What is LGO Exchange?

LGO Exchange

LGO is a new cryptocurrency exchange on the block, having launched late November 2018. They have an interesting spin on running their exchange, very much a hybrid between the old and the new.

LGO Exchange is short for “Legolas Exchange”, and I’m not entirely sure of the origins of this name, but it certainly reminds me of Legolas, the elf protagonist character from the Lord of the Rings series. Being a huge LOTR fan myself, I like this name. Anyway, moving on. Keep reading to answer the question “What is LGO exchange?” 

The main selling point of LGO Exchange is their hybrid model between a centralized and decentralized exchange. Both have their advantages and disadvantages, and LGO Exchange attempts to combine the best of both worlds, which also naturally cancels out the negatives of either as well. With a motto “fair by design”, you will soon see how their exchange protocol and architecture truly integrates blockchain into the future of exchanges. 

LGO aims to be a fully regulated exchange to allow clients (institutional and retail) to buy, sell and trade cryptocurrencies/digital assets. It has built a high-end user interface with traditional order types available for flexibility. It adds transparency with the use of blockchain for all orders and has highly secure login and asset storage. 

The LGO Exchange is a constituent of the LGO Group, which includes LGO Markets, LGO Exchange, LGO Solutions and LGO Launch. 

The LGO Exchange systems is physically located in New Jersey and servicing clients internationally, including the US, Asia, and Europe, while the tech team is in France. 

In an interview with Hugo Renaudin, the CEO of LGO Exchange, his statement around security and trust was perfect; read it below. 

Those institutional exchanges that you have right now don’t solve the primary problem in the space, which is that you have to trust the exchange in some way or another because at some point in the process the exchange will hold your funds. Its the same for ErisX, the same for Bakkt, the same for all of the cryptocurrency exchanges – at some point the exchange holds your funds. If the exchange gets hacked, if there is some problem with the running of the exchange, the clients’ funds can be stuck. 

It becomes a case of ‘trust me because I’m backed by the Intercontinental Exchange’ or ‘trust me because I have…’ and that just doesn’t work out. To be fair blockchain technology allows you not to trust and still be able to interact with people. 

Our approach is to say ‘Don’t trust us’. If we go bankrupt, if we get hacked, if whatever happens, your funds are still safe and clients can still retrieve their funds and their funds will not get lost. 

It is the difference between saying trust me I am transparent and I have no risk and saying I can prove to you that I am transparent and I can prove to you that I have no risk. 

Hugo Renaudin, CEO of LGO Exchange, from an Interview with Tony from Thinking Crypto
LGO Exchange Fair and Secure by Design
  • Decentralized Components 
    • Non-custodial, multisig wallets 
    • No Unilateral Contol Over users funds
      • Major bank for fiat 
      • LGO unable to lock your account 
    • Blockchain
      • Allows transparency 
      • Allows high throughput 
      • Fraud-resistant
    • Security 
      • U2F 
      • Multilateralism  
      • Two-man rule 
      • Machine learning security 
      • Holding periods
  • Centralized Components 
    • Regulatory compliance (AML/KYC, FINRA, SEC) 
    • LGO Platform
      • User-interface
      • Matching engine 
    • Major bank for fiat accounts (Makor Group/Capital)
    • Multisig – able to “freeze” the second multisig if lost/stolen key/hardware wallet (need 2/3 to operate). 

LGO Exchange – Decentralized, Non-custodial multisig wallets

LGO address the issue of cryptocurrency wallets for exchanges. Your crypto wallet is much like a hybrid bank/email account. You can send and receive crypto from your crypto wallet as well as keeping track of inputs/outputs and balances. 

The LGO exchange is a non-custodial exchange. This means that LGO does not hold your crypto on any hot or cold wallets. You hold your own private keys on a crypto wallet. You are the custodian of your crypto. This helps to mitigate third-party risk with exchanges (need I remind you of the various exchange hacks? or the Quadriga CX scandal?) 

