Introducing Genius Protocol: Frictionless Complex Markets
Complex markets suffer from debilitating friction, billions in preventable losses & archaic technology — Genius has the answer
Complex markets are the greatest untapped opportunities in blockchain. They represent more than a quadrillion dollars in market size and touch every aspect of human existence. But they remain stuck in the dark ages. Reliant on archaic technologies, complex markets suffer from long transaction times and billions in preventable losses. Genius Protocol is designed as an integrated infrastructure protocol combining blockchain, digital identity and cryptocurrency to make complex markets frictionless.
What Are Complex Markets?
Complex markets are home to many of the world’s largest asset pools. Retail markets such as Amazon facilitate consumption. Commodity markets enable the delivery of materials that serve as the building blocks of consumer and capital goods. Derivatives markets enable financing and hedging in all types of markets. Insurance markets enable the mitigation of most types of risk. Real estate markets facilitate the financing, ownership and leasing of property.
Complex assets are often non-fungible. That is, assets are unique and thus not directly exchangeable. In comparison, fungible assets can easily be exchanged for one another. Currencies and stocks are fungible assets. One United States dollar bill can be exchanged for another one United States dollar bill, and an Apple, Inc common stock certificate can be exchanged for an identical Apple, Inc common stock certificate.
Complex assets are varied and cumbersome. A complex asset may be a portfolio of distressed real estate assets that are being marketed to funds. Or it may be a 20 foot container of high-grade chromite located at the Port of Durres in Albania destined for the Port of Shanghai via a Panamax vessel. It could also be a structured derivative, such as a 30-year Power Reverse Dual Currency bond issued by the World Bank, in which each coupon’s value depends on the AUD-JPY FX rate at the time of payment.
Most complex markets are wrought with friction. Buyers, sellers and intermediaries rely on paper, email and messaging for P2P transactions, supported by armies of back office personnel. Deals are marred by manual verification of terms, endless back-and-forth communication between counterparties, and multiple layers of authorization — all while reference prices are moving, often forcing revaluations and renegotiations. This results in long transaction lead times and billions of dollars in preventable losses.
The next evolution of marketplaces is on the blockchain. Marketplaces have become increasingly digitized and borderless. Yet, facing limited trust between individual counterparties, participants instead trust the marketplace itself, whether that marketplace be Alibaba, Uber or the London Metal Exchange. These centralized marketplaces in turn profit from high fees and control vast amounts of user data. And they’re increasingly subject to hacks — in which valuable user data becomes available to malicious actors.
Blockchain revolutionizes such interaction. It enables decentralized, fair, secure and trustless interaction between counterparties. Participants don’t need to trust one another to interact. They also don’t need to trust or rely on a centralized marketplace, and thus don’t need to give up their personal data. And with a decentralized ledger, a copy of transaction records is stored on multiple computers around the world— ensuring trustless proof of asset and title.
Why Genius Protocol?
Unfortunately, most existing blockchains aren’t designed to address complex markets. Existing blockchains mainly serve fungible assets like currencies, listed securities and fungible tokens. Many are not able to transact complex non-fungible assets. Those that can aren’t able to transact non-fungible contracts at the high frequency that many complex markets require. Furthermore, these blockchains lack the ability to attach identity to complex assets and assure the asset’s ownership and chain of custody.
Physical commodities are the classic example of a complex market. A physical commodities trader may wish to sell excess copper concentrate from a smelter in Zambia to various buyers. Their offers are passed back and forth between many parties before the deals execute. The mining company, the end buyers, shipping companies, chemical lab testing companies, hedging desks, back office departments and Letter of Credit banks etc, all need to input values and agree to terms. The terms of the deal for each of these parties need to match, but they constantly change depending on negotiations and market prices. For some aspects of the deal, the parties may not wish to share information, but other aspects must be shared across parts of the network. So chemical testing results or quantity delivered might be public, but certain payment values might be confidential. These interactions and micro-transactions are complicated, and the parties become overburdened by mountains of paperwork and miscommunication.
Genius Protocol is designed specifically to seamlessly enable complex markets on the blockchain. Genius is intended to be a Layer 2 protocol atop of the Ethereum blockchain that offers an integrated set of blockchain and digital identity tools that enable high-speed complex asset transactions between parties. These tools include:
- Non-fungible smart contracts, for complex asset definition;
- Encrypted biometrics, for secure chain of custody & trustless interaction;
- Side-chains with algorithmic main-net batch processing, for scalability;
- Cross-chain atomic swaps, for blockchain interoperability;
- A modular API system, for integration with incumbent systems; and
- Proof-of-Value, a mechanism to programmatically incentivize transactions.
