Table of Links Abstract and 1. Introduction Abstract and 1. Introduction Background
2.1 Layer-2 Blockchains
2.2 Project Mariana


Related Work and Contribution


System Architecture


Model
5.1 Automated Market Makers
5.2 Price Impact


Simulation
6.1 Data and Parameters
6.2 Results


Discussion


Conclusions, Acknowledgements, and References Background
2.1 Layer-2 Blockchains
2.2 Project Mariana Background 2.1 Layer-2 Blockchains 2.1 Layer-2 Blockchains 2.2 Project Mariana 2.2 Project Mariana Related Work and Contribution Related Work and Contribution Related Work and Contribution System Architecture System Architecture System Architecture Model
5.1 Automated Market Makers
5.2 Price Impact Model Model 5.1 Automated Market Makers 5.1 Automated Market Makers 5.2 Price Impact 5.2 Price Impact Simulation
6.1 Data and Parameters
6.2 Results Simulation 6.1 Data and Parameters 6.1 Data and Parameters 6.2 Results 6.2 Results Discussion Discussion Discussion Conclusions, Acknowledgements, and References Conclusions, Acknowledgements, and References Conclusions, Acknowledgements, and References Graphs and Tables Graphs and Tables 4 System Architecture This paper proposes a novel approach for facilitating cross-border CBDCs exchange through a rollup (a form of L2 blockchain) on the public Layer-1 network, further enhanced with a Layer-3 (L3), as illustrated in Fig. 3. Blockchain and VM Type. The system operates as a L2 blockchain on the public L1 network, benefiting from the inherent security and infrastructure of the L1, including consensus mechanisms and miners/validators. Bitcoin, Ethereum or other L1 networks can be the underlying L1. The system also incorporates Virtual Machines (VMs) to execute smart contracts, with the Ethereum Virtual Blockchain and VM Type. Machine (EVM) being our chosen VM due to its compatibility with most DeFi protocols. L2 and L3s Responsibilities. L2 is the data integration layer and its operations are managed by central institutions like BIS, focusing on interoperability with other CBDC blockchains and facilitating communication between L2 and L3s. The system supports multiple independent L3 blockchains, each with the authority to determine the deployment of decentralized exchanges (DEX) and Automated Market Makers (AMM). Furthermore, the deployment of other DeFi protocols is feasible within this framework. AMM and exchange logic of L3s is moved to the external entities that compete with each other. L2 and L3s Responsibilities. Transaction Privacy and Compliance. The L2 and L3 blockchains are private (permissioned networks). All participants must undergo KYC [24] procedures before entering the system. This ensures the system can maintain full transaction privacy, e.g. by leveraging zero-knowledge proofs technology [15], while adhering to regulatory requirements. Transaction Privacy and Compliance. Proof-of-storage. We propose utilizing proof of storage protocols to enhance the security, instead of bridges. Unlike bridges that often involve trust assumptions and centralization, the system employs a proof-of-storage approach. CBDC tokens are directly minted on L2, and proof-of-storage protocols rely on corresponding token reserves within country-specific CBDC blockchains. Proof-of-storage Rule-based router to L3s. At the core of the system is a Rule-based router hosted on L2. This router employs rules to select the optimal AMM-DEX and L3 for traders at any given moment. Trading fees are dependent on gas costs and trade expenses, and the router optimizes these parameters for each trade. Rule-based router to L3s. Integration with DeFi on Ethereum. To ensure compatibility with regulations, the system integrates with DeFi through the privacy pools on the Ethereum blockchain, proposed by Buterin et al.[11]. Only profiles and users validated through these pools are permitted to trade CBDCs, with no additional restrictions or limitations imposed. Integration with DeFi on Ethereum. Comparison to Mariana Project. A key distinction is its flexibility regarding AMMs, allowing external operators to make decisions about the types of AMMs or central limit order books they wish to operate on L3. Operators of L3s retain control over actions and DeFi protocols within their respective layers. Another advantage of the L2-based system with L3 enhancements is cost optimization and resistance to network congestion. The L2 router automatically directs traders to the L3 AMM-DEX with the lowest trade and gas fees. Comparison to Mariana Project. Authors:
(1) Krzysztof Gogol, University of Zurich (gogol@ifi.uzh.ch);
(2) Johnnatan Messias, Matter Labs;
(3) Malte Schlosser, University of Zurich;
(4) Benjamin Kraner, University of Zurich;
(5) Claudio Tessone, University of Zurich. Authors: Authors: (1) Krzysztof Gogol, University of Zurich (gogol@ifi.uzh.ch); (2) Johnnatan Messias, Matter Labs; (3) Malte Schlosser, University of Zurich; (4) Benjamin Kraner, University of Zurich; (5) Claudio Tessone, University of Zurich. This paper is available on arxiv under CC BY 4.0 DEED license. This paper is available on arxiv under CC BY 4.0 DEED license. available on arxiv available on arxiv

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Inside the System That Optimizes Cross-Border Digital Currency Trading

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