Decentralized Savings For Everybody


Bitcoin Native Decentralized Exchange
On-chain orderbooks are useful to have as a background utility, but not enough to make a viable market. Trade with leverage based on decentralized settlement algorithms, commit capital according to automatic clearing logics. Use multisig trade channels to handshake with market quoters indicating interest and begin to co-sign trade matches for instant execution. It's time the original blockchain and its little brother got native liquidity.
Extending Proof of Work Blockchains
TradeLayer brings financial expressiveness to Bitcoin and Litecoin. Transactions are based on messages inserted into OP_Return outputs, which can support everything from pledging collateral to trading a derivative contract. Trade tokens for BTC and LTC with atomic co-signed transactions, use them to trade contracts, created pegged currency units backed by those contracts, spend them as currency. Regulated bank-deposit backed coins and security tokens are also viable in TradeLayer with modular KYC whitelists restricting their movement. Create value from trading data embedded natively in the blockchain, help Bitcoin learn natively what it's various prices are based on the BTC denominated volumes. Earn maker rebates peer-to-peer for posting on-chain limit orders. Extend the infrastructure of the protocol, participate in a confederation of traders.

Decentralized Swaps

Download TradeLayer:
TradeLayer for Litecoin: Linux 64-bit
How It Works
An asset is moved into a reserve status in the protocol to match margin requirements.
Trading with different parties creates connections, forming chains that net.
At settlement a trades graph is sorted, margin flows to pay profits from losses.
Interest Formulas make swaps pay counterparties based on market performance.

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, and fee cashflow accumulates an insurance fund, 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 an independent project with no ICO, no formal connection to the Omni Layer project, but with founder who used to run the foundation but left due to creative differences. The dream has always been since 2014 to do decentralized dollars natively on top of Bitcoin. Maybe TradeLayer is the spiritual sequel.
Oh yeah, two. Technologically the capabilities of the protocol apply to a Balances logic that is parallel to the outputs logic of raw BTC and LTC. If you want to get really technical - full validating nodes need to checksum the entire set of unspent bitcoin outputs but these balances are based on OP_Return codes that are "provably prunable" from that set so as not to bloat the upkeep of running a node so much. Those UXTOs spend based on scripts which involve verifying signatures, and in the future, may include MAST type complex signatures that can do contracts payouts in big, liquid markets. Meanwhile, we're creating these two coins that live on Bitcoin and Litecoin, and they can just do the things you want without as much overhead. A native asset makes sense if it has a good monetary policy, these coins have limited inflation based on rewarding on-chain maker orders, and smaller flow rewarding full nodes, so maybe that is useful. People could also issue things like PAX, GUSD, TUSD ect. through the protocol with some controls for their peace of mind, and the difference between that and a native coin is, one is instantly liquid but not totally permissionless, the other is very speculative and initially quite illiquid, but it's a permissionless internet beastie that can't be frozen. Like OMNI is the native metacoin for its layer, we will create a native metacoin for the layers on Litecoin and Bitcoin. On Litecoin the coin will be called ALL and on BTC it will be called TOTAL. If Bitcoin is the Honeybadger of money, TOTAL wants to try and be the Beaver of liquidity. If Litecoin is the silver to bitcoin's gold, ALL is an experiment in this working better on a blockchain with less fee competition and bigger total byte-load capacity (maybe that means more transactions, maybe the average transaction size balances the difference, it's hard to say).
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 doing an honest to god *decentralized* protocol with an organic coin 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. There must be a fee that isn't a rebate to give a cost to attempted wash trading. That cashflow goes to a native insurance fund that automatically accrues ALL or TOTAL from fee cashflow across all the TradeLayer contracts, token pairs and BTC or LTC pairs. We as a team try to make money by having a vesting token that accrues some of the native coin, participating in the ecosystem as liquidity provider to earn that inflation in competition with the other algo traders, non-custodial wallet hosting, oracle-feed partnerships, and watchtower services. The vesting tokens will accelerate accrual of ALL as cumulative volume rises through orders of magnitude, followed by a plateau. In a mature protocol, the founder reward will dilute to being <5% of the total money supply, and the liquid part will be very low until there's real momentum. Open-ended or front-loaded founder compensation is not ethical enough for our standards. Trying to live up to the Satoshi Standard by at least 2/3rds, that's not bad. Also the founder made the pledge on Marty Bent's Tales From The Crypt podcast to do the Byzantine Challenge and HODL 2/3rds of the Vesting Token position for decades. This position was accrued by investing 100% of the founder's liquid net worth into paying developers. When the protocol supports Trust-like addresses with more robust controls, timelock mechanisms will be used. If this fizzles, it will be of consequence to the people responsible for designing and developing it, there's no disingenous ask for the public, other than participation in
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 transaction to prove validator uptime periodically, and farms ALL/TOTAL if fast enough. 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 metacoin's market fluctuations, by buying synthetic LTC tokens backed by ALL hedged with an ALL/LTC contract, or the equivalent for TOTAL and BTC. It's a liquidity bridge model, it's only as good as the liquidity in the ALL/LTC contract, buyer beware, there's liquidity risk. There's no guarantee these things will increase in value, if they are liquid at some level it's useful enough to serve as an on-ramp and through the various contract markets, allow many kinds of portfolios.

