Last updated
Last updated
Permissionless Blockchains offer a compelling solution for novel applications that operate in a permissionless environment. However, they currently face a daunting dichotomy - whereas applications that are native to blockchains are already decentralized, users are unable to interact with them without first acquiring cryptocurrency from a centralized, trusted exchange. The process is tedious and error-prone - users need to send funds to often sparsely regulated entities from their own bank account.
The core problem motivating this dichotomy is a mismatch in trust models. Whereas regulatory boundaries usually enforce well behavior in existing financial systems, decentralized alternatives operate in a hostile environment across multiple jurisdictions without clearly enforcable boundaries. Hence, any solution that offers true decentralization needs to offer strong, baked-in security from the get-go and thereby demands for a well-designed threat model.
This "Onboarding Problem" is tedious for both users aiming to acquire cryptocurrency, which often takes multiple days, and users aiming to sell their cryptocurrency for FIAT money, which is often bound to an unfavourable exchange rate. Zwift aims to solve this problem by providing an intuitive way to purchase, and sell, cryptocurrencies by transferring FIAT currencies (i.e. USD, EUR) directly from buyer to seller.
Initial solutions propose solving the Onboarding Problem through decentralized acquisition of cryptocurrencies by relying on a Peer to Peer (P2P) exchange, where the SELLER of a cryptocurrency embeds a specific amount X tokens in an escrow smart contract. The BUYER of a the X tokens sends Y amount of FIAT currency to the SELLER on a legacy platform (e.g. Venmo, bank transfer, etc.), and successively creates a proof that attests that the transaction on the legacy platform has successively been executed.
The proof can be obtained in multiple ways - either through proof that an email confirms the transaction (https://prove.email/), or through a notarization of a TLS session, which can verify the authenticity of TLS data while protecting privacy (https://tlsnotary.org/, i.e. in this case querying the API of the legacy platform to validate the correct execution of transactions). In the latter, the proof is in most current architectures a signature obtained from a notary that verifies the actual proof provided by the user.
Any of the above solutions realize a general One-Sided Limit-Order Book, where the order book is maintained by the on-chain escrow contract. Users that want to acquire a specific order partially / fully are demanded to be online when executing the transaction - hence they are generally unable to post an ask. This is due to the fundamental inability of the above proof techniques to execute a transaction on behalf of the user.
On the other hand, a two-sided limit-order book offers significant advantages that address these shortcomings. By allowing both buyers and sellers to post limit orders, it enhances liquidity and improves price discovery mechanisms. Buyers can post bids and sellers can post asks, enabling the matching of orders without the need for both parties to be online simultaneously. This asynchronous matching increases the efficiency of the market by facilitating smoother transactions and better aligning supply and demand by allowing market makers to make a deterministic profit from the spread.
Additionally, a two-sided order book can mitigate challenges associated with price impact and market manipulation that are more prevalent in one-sided books. The presence of both buy and sell orders creates a more balanced and competitive trading environment, reducing the likelihood of extreme price movements caused by large orders consuming the available liquidity on one side of the book. This balance helps in maintaining fairer prices and provides a more stable market structure, which is particularly important in a P2P onboarding platform where trust and reliability are crucial. Transitioning to a two-sided limit-order book in a P2P onboarding platform not only overcomes the operational limitations of one-sided books but also enhances market efficiency, liquidity, and fairness.
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The seamless way to purchase cryptocurrencies.