It is little wonder then that the losing rates at these brokerages are in the 70-90% range. In fact, what’s surprising is that they are not larger still.
Such problems are not confined to the smaller binary option industry either. The larger Forex trading industry has them too and Spectre may have something to say in this regard as well, further down the line.
What Spectre.ai Proposes
Spectre.ai proposes nothing less audacious than to cut the broker – the source of all conflicts – out of the above presented model. To accomplish the feat, the powers of the Ethereum blockchain and its smart contracts are called upon.
The liquidity pool, which is used to match trades on Spectre.ai, is placed onto the Ethereum blockchain, out of everyone’s reach, and its activity is governed strictly by a set of smart contracts. This way, no one has control over it. The technology provider needs to make money though, for maintenance purposes and profit, of course. This part of the equation is covered through a 2% commission cut off every single trade (winning or losing).
To start up the liquidity pool, an ICO will be used, which will see two types of tokens issued to investors. Unlike the tokens resulting from most of the currently hyped-up ICOs, these tokens, called SPEC-D and SPEC-U (D from Dividends and U from Utility), will have actual value, and they are guaranteed to appreciate over time (more on that below).
Investors will earn 2% off every trade as well, so the total taken off every trade will be 4%.
In addition to isolating the liquidity pool from all outside interference, the Spectre.ai model eliminates the need to make deposits and withdrawals too. Clients can trade directly out of their Ethereum wallets, and upon the settling of their trades, the funds are automatically delivered into their wallets too.
So, is Spectre.ai an Exchange Then?
The answer to that is No for the time being, and for the immediate future, but it may well be a Yes further down the line.
Here’s what’s going on: for now, Spectre.ai traders will not trade against one another, in the sense that individual trades will not have their opposing sides covered by actual traders. The entity that covers every trade is the liquidity pool. Over time, as trader numbers swell, there will indeed come a point when the algorithms governing the liquidity pool’s use will in fact be capable of matching up every trade with another trade placed by another trader. That point will mark the transition of Spectre to an exchange, in the vein of NADEX and Daweda.
The Health of the Liquidity Pool
This is hands-down the most important part of the Spectre.ai setup, the very heart and soul of the operation. If you’ve read through the above, by now you understand that the very existence of the Spectre.ai project hinges entirely on the existence and viability of its liquidity pool. In order to grow the business, it isn’t enough to merely keep the liquidity pool around. It has to grow.
It’s clear that the winnings traders accrue, will come from the liquidity pool. It is therefore conceivable that massive winnings streaks from a massive number of traders could at least theoretically tip over the whole system. The Spectre guys have done their homework in this regard though, and the numbers they’ve produced do in fact add up.
Given that the payout rates of Spectre.ai are in the 75-93% range, while 96% of trader losses always land in the liquidity pool, the model does indeed hold water, at least as long as traders don’t venture too far into profitability from a statistical perspective. From this angle too though, Spectre has it all covered: to break even, traders will have to win 57% of their trades. Statistically though, this number is in the 48-53% range, so not only will traders not profit or break even, they will in fact leave money in the pool. From 53% to 57% there is indeed a healthy buffer, which means that the Spectre.ai liquidity pool is pretty much guaranteed to grow over time.
This means that the tech provider as well as the SPEC-D token-holding investors will be able to pocket their revenues, and there will be some extra profit left over for special, yearly dividends too, which will be distributed among dividend token holders at the end of the year, provided the growth of the liquidity pool exceeds a certain preset target. Such dividend payouts cannot threaten the health of the liquidity pool.
With all the above in mind, it is safe to state that the value of the SPEC-D tokens will depend directly on the size of the liquidity pool. Since the liquidity pool is guaranteed to grow over time – according to the math displayed above – the value of the SPEC-D tokens is guaranteed to grow as well.
Additional Investor Opportunities
In addition to the SPEC-D token, investors will be able to purchase a SPEC-U token as well. Following the ICO, the two tokens will be traded on different exchanges.
Unlike the SPEC-D token, the SPEC-U one will not offer periodic payouts in the form of dividends. Instead, it will offer its holders a number of privileges, more or less equating to a VIP trading account at the site. SPEC-U holders will enjoy better payout percentages, and they will have access to the full selection of tradable assets, not just a few per class.
Furthermore, they will be given more technical indicators, which is indeed a decent deal, given the limited selection available in this regard in default mode.
Access to the Spectre Financial Education Academy may or may not bring more value to the table, but the fact that other option types will be offered in the SPEC-U package, is certainly significant. In addition to the plain Put/Call options, which are available in the default version, ladder, boundary and one-touch options will be made available as well.
The SPEC-U token will therefore be a great fit for investors who plan to be traders at Spectre too. In regards to these SPEC-U tokens, it has to be noted that every now and then, Spectre will launch token buyback programs, aimed at the purchasing of no more than 15% of the outstanding supply of such tokens, using some 3% of the fees resulting from operation.
Spectre Trading Platform
Spectre.ai is not yet live. In fact, the project is only in its public alpha stage, but that means that the trading platform can in fact be taken for a test-spin.
From the perspective of the graphics and the trading engine itself, the platform is indeed excellent. As said above, it currently only allows for square Put/Call trading, but it does give traders the opportunity to place pending orders, which is a nice touch.
For the time being, the only available asset class is currency pairs. On the left side of the trading interface, there is a Trading Ideas panel, which features recommendations generated by the Spectre software. The settings of this feature can be fine-tuned from the Account Settings panel.
There are two technical indicators made available by default in the main trading interface: the RSI and the Bollinger Bands. Through the Account Settings panel though, a wide range of options can be accessed.
Risk management templates allow traders to trigger intricate risk management schemes at the click of a button. Daily Stop Losses, Win Stops as well as Time Outs can be set with similar ease.
The Analytics feature is all about the personal performance of traders. It is aimed at making it easy for traders to identify their strengths and weaknesses and then to shape their trades around them.
Although it already looks and feels impressive, and it already plays host to a vibrant community, the Spectre trading platform is an early-version demo. The Spectre platform is web-based and it works best on Chrome and Firefox. A mobile app will be added in 2018.
Spectre.ai does not yet feature live trading, so its regulatory status is somewhat irrelevant at this stage. Once it goes live though, it will obviously have to be regulated. The operator aims to go for MiFID regulation through the UK’s FCA, France’s BAFIN or CySEC. What this means is that Spectre does not have plans to approach the US market in any way, though once its business model morphs into the exchange-based one, as detailed above, it might make sense for it to do just that.
As things are right now though, US residents won’t be able to access the site and to use it for trading. US citizens are not allowed to take part in the ICO either, though whether or not they can purchase SPEC tokens off an exchange afterwards, is not yet clear. After the token sale ends, the SPEC-D and SPEC-U tokens become fully transferrable.
Spectre.ai Review Conclusion
Spectre.ai ushers in a truly revolutionary approach to reforming the binary option industry. Forex trading is on their target-list as well, though they’ll only be able to tackle it later.
The use of the Ethereum blockchain and its smart contracts for the broker-less approach is nothing short of genius. Hopefully it will all work out the way the Spectre team is expecting it to.