A New Generation Digital Asset Swap Network
Bitcoin appeared as a type of digital currency, accompanied with the birth of blockchain, known as a new technology. In the decade of rapid development of the digital currency market, we have witnessed some milestones: BTC, Ethereum, ICO, Exchange and so on. While today, the growth of the entire digital currency market is slowing down，we need to think that how can digital currency have more application scenarios?
This article is to discuss how to expand the usage of digital currency, or, how to bridge the digital currency market and the traditional financial market?
Undoubtedly, the digital currency market is still at its early ages, thus incomparable to the traditional financial one so far. The development of the digital currency relays on the involvement of the investors in Expanding the usage. And in turn, the expansion of application is the only way to contribute to the growth of investment.
Imagine one day, you can use the digital currency(ies) you (perhaps BTC, ETH, or other tokens) to buy financial assets issued in traditional market, or vice versa, you can sell your stocks, bonds, and futures to get digital currency(ies),.In this way, digital currency can enter the traditional financial industry, and act as the medium of exchanges of more goods and commodities.
The intermediating process generally consists of several main aspects: exchange (including payment), clearance and settlement.
The goal of the exchange is to expand the variety of exchangeable financial products, not limited to digital currencies, but also financial products of the traditional financial industry,, such as bonds, options, futures and so on. However, It is difficult to input all the assets on the Blockchain, since the IT system of the traditional financial world Would needs to be Utterly upgraded.Alternatively, we can only input the necessary data for the asset chain. Only if the key information of digital assets (not digital currency) can be integrated into the blockchain in a safe way, this approach is able to get through.
Technically, the premise of asset safety is that we need to find a way to ensure that the information of the asset is Incorruptible, consistent, and decentralized, etc. These are the basic characteristics of the blockchain, but not all. The approaches can be various, not necessarily through a complete public chain, but more through a protocol: layer 2 protocol.
Layer 2 protocol can lower the cost of the traditional financial IT system upgrade., at same time, it can support a variety of key scenarios , such as matching, profit distribution, incentives, account system update, etc., These functions are in favor of the key intermediating processes: exchange and clearance.
As to settlement, the critical step to resolve the cross-chain problem. Obviously, asset exchanges on the same chain can be easily realized. For example, exchanges (include price and accounting lock) among multiple ERC20 tokens can be constrained by smart contracts, and Etherum will guarantee the correct of accounting. But how about the exchange between USDT and a ERC20 token? The difficulty of cross-chain exchange is how to satisfy atomicity. Atomicity can be simply defined as either completing the exchange or retrieving exchange positions to the counter parties respectively.
There are two main approaches to atomic exchange: man-in-the-middle transactions and hash locks (the other way Relay will not be discussed here). There are two typical implementations of the middleman approach:
One： The two parties transfer theirs tokens to the middleman, and the middleman exchanges tokens according to the ordered price. The typical application is the Huobi exchange. At this time, all the private keys are in the hands of the middleman, and the middleman is the centralized agency and undertakes great moral responsibilities.
Two: The two parties convert their assets into the same kind of assets on a specific blockchain, and proceed the exchange through this blockchain. The hidden risk of this approach is the safety of assets is too much relied on the stability of this chosen blockchain.
Hash lock ensure atomicity through message communication, without the help of a third-party , and will not hold the private key of both parties at any time. The application of message protocol is the key of hash lock.
KOFO is a new generation asset exchange network. As a network, KOFO wants to solve the problem of intermediating various financial assets. Therefore, it is a complete solution for the financing process, including three technical layers for exchange, clearance and settlement respectively
The technical solution is also consists of three layers, which guarantees the implementation of the combination and exchange path through the message delivery protocol and the P2P network. The consistency layer ensures the data of the distribution and accounting and generates settlement orders. Atomic exchange of assets between addresses on different chains by the hash-lock based cross-chain protocol.The three-tier architecture constitutes three protocols, which are mutually related and independent, and together guarantee the intermediating process of various financial assets.
KOFO application scenarios:
Decentralized wallet + KOFO = P2P transaction
Decentralized exchange + KOFO = expansion of trading pairs
Public chain + KOFO = main chain mapping
MarketMaker + KOFO = Liquidity Provider
Traditional financial products + KOFO = intermediating traditional financial and digital currency financial networks
Summary:
Eventually, the digital money market will be seamlessly connected to the traditional financial market. Probably they will have anther form of connection different from today, but this era is coming. The emergence of a new integrated solution is precisely to cope with such a scenario. It will gradually establish a bridge between the two markets. With the realization of these basic implementations, the two markets will be deeply integrated .
