WHAT IS MARKET?
MARKET Protocol provides the interoperability necessary for order routing and other trading activities on the blockchain.
Third party projects can build decentralized applications or “dApps” on top of the protocol, giving the non-technical Trader the ability to easily interact with the underlying blockchain technology.
MARKET will provide exposure for Traders to other cross-chain crypto assets without having to manage multiple exchanges or take custody of a separate asset.
PUT YOUR CRYPTO ASSETS TO WORK
MARKET has been created to provide Traders with a secure, flexible, open source foundation for decentralized derivatives trading.
With MARKET you can gain exposure to other cross-chain crypto assets or traditional assets without managing multiple exchanges/wallets or take custody of a separate asset. For example, users can have similar price exposure to owning Monero, Ripple or Apple (“AAPL”) stock without ever transacting in Monero, Ripple or AAPL.
WHY ARE WE DOING THIS?
MARKET addresses several problems with the current exchange model.
Custody of funds
Centralized exchanges control customer funds. Transactions are internal IOUs and not recorded on the blockchain until funds are withdrawn. Deposits and withdrawals can be halted or delayed.
Customers depend on exchanges to ensure solvency with limited information on reserves or open positions. Traders are exposed to credit risk while funds are on exchange.
LIMITED PRODUCT OFFERINGS
Exchanges only offer commercially viable relationships. Some crypto assets may never get listed on an exchange.
Exchange owners and customers have different incentives introducing friction. A limited number of centralized exchanges can exhibit monopolistic pricing power. Only certain customers can access exchanges due to various restrictions. Exchanges have rejected, suspended or frozen accounts.
Margin calls and irresponsible leverage can lead to systematically dangerous outcomes. Forced liquidations tend to cascade often resulting in additional liquidations.
Exchanges regularly have security and technology issues. Due to the limited number of exchange options, Traders are often required to accept imperfect solutions and unnecessary risks.
MARKET provides the pieces necessary to create a decentralized exchange, including the requisite clearing and collateral pool infrastructure. As a protocol, MARKET enables third parties to build applications for trading, order routing and related activities. The protocol is open source and available under the Apache 2.0 license.
The clearing functionality will provide a safe and secure framework to manage crypto assets, positions and leverage in a systemically responsible way. All smart contracts and collateral pool balances will be publicly available on the blockchain. No person or entity controls the flow of assets among participants, order matching, contract creation or dispute resolution.
THE MKT TOKEN
MKT is the base token of the Market ecosystem and benefits from integration into all facets of MARKET. Peer-to-peer trading is free on MARKET; no fees are native to the protocol. Nodes providing order book hosting and management will have the option to set and collect transaction fees for offering this service. Every contract traded through MARKET requires participants to temporarily lock MKT tokens while trading. Next, creating contracts also requires a minimum MKT balance. MKT holders will also have a vote in protocol improvements and development. This ensures both users and providers of the protocol have a voice in the protocol’s futures. Finally, MKT tokens are expected to be used for dispute resolution.
MARKET PROTOCOL FAQ
A derivative represents a contract between a buyer and a seller. The value is derived from on an underlying asset or assets. Common derivatives use stocks, commodities, currencies, bonds, or interest rates as the underlying asset for the contract.
No, MARKET is a protocol intended to enable the trading of decentralized derivative like contracts. Third parties will write the application layers on top of the protocol and we hope to create an API layer to facilitate this as well.
Third-party order book hosts, called nodes will be provided with an API that easily allows them to host an order book. Nodes, in turn, may charge fees for the services they provide. These fee’s are not determined by MARKET and are set directly by the node.
All positions are always fully collateralized, meaning the maximum possible loss for a position is the required amount of collateral to open that position. For a buyer, the maximum possible loss is calculated as the price of the trade minus the price floor times the qty transacted. Conversely, if you are opening a short position the maximum loss is calculated as price cap minus the price of the trade, multiplied by the qty transacted. Upon filling an order both parties commit their respective maximum loss to the collateral pool.