For BTC or LTC pairs: Taker: 0.01, Maker: -0.005%

For Native Contracts: Taker: 0.01, Maker: -0.005%

For Oracle Contracts; Taker: 0.025%, Maker: -0.01%

For Tokens; Taker: 0.05% Maker: -0.025%

Did we mention using peer to peer embedded technology can trigger Schumpeterian creative destruction in the form of rapid margin collapse in the Bitcoin Derivatives industry? 0.075% is going out of style in the 2020s.

Wall St. liquidity costs can get down to about 1/3rd of a basis point (0.003%), in the future if the TradeLayer protocol gets to enough cumulative BTC or LTC volumes, it will shift into native contracts going to 0.005%/-0.0025% Taker/Maker fees, and another couple orders of magnitude later, finally shifts into an end-game where it gets to 0.001%/-0.0005%. To get that much volume is difficult to imagine, but just in case the world adopts this for the scale of transactions that exist in centralized exchanges by some marginal fraction, the protocol will automatically proceed to shift to being more competitive in liquidity cost than anything that exists today. That is built-in flexibility to price out every centralized exchange on earth. Maybe in the 2030s finance will be so competitive, liquidity will cost 0.0001%, ten times less than 0.001%, and this will seem expensive then. Difficult to predict the future, especially in the present.

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 protocol it lives on top of, 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. OMNI for example, will live on Bitcoin and have Dex orders that can be opened to sell for BTC, until the last Bitcoin block is mined, but how much volume is there? Low, that's a real risk. That's how coins die. A metacoin can't lose it's mining pool because it has none, it's not an "alt" to Bitcoin, but it may become completely ignored by the world as worth much, and thinly traded. Keep this risk in mind.

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. Then, ALL and TOTAL may become 2nd rate compared to just tokenizing trapped BTC or LTC and using TradeLayer to trade and Lightning to settle the underlying margin. We may continue as a band under a C-corp with investors and payrolls and such, if we obtain funding, for a term of several years if needed, to promote the adoption of TradeLayer. But we may also run out of funding and have to go more decentralized sooner.

You know how Facebook promised to eventually make Libra further decentralized? With this, we can just run out of payroll and bam, instant decentralization. Our team members are personally dedicated to varying degrees to continuing as volunteers in any case. We've already starting some token-paid deals with remote developers who are experts in their sub-domains to work on cool stuff in the wallet. Probably we will get another C++ dev who might poke at it part time or take on a feature and PR that. Maybe with some market float, more people would work for token bounties. If we stay a C-corp/team we'll get more remote contractor/bounty hunters in time also.

