StarkExchange

The Future of Crypto Trading

StarkWare
StarkWare
Jun 10 · 10 min read
Table 1: Comparison of DEX & CX
  • Costs: Protecting massive honeypots results in increased costs; quality opsec is expensive. Sizeable honeypots motivate proportionally sizeable attacks. By removing the honeypot (or shrinking it), the motivation to attack is removed, and the cost to protect the system is reduced. Insurance is expensive, not only because the insurance industry doesn’t have a sufficiently refined understanding of the space just yet, but also because of the unique ownership model of crypto-assets, where there is no trusted party to revert malicious acts.
  • Trust-Minimized: a cryptographic commitment to the state of the accounts at the exchange is placed on-chain. The full encrypted state is stored publicly off-chain, and its availability is guaranteed by a trusted federation. This federation will guarantee that it has seen a public copy of the state.
  • Trust-based: a cryptographic commitment to the state of the accounts at the exchange is placed on-chain. The full state is stored privately by the exchange, which means that traders have privacy from 3rd parties. This approach ensures that users’ funds cannot be stolen, though does not protect against censorship or freezing of assets inside the exchange.
  • Interestingly, it can also do so for assets which are already tokenized over Ethereum, even if the order on the custodial side involves the native asset, and not the tokenized one. In such a case, the exchange itself will trade the native asset with the tokenized one. For example: Alice places an ETH/USD order (buy ETH for USD) using the custodial service. Assume further that the CX has an adequately liquid USD-USDC (or some other USD stablecoin flavor) of an underlying USD deposit with a stablecoin issuer. The CX places a corresponding trade on the SC-trading side, replacing USD with USDC, and changing the exchange rate to account for the USD/USDC conversion. Bob, who uses SC-trading, can now take this ETH/USDC trade.
Diagram 1: Bringing Custodial-Trading Liquidity to SC-Trading
  • KYC/AML services
  • Liquidity shared across custodial and SC-trading
  • Matching of makers and takers
Diagram 2: CX Can Share Liquidity Across Different Custody Service Setups
  • Better liquidity: traders will be able to transfer assets between accounts across exchanges much faster: transfers would be delayed merely by the time to commit the new states on-chain, as opposed to delays that are intended to minimize the risk of reorgs/double-spends. This would mean easier access to liquidity across multiple exchanges.
  • Fairness of matching: CXes will be able to prove the integrity of the matching algorithms they employ, as well as prove publicly other fairness indicators (e.g. scale of wash-trading).
  • Shielding: Traders will be able to shield their trades, not only from other traders (and miners), but also from the CX itself, thus ensuring their trading strategies remain confidential, and that market participants don’t front-run them.
  • Fast settlement: Settlement of trades (not only in crypto-assets!) will be done in almost real-time. What is currently a complex, expensive and time-consuming ordeal lasting 48 hours, will be greatly improved. A dramatically shorter process will mean fewer participants, less risk, and therefore less of a need for regulatory protections.
  • Compliance metrics: custodians, for example, will be able to prove solvency in zero-knowledge, thus greatly reducing the likelihood of gossip and rumors instigating a “run on the bank”.

StarkWare

Developing the Full Proof Stack for STARK

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StarkWare

bringing scalability and privacy to a blockchain near you

StarkWare

StarkWare

Developing the Full Proof Stack for STARK