LGO Exchange uses multisig wallets that requires two out of three digital signatures to access the wallet. You hold a hardware wallet (LGO recommends that you use a Ledger Nano S), and the LGO exchange also holds a wallet in the form of a smart card hardware that is not connected to the internet. The chip in the smart card has a script that only allows them to access your funds in the context of the LGO exchange, preventing them from stealing your funds or misappropriating them. The third party has a similar smart card technology key. 

LGO Exchange – Decentralized, No Unilateral Control 

The LGO Exchange realizes its trustlessness by never being able to control user’s funds. In this manner it cannot seize your fiat nor your crypto. Nor can it lock you out of your account. You do not need to trust LGO with this mechanism. 

LGO Exchange uses a major bank, Makor Capital to store fiat funds in individual accounts for users. There are also third party custodial services for the third key of the multisig wallet. 

Unable to lock you out of your account. You have no password, just U2F for access, so there is no password reset, and LGO has no access to this. 

Unable to move funds without your permission as your multisig is one of two (out of 3) necessary. They are unable to collude with the trusted third party since your key is essential. If you lose your key/hardware wallet then you can notify LGO, and they will deactivate it, and send you a new private key, still unable to move any funds without your private key. 

LGO Exchange – Decentralized Blockchain Utility 

The LGO utilizes a blockchain, currently on the Ethereum blockchain. 

Transparency – for auditing, for price discovery and tracking. Every order that is conducted is visible on the blockchain. This makes the LGO Exchange very easily auditable by anyone. The transparency is a deterrent to fraud and bad actors. 

Unlimited order processing. Each order in a given timeframe is taken and encrypted in a hash and inserted into the blockchain, so unlimited number of orders are possible. 

The LGO blockchain is fraud resistant since all trade orders are visible and placed in temporal order on the blockchain. On centralized exchanges, something known as front-running is possible. Front running occurs when an insider has knowledge of orders (stock, option, futures contract, derivative or security-based swap) in advance of the general public (pending transactions), and they act on this knowledge by placing orders to capitalize on this knowledge. There are many forms of front running that we won’t get into on this post. However, the LGO Exchange is able to circumvent potential front running via the placement of orders on their open blockchain, making all orders immediately visible to everyone. 

LGO Exchange – Decentralized Security

LGO is not entirely a centralized exchange and therefore it eliminates many of the risks associated with a central authority. While it has somewhat decentralized itself, it’s decentralized security measures add extra steps to secure your cryptocurrency. 

The user participates in decentralized security via their U2F access to their accounts. 

The multisig wallets ensure that LGO single handedly does not have access or sole control over your funds at any time. They cannot move your funds. They can only help you to move your funds on your instruction. 

While the whole crypto movement tends away from big banks, I think that they will still exist in the world as many people will still deal in fiat and will not want the responsibility of dealing with their own assets. That being said, Makor Capital will be LGO’s partner for large (and small) fiat orders either of fiat to crypto (on-boarding) or crypto to fiat (off-boarding). Moreover, every account holder will have their own account’s hardware wallet, which will be stored in a bank vault for safe keeping. 

LGO Four Main error-prevention system: 

Multilateralism – the aspect of LGO that there is no central authority with control over your cryptocurrency. This provides effective protection against theft or loss of one of your three keys. 

Two-man rule – all critical operations are conducted by multiple people. This helps to prevent fraud, theft or unauthorized access to your crypto. 

Machine learning security – an algorithm learns your access/trading behaviour and will flag any unusual behaviour such as “fat-finger” errors. 

Holding periods – LGO implements holding periods before the execution of non-reversible transactions such as withdrawals, in order to give the user an opportunity to cancel or modify them. 

Legolas Exchange

LGO Exchange – Centralized with Regulatory Compliance

The LGO Exchange will be serving both institutional and retail investors, and they will be complying with government authority in their respective countries. That being said, they will be participating in AML/KYC practices. In this manner they are centralized, and working to prevent fraud and money laundering. 

In addition, the LGO Exchange is in the process of becoming fully regulated by FINRA and the SEC as a broker dealer and as an alternative trading system. The LGO Exchange has also applied for a BitLicense in the state of New York. 

Crypto is known for its scams and “dirty” history (Silk Road). As much as we do not like AML/KYC in the crypto space, this regulation will help to prevent scammers from acting on exchanges if they must comply with AML/KYC. 