The main metric of decentralization one would want to look for, is how many serious trading desks are using it? Or, just how many peeps with cartoon profile images on Twitter, who are pretty good at derivatives spreads, are trading on it? Get some numbers there, you can say, hey, at least these 30 guys on Twitter are trading with 2 market makers. Take that number up more and now we're talking decentralization.

Does the founder retain the right to control development? No, we're doing a fixed roadmap at most and it's all square forever, mic drop, all numbers adjusted automatically hence. Monetary policy, fee flow, the insurance fund as part of the commons (nobody does that), it's all pre-set. So technically, yes for a limited time. We're going to sunset the ability to update the TL layer logic, at least by our publishing, by 2022, encoded as a block height.

Full disclosure, we may... we may own some intellectual property. Some people think that implies instant centralization, the founder of TradeLayer will agree to debate anyone with >2k Twitter followers who wants to take that position, once, in a publicly broadcast exchange, it could make for good content.

"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. The USDT project on LN is an example of a colored coins based approach, LN wallets already have to reason about how UTXOs are handles based on signed transactions in the cache, so having one programmed to pick the UTXO associated with your Tether-satoshis is a small bit of complexity to add.

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. The #1 thing LN has going for it, is taking advantage of the existing money supply, and leveraging the logical implication of unpublished multisignature transactions that inlude nonces. The nonces allow for things like watchtowers keeping a copy and enforcing the flow of funds that was pre-signed to. Importantly, Lightning is a unicast network model, pairs of nodes handshake and transact, in big chains and graphs.

Layer protocols have properties that can move from address A->B by reference in the design of the OP_Return. Instead of having to string a bunch of checks that in theory let me move some BTC from address A to B to C to D to get to a destination, you can just co-sign a transaction that says in the OP_Return: transfer capital from this address to that one. You can also do things like have an automated graph-rewrite settlement algorithm, which we invented, to do decentralized derivatives clearing clearing. It may be possible to implement such an algorithm over Lightning Network based on a unicast-oriented implementation.

The big thing we have in common with Lightning is figuring out the power of what 2-of-2 multisig transactions can be. They are a way for two parties to sign an agreement that is instantly enforcable. If you do that with vanilla BTC transactions, it's what we call the "Lightning Network" but if you do it with these OP_Return transactions, it can be more like a smart contract. We agree to trade 1000 contracts of LTC/USD at 131.5, signed, boom. Capital is commited to the multisig channel, but not like in Lightning, where the BTC can't be unilaterally pulled. The layer property reserved for a channel is on a string, the user can throw a withdraw transaction and get it freed up in several blocks. But if they have already co-signed some trades, their counterparty can respond by publishing them, and the protocol will have the user instead stuck with the position they signed off on.

These trade channels are like Lightning's payment channels in structure, but then they add the anycast flexibility and the ability to make derivatives that clear without arbitration.

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 counterparty risk about what it is, the risk is more - are there counterparties who will pay me BTC for this at some price? That's liquidity risk - these coins won't have the momentum of LTC or BTC. Probably 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.

In the future we will attempt R&D around tokenizing BTC on LN so the derivatives layer is like layer 3. You trap some BTC, take your Lightning cheque, pledge it as collateral, get your casino chip, commit that to a trade channel and be able to co-sign a transaction to instantly transfer it to any other channel. Thus a BTC deposit gets into the realm of synthetic USD, and other synthetic positions, and while BTC is appreciating dramatically those world markets may be less volume than the glorious BTC/USD perpetual swap, but in the future there will be a need for commodities markets based on Bitcoin.

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.

