[Applause]
you
yes my name is carl ember your project
called universal market access or every
month and i'm quite pleased to present
you guys this recently paper we just put
out it's fresh to draft along a bit
decks and this is our design or
decentralized effects easy what we're
calling priceless financial contracts so
goals of this talk just to give you an
overview when you guys about it decks
works I wanna explain this concept of
priceless financial contracts and then
go to some details will be impacting
enable so as a starting point was to
talk about what the next is and I'm not
really picking on Big Mac cos I've got
any centralized futures exchange
anything that has levered transactions
and so we've acts like the CME trading
futures ur or any CFD provider is a
lever derivative trading platform
institution exchange and the exchange
itself provides a bunch of functions
that make it usable to the people that
trade on those functions are require a
trusted third party operator and so
those are things like custody margin for
all the positions moving margin backing
for clearing and ensuring the solvency
of all the positions in the exchange
what's really important notice reminded
of is that when like Bob and Alice trade
on baymax Bob and Alice might actually
end up having offsetting positions but
they don't face each other everyone
faces the exchange the exchange
functions is what's called like a
central clearing counterparty and
they're the ones that ensure the
solvency of
all the positions so the next doesn't do
things all these exchanges that's time
of Hornets training we like that with
high leverage just as things that people
want I think max is going on a big
business you need you to change big
distances these are services people want
but they've are completely custodial and
the exchange sets the rules of game so
the exchange decides what leverage you
get how you trade on it up but
importantly they also decide when
positions get liquidated you know like
they have that power and so this is like
really centralized it's not just like a
centralized point base or whatever area
whether it's just Estonia
there's also this whole aspect of
centralization around trusting Big Macs
or whatever exchange to monitor your
position solvency correctly and to not
let the date you have a long time so
this is bad it's a number one so the
question is certainly why is
decentralizing picnics so hard what
makes it so difficult why can't we just
like run this on the blockchain and the
things that there's just so many damn
transactions you have to check so the
idea is that bid next functions as this
somewhat of a black box that has all the
position and margin data for everybody
of all the trades of the system and they
go through and they check the solvency
of all trades with each price tick so
every price update they're checking the
the solvency of every position in the
system and that's just a lot of
transactions you can't run that chain
and the data is available to do so if
you get have it so what are we gonna do
so we're gonna try to solve this with
block chains but more importantly with
some later to thinking's and later to
concepts that we're gonna look
to a financial contract design so okay
good idea
our observation on a futures exchange
like index position data does not change
that often the data can actually it's
changes be frequent enough that it can
be recorded on chain allowing anyone to
monitor positions to verify their
solvency and it's missus pretty
interesting right we can actually put
the position data on chain when you
design a system where anyone can monitor
the solvency of that data off chain
allowing us to have a design with no
centralized proceed and no centralized
arbiter proper authorization so index
does this by allowing any Janata Party
to dispute any opposite position so any
long dispute any short and in short in
dispute any long and Oracle is only used
to resolve these disputes when they
happen so this is very much like an
Oracle minimize design we only use an
Oracle when a dispute happens and I'll
go into more detail on that in a second
penalties are then paid to the disputer
by the disputed position if the dispute
is deemed valid by water so there's
common consensus here to correctly
dispute one of course but wait efficient
rates okay
so a core idea here we are going to ask
people off chain to monitor the exchange
to see this properly collateralized
that's like the big idea and there is no
on chain high-speed important one all
right so let's just talk about what's
happening on chain I'll change
details here and why this can be fast so
um the decks only puts a data on chain
that needs to be on chain put some
pretty democratic or exchange functions
so margin deposits and withdrawals those
happen very rarely people contributing
the margin or withdrawing margin from
their account like on Big Macs that
happens very frequently that can easily
be supported with on chain transactions
recording nutrients how many new traits
actually happen a second it's a perfect
that's exactly what happens like that
next to it but it's like low single
digits or you believe that it's a pop to
some border on the three right now wait
you could get pretty close so we can
also record that data on chain the
interesting part and where the scales is
all the measuring created solvency so
checking all the positions good next has
like ten tens of thousands of
transactions per second to check all the
positions of their system and every
price tick but we are pushing that off
gene because now we've recorded that
trade and position data off chain so
anyone off change and check the solvency
position that's where I stay ability
going from one point of women clear is
that these X does not solve like a
decentralized order book problems that's
