A Decentralized Relay Protocol & Platform
Today we’re excited to announce Paradigm, a relay protocol and platform for hybrid decentralized exchange logic. The protocol is positioned between exchange interfaces and existing settlement logic (similar to projects like 0x) in the hybrid decentralized exchange stack.
In early 2017, the 0x project introduced a unique hybrid decentralized exchange architecture — a system of off-chain order relay and on-chain settlement. Their system solves custodial risk by providing a completely trustless settlement system. Since then, we’ve seen the creation of other decentralized financial instrument protocols, such as dYdX and Dharma, that employ a similar hybrid decentralized architecture.
While the ecosystem seems to be making advances in regards to settlement and exchange logic, the order relay layer still remains relatively static. In its current state, this layer suffers from significant redundancies and artificial barriers, requiring developers to either source liquidity from a centralized venue, or to build a unique liquidity pool, relayer system and legal framework themselves.
Although 0x’s open relayer API has made some strides in this regard, the adoption and impact of the system remains relatively niche. Many of the largest and most successful relayers still implement a closed order book, effectively maintaining proprietary liquidity pools. While this model is good for an exchange’s bottom line and, in some cases, helps with the current user experience constraints, the trader in this model ultimately suffers from market inefficiencies such as insufficient liquidity and price spreads between exchanges.
Additionally, the current model makes exchange difficult for traders that are in crypto-antagonistic locales or are looking to trade non-traditional assets and instruments (such as options). These issues were the catalyst behind the development of Paradigm. Put simply, Paradigm unifies fragmented liquidity, and provides a platform for diverse financial instrumentation.
What are we building?
The core Paradigm team is developing a relay protocol and platform for hybrid decentralized exchange logic. At a high level, the Paradigm protocol can be thought of as a universal decentralized relay protocol.
Our solution can be broken into two pieces: the relay network, developed around a network of order relay nodes built using BigchainDB, and the point-of-entry system, built on Ethereum.
The relay network is an immutable event stream of orders. This order stream serves as the foundation for our entire system providing a decentralized, easily queryable and high-performing database system for order broadcast. While a normal relayer’s liquidity is capped by the amount of volume on their individual exchange, developers building on the Paradigm network can access a protocol-wide pool of aggregated liquidity.
The second piece of our system, the point-of-entry contract system provides a platform and incentive structure for hybrid decentralized exchange logic, such as financial options or loans. Third party instruments can be easily implemented and traded though our protocol. This system also allows for a single point of entry for takers, simplifying our implementation for exchange systems.
Together, these two systems create a decentralized relay protocol and platform that function to support a diverse and open decentralized financial ecosystem.
For a more technical overview of these systems, you can check out our white paper here.
The Matcher Model
With the creation of a decentralized relay protocol, the traditional role of “relayers” in the hybrid decentralized model becomes more focused. In this new model “relayers” are no longer responsible for the relay process; instead they are purely responsible for order matching, thus we’ve named these systems “matchers”. The Paradigm team is currently developing the first matcher, providing a simple and intuitive trading experience whilst also functioning to bootstrap initial network liquidity. We plan to release more information and documentation on our matcher model soon.
This is just the beginning for Paradigm. Our focus for the next few months will be on deploying a production level beta as well as creating a rich set of developer documentation and tutorials — we’ll be releasing more information soon. Until then you can get updates on the project and engage with us by reading our white paper here, checking out our GitHub, joining our Telegram, following us on twitter, subscribing to our subreddit, or by reaching out directly.