How Genius Protocol Works
1. Non-Fungible Contracts Enable Complexity
On the blockchain, non-fungible contracts like ERC-721s are the best standard that exist for representing complex assets. Complex assets need the flexibility of non-fungible boilerplate contract structures. Such contracts can include multiple variables defined over many lines of code. The challenge is that miners expend resources to verify each data-intensive non-fungible smart contract. This overburdens the blockchain in the same way that Cryptokitties ERC-721s did in December 2017 at a time of significant demand.
Genius enables speedy verification of complex transactions on the blockchain. It connects fungible and non-fungible contracts together in a transaction — whereby fungible contracts represent payments and non-fungible contracts represent assets. This separation enables transactions to happen quickly even if assets are transferred slowly. Genius adds a metadata layer that off-chains data irrelevant to the actual transaction, like buyer or seller contact details and transaction histories. In these ways, Genius allows for complex asset transactions on the blockchain while ensuring high-speed transactability.
2. Digital Identity Ensures Trustless Interaction & Chain of Custody
The adoption of public blockchains continue to be hampered by their inability to securely identify an asset or contract’s true owner. Real-world businesses need to ensure the assets they purchase are from the intended sources and transacted through the intended intermediaries. Before they commit to execution, they need to ensure that their counterparty will transact. Intermediaries must be assured that they will earn their commission even when they are not a direct participant to an exchange. While encrypted keys protect privacy, on their own they can’t enable custodianship or ensure a chain of custody. The problem is exacerbated for highly valuable complex assets where multiple parties on each side are required to authorize deals.
Genius Protocol’s encrypted biometrics solution solves the digital identity problem for complex asset transactions on the blockchain. A user’s encrypted biometrics can be connected through one-way hash functions to data points that identify the individual, like transaction limits, level of authorization and asset holdings. This enables trustless interaction and zero-knowledge counterparty validation. When a user “logs in” to their transaction with their biometrics, all their authorizations and capabilities are automatically proven. At the same time, the biometrics implementation also allows for multi-signature authorization between all parties, including back office. And it allows for the current asset owner’s encrypted biometrics to be attached to the asset, and de-attached in the event of a sale — thereby establishing and maintaining a chain of custody.
Genius Protocol’s design includes a broad provision for encrypted biometric data. Depending on the level of security required, a marketplace can elect to utilize simple mobile login with inbuilt mobile biometric scanners. Or, it can adopt a more advanced system using external biometric scanners that disintermediates biometric scanning and further obfuscates user data.
3. Sidechains, Batch Processing and Off-Chaining Ensure Scalability
Genius Protocol is designed for scale. It provides on-chain / off-chain discrimination supported through the use of side-chains and a metadata layer. Genius utilizes this feature set to enable high-capacity transaction speeds. The data flow is broken down as follows:
- Sidechain— Prior to on-chain execution, contracts are passed algorithmically through a sidechain where P2P transaction verification occurs. Verified transactions are then algorithmically batch-processed on to the main-net — optimizing for speed while minimizing on-chain gas.
- Off-chain— Non-essential metadata such as images, user reputation and transaction histories are stored on Genius Protocol’s metadata layer that is native to the application specific requirements of the marketplace.
- On-chain — Finally, critical transactional data such as pricing, asset identity and asset availability are directly added to the blockchain from the sidechain.
Segregating data flows in this way enables better scaling and minimizes the expensive computing and associated storage costs. Furthermore, it enables each marketplace organizer to customize fields according to the needs of their marketplace.
4. Providing for Interoperability with API’s and Atomic Swaps
A. Modular API’s for Integration with Incumbent Systems
As with most real-world adoption, incumbent systems are a barrier to entry. Most existing systems have been implemented over a number of years, often bolting together incompatible systems that each serve different needs. Genius uses modular architecture to develop its protocol and marketplaces, where protocol-level applications are connected to one another via API’s. Certain API end points can be connected outside the system, enabling any application or extension to be integrated without the blockchain system being compromised.
B. Atomic Swaps for Cross-Chain Interoperability
Genius intends to use cross-chain atomic swaps to let users easily transition between chains. This system enables users to interact with Genius marketplaces on chains other than the primary chain, like Cosmos or Stratis, where the user’s assets or tokens reside. It also allows Genius to harness the strengths and minimize the weaknesses of each blockchain and to mitigate the risk that a single blockchain failure can adversely impact the Protocol and impact the functionality of Genius markets.
A portion of the Genius Operating Pool will be dedicated to the Atomic Swap Module Pool (AMP). When a new blockchain is brought online, respective allocation of tokens in the ERC-20 burn pool will be allocated to the native token format of the new chain. These pools will be publicly visible but only accessible to the Genius Atomic Swap Module (GAM). Following along with this process, when a new market utilizing a new chain is added into the Genius ecosystem, AMP will now constitute two pools of tokens one in ERC-20 format and one in the new token format. The process is designed in such a way that it works in the background — an AMP will be able to seamlessly convert between AMP-ERC-20 and Genius token on the new chain and the user will never have to worry about any of this.