not what we're starting at salt belongs
and shorts in this treating systems
still need a mechanism to find each
other that would be in a workbook we are
building on there's great Senate trusted
designs what peer-to-peer work what
designs that 0x mesh that are pretty
interesting approaches to solving at all
okay so let's let's go into an example
just to try to illustrate what's
happening with this this design so
remember on the tree the deposit the
trim position data is recorded on chain
and anyone can check the positions so
would start see we're going to leave all
of our lungs l1 through Ln over here and
our shorts s1 through SN the important
point
l1 does not face s1 and s2 does not face
l2 they all based on contract an
exchange so they're not directly
offsetting but we're gonna record we're
gonna also define a market here we're
going to create the price of Bitcoin and
let's just say there's a starting price
of Bitcoin at $10,000 per coin and so
our EB function for what Long's and
shorts get paid out is going to eat
current price minus 10,000 so our
initial price of 10,000 wants and shorts
both made zero dollars all flat and we
have a margin requirement here of 10% of
the current price which means we got two
tanks leveraged for $1,000 you get
$10,000 exposure
jump into some details okay so we're
throwing B report this data on chain
everybody agrees that the price of
Bitcoin is $10,000 they've checked the
energy gain margin and everybody looks
good they'll check out everybody thinks
everyone is correctly march into the
system insolvent
so let's now say that LT thinks the
price of Bitcoin might drop to 9500 and
if that were to happen
l2 knows that they will be under
collateralized that will lose my
dollars because they're long the lose of
their dollars and they'll no longer meet
their margin requirement of ten personal
price
so what else he does deposit additional
margin they're doing this to make sure
they don't get disputed and liquidated
in their cool easy this is exactly how
we're going to get next to where if you
didn't if you're ready to get your
partner department you don't deposit
more margin you'll get to put it
let's go through another example where l
2 does not deposit additional margin but
s1 does indeed think the break price of
Bitcoin has brought to 9500 note that I
said it's this is expose with me there
is no one chain crispy for them to point
to basically it's like a bring their own
price neat concept s1 is looking at the
world and says hey I think the press
bitcoins 95 underneath they're then
going on to our auction data and they
see that out of price of 9500 l2 would
actually be under clad lies according to
our MPBN margin functions and so what
one does is they go ahead and dispute l2
they say hey I think you're under
clutter lives
your default and at that point that
dispute goes to Oracle that's going to
resolve this this disagreement was this
issue and s1 is right LT will be a
penalty to s1 this Depot penalty if s1
was wrong according to the Oracle the
penalty will go the other way to
compensate l2 for being unfairly
disputed ok core design core idea so
these are the core function signatures
in are just initial
simple design
I'll actually just jump ahead to the
slide even second that agreed is pretty
bright so you can't read that but
basically says we got have-nots
situation so imagine you're now a
position in this big deck system at any
given time you can do one of four things
you can do nothing if you think you're
correctly correctly collateralized and
you want to sit there and you're happy
you can deposit additional margin in
your position which you would do if you
think that trade is going to move
against you and your you might get
liquid or you can with you can withdraw
we've requested withdrawal at margin so
the trade has moved a lot in your finger
and you're up a lot of money
you did make a request to withdraw that
money note that you cannot immediately
withdraw the money because we need to
have a time lock to allow other
participants to verify edit that request
it's valid that you're not trying to
take up too much money out of your
position or you can dispute someone
else's position and say that under
paralyzed so in order to be here is that
in the optimistic path in the happy path
they're just depositing or withdrawing
margin and making sure your position
stays perfectly finalized there is no
need for an Oracle and Oracle price
while you're staying at happy path the
only time we would even or a boulder an
Oracle price is when there's a dispute
when somebody says hey this position is
under cloud wise so just to go back to
that last slide for a second these are
like the core core functions of this
simplistic design the markets happen
anytime withdraws can happen anytime
again
I'm walked by this delay this lightness
requirement and once that passes that
anybody can withdraw that mark then the
other drop request goes through disputes
remember any long can dispute any short
and vice versa what's interesting about
this is that because we have many
Watchers of the system we've got many
Long's
and many shorts and they're all watching
with each other we can actually have a
pretty short
liveness requirement our time law on
disputes can be pretty short because we
can be pretty confident that somebody's
going to be there to watch the system
the last two things here are really
about entering and exiting trades in the
position so we have a simple design
where anytime you want to enter a new
position you can create a pair so any
long and short find each other say hey
we want to do a trade this price and
negotiate that off chain and they come
to the system they're like hey here's
our new pair of Long's and shorts we
want to enter the system the bids X