No, there is no borrowing, fees to be paid, or locates to deal with for shorting. Due to the unique nature of our derivative like contracts, a trader is able to open a short position without owning the underlying asset. This is similar to how financial futures work, where a seller of the SP500 futures, doesn’t need to own, locate, or borrow the SP500 in order to gain the short price exposure to the SP500.
Collateral is credited to a users address and able to be withdrawn upon expiration of the contract or if the user trades out of their open position. For instance, if a trader is holding a long open position and sells to close out that position prior to expiration, they will immediately be able to withdraw the collateral associated (plus or minus any profit or loss) with their trade.
Upon expiration, the contract will reach a settlement price via the agreed upon oracle solution. At this point, all funds will be able to be withdrawn for all open positions. The amount of collateral is credited back to the user will be determined by their execution price and the settlement price of the contract. Note, that there will probably be some short delay between contract expiration and the settlement period to allow for disputes to be raised.
When a position is closed, the appropriate amount of funds are allocated back to the user and immediately available for withdrawal from the smart contract. If the trade that was made was profitable, more funds will be available for withdrawal than originally posted, and if the trade represented a loser for the user, fewer funds than originally posted would now be available for withdrawal. As an example, let us imagine a contract with a price floor of 50 and a price cap of 150 using Token A as collateral. Bob enters into a long position for a qty of 1 at a price of 85. At this point, 35 units of Token A would be committed to the collateral pool (representing his max possible loss). Later, Bob exits his position by selling at a price of 95. The amount of Token A now allocated to Bob’s account is 45 (35 of which is his original collateral and 10 of which represents his profit from his trade) and is now able to be withdrawn from the smart contract if Bob so wishes.
Yes, by using oracle solutions for settlement users can create contracts for any type of real-world assets such as the SP500, or cross chain assets like Bitcoin or Monero. This opens endless opportunities and diversification for the holders of ERC20 tokens who do not want to convert into fiat but want to gain market exposure to non-digital or cross chain assets.
This is an area of discussion. We would love for community feedback to help shape the process. One current solution is that once a contract’s settlement enters a disputed state, that a second attempt may be made to use the originally agreed upon oracle, or a federation of oracles. Inevitably, oracle solutions will fail, or receive bad data. The problem of bad or inaccurate market data is not new or unique in the world of finance, but the need to resolve these problems when they arise in a trust-less manner will be essential.
Founding members of our team have been managing a 24-hour algorithmic trading group since 2014 and cumulatively have over 30 years of electronic trading experience. We have expertise in market microstructure, order routing, order management and have written directly to exchanges across the globe.
The rest of the MARKET team comes from a diverse set of technical backgrounds.
Together, we quickly realized how immature the crypto exchanges were. This created an opportunity for conceptualization and development of MARKET which provided us a blank slate to address issues with both the crypto and traditional exchange models.
CTO and Co-Founder
Phil has spent the last 7 years as the lead developer on a algorithmic trading desk. Phil has led teams of developers focused on creating trading infrastructure, user interfaces, execution platforms and quantitative trading analytics. Phil has the skillset, creativity and passion needed to implement technical solutions to solve the challenges presented by a decentralized market place.
CEO and Co-Founder
Seth been a derivatives trader since 2005. He has grown and managed multiple algorithmic trading desks, operated as a registered market maker and participated in numerous product launches. First introduced to the crypto space in 2015 as a Trader and later focused on the technology side, Seth has a strong understanding of centralized and decentralized trading and exchange infrastructures.
Przemyslaw is a technology enthusiast. He has an in-depth knowledge of Digital TV, MPEG2/H.264, HDCP, embedded devices, navigation devices, advanced routing algorithms and bleeding edge hypervisors. Przemyslaw is interested in blockchains and derivatives trading.
Maz has acted as a business consultant helping a number of startups. He has experience developing and implementing successful online community outreach programs. He joined the MARKET Protocol team to combine his experience in crypto trading and asset management with his passion for helping others. Maz hopes to help the community learn what MARKET is all about.