Building Web3 Internet of Finance
Web3 has come to make our lives better. Some years ago, it all started with just flirting with crypto payments. Today, we already have a huge alternative market of digital assets, unlocking so many killer opportunities that have disrupted and beaten traditional approaches. And this is just the beginning.
Great work is accomplished to make such disruption happen!
However, despite all the achievements, the crypto market is still far from being a trading-friendly haven and has ample room for improvement. It’s currently highly fragmented, with liquidity and services split unevenly across various offerings around the globe.
Such desynchronization makes trading risky and inconvenient, creates significant barriers for incoming retail traders, and turns off most of the institutional ones.
To overcome this, there must be an innovative solution to put all the scattered pieces into one puzzle, which at the same time is in line with the key values of the disruptive economy: free and secure peer-2-peer (P2P) interactions without any middleman involved.
Yellow Network was created to offer exactly this solution. Let’s take a look at how it will bring the crypto market to the next level.
At the moment, in the crypto industry, there are over 200 blockchains, featuring over 6,000 cryptocurrencies and tokens. Imagine all the crypto liquidity fragmented across a large number of centralized and decentralized exchanges (CEXs and DEXs), and how painful it is for both retail and institutional traders.
To have access to a wide range of liquidity, a trader would need to open accounts with multiple trading platforms and entrust each one with their private keys. That means that the more crypto exchanges a trader operates on, the more they are prone to counterparty risk, as they take it on each trading venue. The same applies to security and liquidity risks that are inherent in almost every existing digital asset platform.
Another problem is the different ways of trading execution on exchanges. CEXs and DEXs use a range of different APIs to exchange data based on systems like REST, Fix and WebSocket. This means that each time onboarding on a new crypto exchange, a trader shall invest significant time and effort to get connected with it.
At the end, it’s simply hard and inconvenient to manage multiple exchange accounts at one time. This is why, regardless of all shiny opportunities of crypto, many professional traders, especially institutional ones, still choose to stay within the traditional stock markets. The last one just seems more mature and capable to meet the main traders' needs: deep order books, low spreads and an ability to match large orders without slippage and destabilizing assets’ prices.
Yellow Network is wired to give traders the same level of comfort with crypto, and as a result, bring it into the mainstream and mass adoption.
Let’s break this down.
Yellow Network offers to interconnect multiple scattered exchanges in one automated non-custodial trading hub, providing a user with the aggregated liquidity and price feed, as well as seamless high-speed cross-chain transactions at minimal fees. Let's take a look at the technology behind this vision.
On Layer-1 of Yellow Network would be multiple blockchain protocols (ETH, BTC, Solana, etc.) that validate transactions. As a well-known fact, blockchains have a lot of limitations in transaction throughput and their execution speed. The more transactions going on at once, the slower blockchain protocols work and the higher transaction cost will be. Apparently, blockchains alone are not efficient for trading needs. They do okay supplying the liquidity, but so far failed miserably to scale to a global high-frequency trading solution.
To overcome their limitations, blockchain protocols are paired up with a Layer-2 scaling solution called “state channels”. A state channel comprises a set of open-source protocols, smart contracts, interfaces, and software that allow users to transact with one another directly outside of the blockchain (i.e., off-chain) and minimize their on-chain operations only to the specific necessary sequences.
In particular, these on-chain activities are limited to the opening up and closing of a state channel between parties, and they validate only the final state between them after multiple transactions.
As state channels do not require node validation for every transaction, they can handle the majority of user activities (trading, payments, etc.) with X-time more throughput and speed, than Layer-1 protocols. So such cutting the number of necessary on-chain iterations with the use of state channels allows to drastically reduce the costs and increase the speed of interactions.
And the Layer-3 is Yellow Network, offering a P2P cross-chain overlay mesh network, built on top of OpenDAX v4 technologies. The network’s Finex nodes and protocol allow to connect multiple exchange platforms in a broad trading environment, as well as to launch new DEXs and easily integrate them. The network will reach Layer-1 blockchains through Layer-2 state channels and procure low-cost high-speed cross-chain transactions suitable, even for high-frequency trading (HFT). It will also share the liquidity and price feed aggregated from all the exchanges integrated with the Network.
Yellow Network facilitates non-custodial trading, which means that users will be able to deposit and withdraw funds using their addresses on a specific blockchain. So trading on Yellow Network, users do not face counterparty risk, as they remain in full control over their private keys and digital assets.
The Network is fully decentralized and preserves all p2p trading properties. For a user to become a “peer” on the Network and start transacting, they just need to open a state channel with the Finex node. As mentioned earlier, the opening and closing of a state channel happen on a blockchain where participants send a transaction with the initial state to open a state channel and a transaction with the final state to close the state channel.
So all the transactions on the Yellow Network occur directly between the peers with the use of Layer- 1 and Layer- 2 combo with no intermediary involved. All peers participate in delivering messages throughout the Network, and can join and leave it at any time without disrupting it.
Yellow Network uses sharding as a method for distributing its aggregated order book across the Network nodes. The sharded orderbook has unlimited capacity for the Network’s participants' requests, and at the same time is resistant against any work interruptions, as it has no one point of failure. If any Network node goes down, it would in no way affect the global orderbook's accessibility by traders.
Wrapping it up, here are the main benefits that an end-user will get through the Yellow Network infrastructure, whether they are a retail trader or an institutional one: secure Pp2Pp cross-chain in absence of the counterparty risk, deep assets liquidity, which means no risk of slippage and market manipulations by large-size traders, high-speed transactions, enabling even HFT trading, best assets prices, low cost of transactions, and user-friendly interface, providing, at least, the same features as traditional stock markets.
The “network effect” that Yellow strives to achieve for digital assets trading will eventually make the whole crypto industry more accessible and attractive for users. The higher the number of professional traders involved, the faster the disruptive economy will develop.
Check out OpenDAX v4 stack GitHub: https://github.com/openware/opendax Follow Yellow Twitter: https://twitter.com/Yellow Join the public Yellow Network Telegram: https://t.me/yellow_org Stay tuned as Yellow unveils the developer tools behind Yellow Network, brokerage nodes stack, and community liquidity mining software!