5. Enabling Counterparty Interaction with XGR
A. About XGR
Sweeping adoption of any new technology invariably begins with resistance. While this is often the case within organizations, it is an unequivocal truth in the case of technology adoption by unrelated organizations and untrusting parties. The existing system may be deeply flawed but “if it ain’t broke” parties rarely adopt quickly. Genius Protocol is designed on the premise that cryptocurrencies have the power to quickly align incentives for disparate parties in a public ecosystem, and thereby encourage adoption. As such, the XGR native token is designed to be utilized in almost every facet of the Genius ecosystem, to ensure users adopt and reap the benefits of Genius’s technology.
XGR is intended to be Genius Protocol’s native token. It enables effective interaction and transaction between Genius marketplace users. Once acquired, users can stake or pay XGR to market or participate in deals, and to incentivize and reward user behavior. XGR powers every interaction in the Genius Protocol.
XGR has multiple uses within the economy. Mandatory XGR use comprises:
- Exchange subscription — an upfront payment and monthly SaaS-like fees to be paid by marketplace organizers to utilize the Protocol; and
- Transaction fees — are payable in XGR. The user can either purchase XGR to pay for their transaction fees, or the Protocol converts fees paid in fiat to XGR which are then used to pay fees.
Additional non-programmatic uses includes the following:
- Build — Developers are rewarded for building markets and tools on Genius
- Service — Counterparties can pay service provider charges
- Vote — Users can earn for voting on counterparty performance
- Promote —Intermediaries are paid for promoting and introducing deals
- Inform — Users are paid for sharing data, such as deal-critical insights
- Stake — Parties stake to participate in auctions and exclusive deals
- Pay — Parties can pay for transactions (full price or discounted)
- Reward — Parties can pay bonuses for successful deals and good behavior
- Receive — Marketplaces receive bonuses for reaching activity thresholds
Proof-Of-Value (POV) is a transaction processing mechanism that incentivizes transactions on the protocol. ‘Transaction Value’ (TV), a share of the value added by each transaction to the network, is programmatically paid in XGR in equal portions to the Protocol and transaction value creator(s). POV token allocation comprises 50% of the Genius Operating Pool. POV payouts decline logarithmically as cumulative transaction value grows.
For example, a $100 million real estate transaction on a Genius marketplace may pay a $1 million deal fee. The POV for this transaction may represent 20 basis points, or $200,000 in XGR, payable equally to the Protocol and the parties to the transaction, including the marketplace organizer.
1. Hard Fork
Genius intends to execute a fork that will enable it to leapfrog up to 12 months of development and testing. On February 27, 2019, Genius plans to fork Blockparty’s ‘BOXX’ token as a means to adopt Blockparty’s core technologies. Blockparty has built the only fully-functioning open protocol that enables high-frequency integrated primary & secondary marketplaces for complex assets. It is the only third-party protocol that replicates Genius’s core protocol design. Importantly, the Blockparty application is live, tested and proven in a high-frequency transaction environment, reported by Blockparty to have handled at least 400 non-fungible contract transactions per second.
Genius will add the following code currently not represented in BOXX:
- Proof of Value — programmatic transaction value attribution;
- Proof of Stake — to be added to sidechain security; and
- Interoperability — integration with other blockchains using atomic swaps
2. Ecosystem Growth
Genius has secured indicative agreements for $6m in revenue to build three marketplaces on its protocol in partnership with several marketplace organizers — energy distribution, OTC cryptocurrency and real estate. The revenue includes both XGR (approximately 20% of total value) and fiat. Further, Genius is growing an attractive pipeline of deals including insurance. During 2019, Genius intends to close deals to help build a further 10 markets.
3. Open Developer Network
Genius intends to build a deep pool of talented third party developers to build on the Protocol. The development team at Genius comprises individuals with depth and breath of experience in blockchain engineering and full-stack software software development. To enable rapid expansion in 2020, Genius intends to leverage external talent and encourage third-party development. Genius intends to open its Protocol to third-party developers progressively over the course of 2019. It has already secured soft commitments from more than 5 developer teams to begin developing and adding tools and markets to the Protocol. In 2020, Genius will launch the Genius Hackathon, a global series, to further expand its developer network.
Genius Protocol will enable developers and businesses to build and operate frictionless complex markets on blockchain, with an initial focus on non-fungible digital assets such as OTC financial instruments, energy and real estate contracts. Genius intends to fork Blockparty’s BOXX protocol on February 27, 2019 to acquire its rich library of proven technologies. It then plans to internalize and significantly build upon BOXX’s capabilities, while creating a powerful developer network to enable rapid expansion across complex markets globally.