Platt, M; Pierangeli, F; Livan, G; Righi, S; (2020) Facilitating the Decentralised Exchange of Cryptocurrencies in an Order-Driven Market. In: Proceedings of 2020 2nd Conference on Blockchain Research & Applications for Innovative Networks and Services (BRAINS). (pp. pp. 30-34). IEEE: Paris, France.

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Abstract

This article discusses a protocol to facilitate decentralised exchanges on an order-driven market through a consortium of market services operators. We discuss whether this hybrid protocol combining a centralised initiation phase with a decentralised execution phase outperforms fully centralised exchanges with regards to efficiency and security. Here, a fully efficient and fully secure protocol is defined as one where traders incur no trading costs or opportunity costs and counterparty risk is absent. We devise a protocol addressing the main downsides in the decentralised exchange process that uses a facilitating distributed ledger, maintains an order book and monitors the order status in real-time to provide accurate exchange rate information and performance scoring of participants. We show how performance ratings can lower opportunity costs and how a rolling benchmark rate of verifiable trades can be used to establish a trustworthy exchange rate between cryptocurrencies. The formal validation of the proposed technical mechanisms is the subject of future work.

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