Decentralized Savings For Everybody

protocol

Bitcoin Native Decentralized Exchange
We need anti-fragile financial infrastructure built into an alternative Bitcoin client. On-chain orderbooks are useful as a background utility, but too slow. Multisig Trade Channels make bilateral trade execution fast. Decentralized derivatives use a graph re-write settlement algorithm to enable global clearing every four hours. Trade BTC for tokens in a Trade Channel atomically.
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. Regulated bank-deposit backed coins and security tokens are also viable in TradeLayer with modular whitelists restricting their movement. By trading BTC we create on-chain data that is useful for settlement. Extend the infrastructure of the protocol, participate in a global network of traders.

Decentralized Swaps

Download TradeLayer

TradeLayer for Litecoin: Linux 64-bit  

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TradeLayer for Litecoin: Windows 64-bit

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TradeLayer for Bitcoin: Linux 64-bit   

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TradeLayer for Bitcoin: Windows 64-bit

Download Download 32-bit
How It Works
1
An asset is moved into a reserve status in the protocol to match margin requirements.
2
Trading with different parties creates connections, forming chains that net.
3
At settlement a trades graph is sorted, margin flows to pay profits from losses.
4
Interest Formulas make swaps pay counterparties based on market performance.

Hedged Units

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 currency position, 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 Hedged Unit is worth some amount of cryptocurrency along a smooth function of price, defined by a short position of equal notional value in an inverse-quoted derivative. Its systemic risk is in the liquidity and basis risk of that derivative. As the contract markets become more liquid, and fee cashflow accumulates an insurance fund, the risk of the system having a deficit is reduced.

FAQ

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 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 a founder who used to run the foundation but left due to creative differences. The dream has always been since 2014 to do decentralized currency natively on top of Bitcoin. Maybe TradeLayer is the spiritual sequel.
Replacing the OMNI token, TOTAL for Bitcoin and ALL for Litecoin are the native metacoins. Fees from various trades across the protocol set aside in caches, waiting for a token-to-token limit order for those metacoins against some collateral coin, once an order is detected the cached tokens buy the metacoin. The metacoin purchased by the protocol goes into an automated insurance fund which exists as a public asset. The metacoins are also the root of the Native ecosystem, they hedged into synthetic BTC and synthetic LTC, which then on hedge into other denominations of transferable units. Other tokens in the protocol that might be useful for collateral would be security tokens or centralized stablecoins. Because Bitcoin and Litecoin UTXOs cannot do everything that balances in TradeLayer can do, the collateral use-case of the metacoins is helpful.
We decided a simple business model that is fair to the public, is to release the protocol with Vesting Tokens allocated to team members and investors who covered the team salaries, and then with the launch of the Native Ecosystem release, activate Liquidity Rewards and Node Rewards that would dilute the vested allocations. The Vesting Tokens yield liquid ALL and TOTAL as the cumulative volume in the Litecoin version moves from 1000 to 10,000,000 LTC traded; and as the cumulative volume in the Bitcoin version moves from 100 to 1,000,000.
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 Node Reward. Then it will be possible to purchase or sell ALL and TOTAL for LTC and BTC, using Trade Channels, or an improved version of the initial BTC->Mastercoin Dex published in 2014.

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: 0.005, Maker: 0

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

For Oracle Contracts; Taker: 0.02%, Maker: -0.01%

For Tokens; Taker: 0.05% Maker: -0.03%

In Trade Channels

For Native Contracts: 0.0025% per side

For Oracle Contracts; 0.005% per side

For Tokens; Taker: 0.005% per side

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? 0.05% 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 fixed activations list, and a design to breath on its own for the long-term. Re-org attacks on Bitcoin or Litecoin could undo trades and cause economic damages. Issued tokens will generally derive value from the security-like promises or centralized redemption window guaranteed by their issuers. Metacoins will generally derive value from the public willingness to continue to trade on TradeLayer, the perception of time-value from holding metacoins, and also their general use as collateral. There is no mechanism in the TradeLayer protocol to alienate funds from users. There are no administrators in TradeLayer, the activation list we publish with it is at best a glorified checklist of suggested future updates. The OP_Return outputs that define TradeLayer transactions are pruned from the UTXO set yet their data fingerprints, after enough confirmations, are part of the Bitcoin and Litecoin blockchains for as long as those blockchains survive.

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. A new OP_Code to tokenize UTXOs and inherit TradeLayer functionality would be the final, wish-list feature to activate. At some point TradeLayer Inc. will redeem all shareholders and dissolve, and the protocol will be in the hands of its users and node runners.

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?

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, it's all pre-set.

TradeLayer was published under a Novel Copyleft license that permits forks under the condition of soft spooning existing balances.

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. Trade Channels use the same finality of a 2-of-2 multisig address, but without the constraints of chained UTXOs. Tokens can be easily shuffled to any other channel in a user's wallet, without the routing constraints

Research and development has already transpired in how to move tokens through a colored coin output, through the Lightning Network, as a UTXO that also carries a balance. The great thing about open source development, is that often different things are composable together, and different projects can adopt interoperability with things developed by others. In time we would look into interoperability between TradeLayer payments and Lightning Network payments.

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 marked 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 an expiring blockheight hours in the future, you could 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. We can 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 trader with a spotty record 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 in 20 hours, 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 taking advantage of Alice. It's like an option contract. Options have premiums because to be short an option is very annoying, potentially expensive, and needs some compensation. An option expiring in seven minutes can still be worth twelve basis points. 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 IoIs.

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) Same as above, but for Litecoin.

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. 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.

Or, we will live in a world of hyperbitcoinization. Citadels and riots and hoarding and chaos and the demonetization that results in a deflationary, commodity/equity-driven economy. The whole world order gets determined by which institutions bid 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 BTC mining difficulty, which can be margined with a security token representing ownership in a scale-ASIC-manufacturer business, or margined in BTC directly. ASIC efficiency and difficulty are two major factors to determine how much future BTC a mining investment is likely to yield. Energy economics drives mining, which drives Bitcoin, which drives the world. That's a weird future! Maybe it's never going to happen. Or maybe it's the successor to Bitcoin Dollarization.

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-filtered 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 tags in the protocol. There's a directory of registars that publish these 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 currently 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 bureaucracy 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.

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