contract just has to check that that new
pair of long shorts these correctly
margined and you can do that at the club
track this is a little bit contagious
he'll but we do with a clever trick of
having that new pair points to an
existing long and short position that it
is equally collateralized two or more
plasma this is detailed in white paper
but really it's a shortcut for us to
have an instant entry through the system
and then we have a simple mechanism
where you can instantaneously exit a
trade in the position to draw your
margin if you're a long you do that
by an offset in short position and then
you're immediately able to withdraw they
combined long and short deposits so
those are detailing bit more detail the
white paper just a quick overview so
again that's in slide this kind of looks
ugly or - that's the idea
this is meant to be a bit of a like a
layer to your financial contract design
where we are assuming that things stay
in the happy path and you're only using
our Oracle when there is an unhappy
dispute when sort of something goes
wrong so we're calling this the
priceless financial contract design and
the quality here is that if everyone
behaves as they're supposed to if
everyone doesn't default in adds margin
appropriately that we don't actually
need an Unchained price
it's bracelets this is the habitat we
stay in the happy path we need no prices
on chain other coral kind of concepts of
this is this framework that were
proposing is that when someone behaves
badly it needs to be observable off
chain
we need rewards to the correctly reward
participants for disputing bad behavior
and that dispute is proven valid we need
that behavior to be punished to be
penalized and we only need on chain
prices to resolve disputes which means
that the Oracle functions as a sort of
dispute resolution mechanism which
should be relatively infrequently used
so these are the sort of priceless
Mitchell contra design this is something
new that we're gonna write more about
we would really love feedback on this
idea but again it's all about how we can
minimize Oracle usage to allow us to do
higher leverage higher speed things with
defy and with venture contracts so going
touch deeper on what this means for
Oracle design itself so reading
contracts priceless late I'm repeating
the point my last slide ready to put
contracts baselessly means Oracle's
become dispute resolution mechanisms
that only need to be used with
counterparties fail to agree that we
didn't find interesting and novel and
the example here is to point to like the
fiat world where me and would enter into
a legal contract financial contracts a
lot more like legal contracts we're
going to turn the legal contract let me
do that privately
we've no intention of litigating that
contract we only litigate it if
something goes wrong we fail to maintain
the terms of trade the same concepts
being applied here where we're saying
hey let's enter into a financial
contract that we both know the terms and
we're going to do what we've gotta do
but we're only pointed to see you only
to use an Oracle it's something this
long three Oracle's as dispute
resolution mechanisms arguably buildings
of the design space for decentralized
Oracle's since we can do things a little
bit differently we no longer need like
an auction price team that's constantly
pushing of a lag or real time price to
the chain we can instead the Oracle
speech relatively slowly expensive and
potentially late far more decentralized
because they should be relatively rarely
used again like you
for technology you don't go to court for
every contract you write you only go to
work when there's a major dispute and it
also lets our Oracle's be cigarettes we
don't need the dispute resolution
process to be happening at the same time
as the rest of the contract system so we
must built a design for this type of
Oracle that we call our data
verification mechanism that actually
puts economic guarantees early on
profitability that design you gotta
weigh paper and it's actually been built
it's on test net it's well suited to
support this type of priceless financial
contract so just to wrap up really
quickly
we introduced this idea bit index which
is decentralizing bit max something that
has but it really hard to do it define
and we did this using this concept of
presence financial contracts where we
are pushing all of the work off chain so
we are getting greater scalability by
having positions there solving CV
monitor off chain and force via this
piece we're doing this with out and
Auntie priced feed people bring your own
press PETA off chain and we're
minimizing Oracle usage so we're
reframing the use of an Oracle as purely
a dispute resolution function this lets
us build what we're calling the ask to
eat by products like a Dex an exchange
with leverage it also lets us build
synthetic tokens were we're big on
synthetic token suggest can go to our
website we don't like that we can do
this with Lola flower apartments because
we can be much more efficient with our
margin usage by not having a leg to
press feed or any kind of delay and what
kind of swaps options all sorts other
angel contracts and this is sort of
stuff that frankly we love talking to
all you about
you want to build and how can go a
building okay so wrapping up we've got a
lot research out there that would love
feedback on this video text paper we
just published last week it's it's a
research paper it's a draft we love
feedback on this design we also have our
designed for our Oracle our dispute
resolution style horrible that we
published a couple months ago that we
was left feedback on and the response of
us here at Def Con please join our
developer slack let's go get up links to
where you find various things and find
us
thanks very much
[Applause]
you