LGO Exchange – Centralized User Interface

The LGO Exchange’s platform is a centralized website in that it is run by the LGO company. A truly decentralized exchange is much more difficult to make functional as the matching engine is much more efficient and easy on a centralized system. Due to the greater efficiency and liquidity of a computerized matching engine for orders a centralized approach was taken here for LGO.  

LGO Exchange – Centralized with a Bank

The LGO Exchange has stated in its white paper that it uses a bank, Makor Capital, as its custodian of clients fiat assets, as LGO’s mission is to not have any control over user’s funds. While LGO not having control of its clients funds helps to decentralize LGO, the Makor Capital bank is a centralized entity. In this respect it adds a degree of centralization to the LGO Exchange. 

LGO Exchange – Centralized Ability to Freeze the Multisig 

While you have control over when your crypto is moved with your private key, should you lose your private key or it becomes stolen, you do have the ability to notify LGO of such a breach. Once LGO is notified of the breach, they will not verify any transactions via the multisig wallet. To rectify the situation you will receive a new hardware wallet private key to recommence your trading/investing activity. 

LGO Liquidity 

The LGO Exchange does not source liquidity from other exchanges as can occur with centralized exchanges. LGO creates its own liquidity with dedicated market makers. They also have their own order book that is built into the blockchain. 

Cryptocurrency’s Offered by LGO Exchange 

The CEO of LGO exchange has stated that initially they have only offered BTC-USD pairing. But that they will supply whatever their client base shows interest in. He said that currently they have “hundreds” not “thousands” of clients and that they are all institutional. For the moment they have only requested BTC. 

While a little disappointing at the lack of options with the LGO exchange, I can hope that the CEO will live up to his statement that they will add whatever their clients want, with respect to cryptocurrency pairs. 

Legolas Exchange

Future of LGO: 

  • Applying for Broker-Dealer License in the USA which would allow them to list/trade STOs. 
  • Currently only open to institutional investors, however, has plans to launch for retail investors, supposedly in 2019. 
  • Currently only trades BTC against fiat; however, they are open to new cryptocurrencies. They are limited because institutional clients have only asked for Bitcoin, perhaps due to regulatory uncertainty around Ethereum, XRP and other top alt-coins. 

Markshire Crypto Conclusion On The LGO Exchange

While I have never used the LGO Exchange (since it is only currently available to institutional investors) it appears highly innovative. 

I love the use of the blockchain for transparency in its order system, as well as its order scalability via hashing a large group of orders into the same block. 

Moreover, the security features are some of the best I’ve seen. Multisig, non-custodial hardware wallets, U2F login, and a large bank for fiat deposits. Not to mention the machine learning for patterns of your trading/investing behaviour. Cutting edge methods. 

Furthermore, their compliance with regulations is a positive sign that they will be likely to have slower but steadier growth and gain the trust of large institutions and the public who doesn’t trust crypto yet. At the same time, LGO combines this hybrid exchange to slowly bring the regulated world to the decentralized world. 

Overall I think that LGO Exchange will be successful and I will certainly keep a close watch on its progress. 

Please feel free to drop a comment, question, or note for me. I love hearing from my readers

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Author: Markshire Crypto

Millennial cryptocurrency investor, researcher, and writer. Medical professional, avid reader, proud nerd, and intellectual. Founder of Markshire Crypto. Mark has been into cryptocurrency since 2017, following the industry daily and creating content.

2 thoughts on “What is LGO Exchange?

  1. Another great blog. Do we really need yet more exchanges? How will Legolas truely support its customers in keeping funds safe?
    Great read, Markshire Crypto producing great content yet again!

    1. Hey Dave! Thanks for the input. I agree there are a lot of exchanges, so what does LGO exchange truly add…? Time will tell. I like the fact that there are so many exchanges creating competition, so the ones who are best for the customers/users will eventually win out. LGO is legally compliant as well as offering a different approach with its semi-decentralized platform. Its who mandate is that it is transparent and secure by design with the end user holding their own private keys (on a multisig wallet).

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