Our solution that is native to Bitcoin is multisig trade channels. If you trust your counterparty, you will give the trades a large blockheight where they expire, so you can sign them, sign a series of other ones to take profit, sign a profit-and-loss transfer transaction to summarize those, still nothing published yet, maybe we keep the channel open a very long time. This is how you can both get execution done natively, and also, save on fees when Bitcoin has a 100,000 transaction backlog. This is a form of scaling that can be powerful. Less trusted traders with less transaction history, may quote tighter prices, and trading algorithms can probe them to get a fast sense of latency and trust. A fresh address with no history has a greater perceived likelihood of taking a free option for a single-signed transaction that they don't counter-sign, say the nonce is a block height that will occur tomorrow, if Bob exit scams Alice by refusing her order and also holding it all day, Bob can wait until the price moves and decide to co-sign or not, potentially ripping off Alice. It works like an option contract. Options have premiums because to be short an option is very annoying, potentially expensive, and needs some compensation. Shorter-term nonces, like 3 blocks from now, can have an option-value priced into the tighter quote that the less established trading algo might offer. Think about a weekly option, it's worth 2-3%, now think about a 5 minute option, it might only be worth a few basis points of price difference. In this manner, a new kind of market structure emerges.

A dealer might offer last-look quotes, where they will present a tx to co-sign to someone interesting in trading, receive the first signature, and wait a brief time to decide about co-signing, perhaps 200 milliseconds. This is how foreign exchange dealers quote the tightest spreads in the world for retailers, by basically being willing to front-run or exploit their order flow some % of the time, for brief instants, and for very small movements. But most of the time, users just experience the tight spreads and don't get orders rejected.

A dealer may also offer an indication of interest where they will offer the user-wallet a signed tx to quickly verify in the wallet's logic that it's the correct transcation based on the user interface inputs, and counter-sign. The general flow would be users quickly getting trades done. All such trades would be instantly published to get into the block ahead of the expiration.

Generally liquidity will probably be dominated by "name brand", high trust-rating market makers who are in the liquidity business and quote last-look with a very low rejection rate.

On-chain orders complement this market structure as they catch moves that might otherwise cascade when dealers all pull their bids.

It is possible to commit capital in a way that holds market makers to standards about their quoting, and have markets more in the model of bona-fide trades-only that US and EU regulators tend to prefer. For instance, market makers operating under those regulations could simply refrain from last-look quoting, the liquidity cost is passed on to traders, but it makes the market more spoof-resistant to ban last-look quotes.

1) rewards node operators forever

2) incentive for market making over the long-term

3) insurance bastion for backing up the native contract markets

4) deriving the price of Bitcoin in all world currencies based on on-chain trade history

5) reserve for various short-swap-backed currency units

7) collateral for going long or short swaps and futures

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.

The market will continue to fluctuate. Disclaimer: maybe not, that's liquidity risk, see above.

In designing the mechanics of this protocol, everything had to be as future proofed as possible. Models going out 40 years testing different levels of volume showed that the economics here are decent, at least on paper. In practice, there has to be the volume. The inflation model is designed to release 10% per doubling of cumulative volume past an early round number. There will always be an inflationary reward, but it becomes so diminished that lots of volume could mean 2% annual inflation. If volume stays in a steady range, the inflation becomes lower still. If price and volume go down, maybe the insurance fund actually releases float back into circulation as it pays out after some crashes. Then things fizzle slowly, like embers at a campfire at 5am.

Or, we will live in a world of Bitcoin dollarization, where Bitcoin has come to replace the offshore banking system to a large degree, and supplanted the eurodollar money supply, getting it to the 1 million dollar ballpark. The volumes conducted through these scaling mechanisms and settled on Bitcoin grow and become bigger than the current derivative market volumes. Decentralized technology that is better than the 2014-era on-chain orderbooks, makes this viable enough, and there's a lot of competition. There's still fiat, but you can get a positive real return from bitcoin-backed synthetic fiat vs. bonds and the banking system, which may have negative nominal yields or low nominal yields with modest but higher inflation. In the same fashion that the EUR gets sold for USD to invest in USD denominated assets, maybe BTC catches on this way, and the infrastructure projects like TradeLayer try to build. The BTC/USD may become as big as Eurodollar futures and interest rate swaps, as big as the EUR/USD market, or at least a few times bigger than gold. But then you could at some point sell your BTC for a lot of fiat and retire, no worries...

