Decentralized Swaps, Decentralized Currency


Next Generation Decentralized Exchange
Combine the speed and low-cost of running an orderbook on a sidechain with the finality of settlement on a proof of work blockchain. Take leverage on a peer-to-peer basis in liquid derivatives markets that clear atomically in-protocol. Create and redeem currency through hedged reserves that can be audited every block. This infrastructure is needed to make Bitcoin and Litecoin financially independent.
Proof of Work Blockchains
TradeLayer brings financial expressiveness to Bitcoin and Litecoin. Transactions are based on messages inserted into transactions, which can support everything from pledging collateral to trading a derivative contract. In the future, this decentralized exchange use-case will fill up blocks and make miner fees to use Bitcoin and Litecoin more expensive, however it is also possible to vouch capital to sidechains and trade like one would on a centralized exchange, but without centralized trust.

Decentralized Swaps

Decentralized Swaps allow for leverage on-chain:
Atomic Chained P2P Settlement
Perpetual Clearing
Regular Payments from Speculators to Hedgers
How It Works
Cryptocurrency is moved into a reserve status in the protocol to match margin requirements.
Trading with different parties creates connections, forming chains that net out.
At settlement a trades graph is sorted, margin flows to pay profits from losses.
Perpetual Swaps partially settle every-block to ameliorate risk of margin call deficits and rolling.

Decentralized Currency

What is currency? How do banks create it? They sign a contract with someone for a new debt, which becomes their asset, and print new currency that represents a liability. Fiat currency issued by banks is, in a sense, backed by the debt payments of debtors. When users buy cryptocurrency and hedge it 1:1, they also create a synthetic dollar, earning interest from the speculator who bets on the cryptocurrency price going up, and backed by the collateral those speculators put at risk to protect the hedgers from market drops. Essentially a decentralized dollar is worth whatever amount of cryptocurrency is worth $1 at any given time. As the contract markets become more liquid, the risk of the system having a deficit is reduced.