Or, we will live in a world of *hyper*-bbbbbiiitcoinization. Citadels and riots and hoarding and chaos and the demonetization that results in a deflationary, commodity/equity-driven economy. Young conservative libertarians will relish higher time preference among the zoomer generation. AOC will try to make it illegal and it'll make the US go full Argentina. The whole world order gets determined by which institutions bit at 100k USD per bitcoin, first. Bitcoin becomes the unit of account such that at N million dollars per, people lose interest in the USD price. It's like, what's the Mongolian Ringgit price of Bitcoin right now? These things fade away. The biggest contract in this world isn't BTC/USD, but probably something relating to hedging changes in mining difficulty that connect tangentially to the commodity markets in electricity, elements used in chip manufacturing, and the R&D/capex-build-out cycle of improving ASIC $/kWh. That's a really weird future. Maybe it's never going to happen. But you know what, the above paragraph sounded reasonable and these could be two different decades described here. You can never be too bullish on Bitcoin. It's legal to say that right?

1) Don't do any kind of securities offering to the public, so many projects struck out on step 1. Satoshi thought about this, follow the Satoshi Standard.

2) It seems like it might be legal in the US and the EU for two KYC'ed counterparties to trade over the counter under certain circumstances. If one of the counterparties is a commercial end-user, the end-user exemption may apply, this involves hedging only and not ponying up some leverage on a spread or a wild long position. Also, the trade has to not be in a global orderbook, but rather, a quote-based interaction between two parties 1:1. Since the underlying contracts all clear in 1:1 atomic flows using the protocol's graph theory algorithm, the matching can be done in a 1:1 counterparty seeking manner, the parties can be KYC'd with a PATRIOT ACT Customer ID number, there *may* be a way to do swaps trading in the US and EU with TradeLayer. We're going to try demo'ing an example for regualtors when we get it set-up and see if we can make history there a bit. The MiFID II requirements in Europe are largely congruent.

3) AML policies can be set and followed for operating entities by utilizing modular KYC chips in the protocol. There's a directory of registars that publish these chip-issuance/attestation transactions from a multisignature address, different white label companies, and then financial counterparties using the protocol can parameterize their property issuances, contract publications, and trades with a set of registars whitelisted. Security tokens and bank coins that are more rigorous that what is current operating on Ethereum, are easy and automatically enforced in the protocol. Transactions that don't match KYC restrictions are invalid.

4) FinCEN has made it fairly clear that decentralized exchange protocols being published isn't regulated activity, and operating as a regulated entity under the CFTC or the SEC may make one exempt when dealing professionally in tokens or contracts. The native tokens and their hedged currency units won't be restricted in token trading or movement, but a KYC chip on that address will be needed to enable contract trading and redemption of currency for metacoin+hedge contract position. If one could redeem currency for hedged positions without KYC, then they could try and margin call the position by moving collateral out, and you get non-KYC'd counterparties mixed in when the liquidation hits. But otherwise, pure cryptocurrency movement is not restricted legally by current money transmission laws. Trading tokens as a business may be regulable under FinCEN though.

5) The protocol has no celestial beurocracy that reviews people's driver's licenses, enterprise users do that. The ability to express a KYC attestation is just an atomic component of the protocol. Someone can self-certify to activate contracts, and they will be restricted to other counterparties who have posted orders or quotes without restrictions. If a US person abused that, and a US maker maker were to trade with them, it would expose them to liability therefore a US-based or EU-based trading desk must restrict their liquidity to verified counterparties only. It's not about imposing friction, the friction to self-cert. could be low, it's about enabling people to use it legally where they reside.

6) US/EU based dealers may be prohibited from quoting in a fashion where they don't quickly countersign trades, treating it as spoofing, there may be ways to punish spoofing in future versions of the protocol. E.g. parties reserve a premium that one or both lose if neither party actually executes a trade within N blocks. If may be possible to acheive the high-quality market structure US and EU regulators desire while also achieving more automated data-analytics for regulators to monitor derivtives markets.

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