OmniLayer is good tech! There's a reason it was integrated with so many exchanges, paving the way for Tether to become enormous. It occupies a beautiful, under-explored middle space between OP_Code driven architecture (e.g. OP_Return or OP_NTimeLock) and smart contracts. On one end, you have a multiplicity of forms, only a small subset of which are debugged and secure. On the other you have a very narrow range of highly contentious changes that get years of attention in a C++ environment. With Omni you get smart contract-like logics encoded in a C++ environment, a clear design pattern around properties having latent attributes, you test it until it just works, and focusing on the most important financial sort of dynamics, create a liquid, sovereign money layer on stalwart blockchains.
We're cousin projects. Mis-management of the OmniLayer treasury by other parties led to a missed opportunity to fund this functionality, so we're fully intended on launching over Bitcoin. However, OmniLayer developers or other projects could merge our work, and we can incorporate developments done by the OmniLayer core maintainer, such as threading external fee-payments into transactions.
Yes and there's a good reason for it: technologically the capabilities of the protocol apply to a Balances logic that is parallel to the outputs logic of raw BTC and LTC. So as OMNI is the native coin for its layer, we will create a native ur-coin for the layers on Litecoin and Bitcoin both. On Litecoin this coin will be called ALL and on BTC it will be called TOTAL.
ICOs mis-align incentives and impose a high cost of capital on founders who are them tempted to shirk responsibility. Not our jam. Our jam is honest to god cryptocurrency that has an organic emission schedule based on algorithmic, mathematically pre-defined issuance to actors on the network doing *work* that benefits the network. Instead of retaining a token for us to collect a portion of trading fees, trading fees will go to rebates and the community at large. We make money by having a vesting token that accrues some of the native coin; the initial supply of the coin will be awarded to people running full nodes, the follow-on supply will be created largely from trader rebates, and as the exchange reaches critical levels of volume, the vesting tokens will accelerate their accrual of ALL, followed by a plateau. In a mature protocol, the founder reward will dilute to being <5% of the total money supply. Open-ended or front-loaded founder compensation is not ethical enough for our standards.
Selling equity in circumstances that fit regulatory exemptions.
When we launch, you can download the client we publish and run a full node, turn on a script that listens and issues a handshake transaction to prove validator uptime, and include your address in the list of those that get some ALL/TOTAL each block. This seeds the initial money supply. Then it will be possible to purchase or sell ALL/TOTAL for LTC/BTC, in an improved version of the initial BTC->Mastercoin Dex published in 2014. Having acquired a small amount of ALL/TOTAL, it would be possible to hedge greater quantities and accumulate a position while controlling market risk. It's possible to use the DEx without ever getting exposed to the metacoins by buying synthetic LTC tokens that are already hedge with LTC, or synthetic BTC for BTC.
For Contracts; Taker: 0.02%, Maker: -0.01% For Tokens; Taker: 0.05% Maker: -0.025%
We don't believe in having a dozen exchanges running nodes and able to update the protocol to radical departures from earlier designs. We believe in having a great many nodes, a reference spec that can't be deviated from in spirit (though to-the-letter technical implementations may be open to debate) and respecting the immutability of the ledger. Your money on TradeLayer is as hard as the native coin on that blockchain, though that statement doesn't imply anything about the supply and demand of one coin vs. another and Bitcoin/Litecoin have much better liquidity and popularity than these new layer cryptocurrencies, so align expectations accordingly. We want to achieve, through our technical roadmap, an apotheosis of the protocol where it integrates with Lightning Network, enabling tokenization of Lightning BTC/LTC, integration with the wider world of sidechains, and of course trading between TradeLayer properties on Bitcoin and Litecoin with a sidechain acting as arbiter. So it should be possible at the end to achieve various portfolio goals without ever touching the meta-coins, which certainly restricts the speculative potential of those coins, and that's probably for the best. It's better to have a more decentralized infrastructure than intentionally gate it to try and capture more value. We're really into the philosophy of eating a smaller slice of a bigger pie.
"Colored Coins" - that is to say, specially designated outputs - are better for payments because of their potential use in the Lightning Network or with Special Payment Verification. Balances are better for long-term holding and management however, because it is more possible for user-error to mishandle colored coin wallets, Balances live independently in the history of the blockchain and can't be moved unless explicitly transacted. It might be possible to design a hybrid tx-type that is both a colored output and a balance-update, and can thread through the Lightning Network to pay someone in hedged currency very quicky. H
Lightning Network uses raw BTC/LTC that have been comitted to what is the financial equivalent of a Chinese finger-trap, and then builds what looks like a correspondent banking system based on those deposits and the ability of lots of parties to shuffle them around and settle-out later. It preserves bearer-sovereignty at a theoretical level through a series of checks and balances. So the #1 thing LN has going for it, is taking advantage of the existing money supply. Applying the settlement algorithm we invented, it may be possible to do decentralized swaps clearing over Lightning Network, and such a swaps exchange may potentially have the lowest fee rates of decentralized exchanges, low latency and the highest volume. So, of course, we don't want to stand on the wrong side of history. LN has a lot to offer and the potential is going to be potentially enchanced by the work we've done or some analogous iteration of it that is more appropriate for the LN environment. We want to help facilitate this generalized wealth of open source development as is feasible for us. What ALL and TOTAL are, is new money supply that is introduced with a fair launch model, it just *is* on the home blockchain it was born on, why we call them "native", it doesn't have any counterparty risk about what it is. Instead, it replaces that with liquidity risk - these coins won't have the momentum of LTC or BTC. Maybe they never will! If they became more valuable than LTC or BTC, it would be a hazard to the system. Which is partly why, and we're going to repeat this, we'd really like if people wouldn't pile on risk with an expectation of profits and pump these things. Just take it easy. There's plenty to do with trading swaps based on BTC/LTC or based on gold, oil ect. Let's not be those people who ruin everything by blowing speculative bubbles. Having said that, we hope the hedging systems will be resilient against extreme volatility and will be testing this in simulation. Some people will argue that having a synthetic dollar position by putting BTC into LN, going to the future LN Swap DEx and having some other guy agree to pay you if BTC's price drops, that's a more secure form of savings. To which we say, great let's try to get cross-operation going. Others may prefer using hedged currency on the layer, because this enables cold storage. There are pro's and con's to each, and the market is going to get to decide. Mixed portfolios are entirely possible for those who don't want to decide.
Two people with two private keys both sign transactions that get parsed by the protocol, evaluated, and if their prices meet, they are "matched" invisibly and poof - they both have new balances reflecting their trade. It seems automagical. The problem with the first generation of DExes was the speed, cost of canceling/amending orders, and uncertainty around confirmation. These factors were pretty much a deal breaker and only got worse each year after these first projects had launched. 0x on Ethereum marks the first notable project on that platform to incorporate a hybrid architecture that allows fast, free order cancellation/admendment, vastly cutting down on the number of discrete transactions that must be confirmed. Also, trading is very much a snowball like situation, you get exponentially more total volume the more depth tends to be available on the book, hence automated market makers and arbitrageurs must be able to operate with minimal latency.
We use a combination of penalization/staking logic on a parallel Tendermint or Hyperledger chain with a one second block time, the public keys used to Four-Muskateer-Salute to the creation of the sidechain correspond to the creation of a multisignature address, which serves as a State Channel. Every block, the transactions to potentially broadcast to the home chain, and check-in the latest state of the sidechain, are signed and held in reserve by validators - this is done to achieve the instant-finality needed to keep home chain state in line with sidechain state, while saving on the cost of regularly broadcasting with miner-fees. Checks and balances are designed to maintain a profitable and honest quorum between validators, and they can provide the services of hybrid-matching (transactions referencing a trade alter how the protocol matches that trade) or full sidechain usage (users pledge property with a voucher transaction, trade very fast and cheaply as much as they want, and then withdraw funds/settle their voucher later). Sidechains can also provide payment insurance, another functionality to which the Lightning Network provides an alternative. We're doing R&D on something called "Proof of Byzantine Failure" which we write about in the whitepaper. It's theoretically possible to prove to the root protocol that: a) the claimant knows the state of the sidechain connecting to the latest check-in published, or a to-be-published, pre-signed check-in transaction, b) the state of the sidechain contains transactions that fall outside the template of what is considered acceptable. This proofing enables insurance against possible collusion by validators to steal honest validators' stake, or any other deviation from protocol.
In finance, a derivative is a contract that derives its value from the performance of an underlying asset. Decentralized swaps learn from one of the more professionally-used but commonly unknown derivatives. In wholesale banking, interest rate swaps allow governments and corporations to plan their debt issuance with confidence, and currency swaps enable international payments to be hedged. The BitMex Perpetual Swap became the most liquid Bitcoin-related market in 2017 and part of the reason is people can hedge their cryptocurrency, receive a series of payments from speculators, and let it ride as a synthetic dollar position. However the BitMex Perpetual Swap has a very volatile interest rate formula, and hedgers there have interest rate risk. We've been researching alternative interest rate formulas that allow for more predictable funding rates.
Both centralized and decentralized oracles are supported. Publishers can create centralized oracle contracts and generate revenue for their operational diligence, most likely on world markets that aren't part of the cryptocurrency asset class. Decentralized settlement is possible by looking at on-chain trade prices for pairs of tokens, such as the pairing of ALL to dUSD, or dUSD to dEUR. Because token-to-token trading actually has data value, for the incremental value it adds in averaging a price that can be used by other contracts, token trading has a higher rebate.
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