Today, we have published jointly with our tech partner, Enuma Technologies, a paper setting out the technical specification of the L2X protocol which we’ve developed for use in digital asset trading platforms. This is an important milestone for us as for the first time we’re able to show you, our community, in detail how the protocol works, allowing you to study it and even — should you wish — implement it.
The Layer 2 protocol centres around the interaction of four kinds of entity: the clients, the exchange, the operator, and the mediator smart contract. As described in the paper, the protocol’s high level goals are to be:
- Trustless: users do not need to trust the exchange to maintain balances or execute trading instructions correctly. Users can rectify protocol violations by lodging disputes on the blockchain.
- Non-Custodial: users are the sole custodians of their accounts. The role of an exchange is to facilitate trading among users against authorized instructions.
- Non-Collateralized: the exchange operator does not need to lock expensive collateral to guarantee operational integrity.
- Performant: performance characteristics of the exchange are in line with existing centralized exchanges.
- Scalable: nodes can be added to increase system capacity and throughput.
As such, the protocol is designed to enable a set of clients to perform fast, trustless, non-custodial, off-chain exchange of digital assets. This is what’s so exciting about it, and why we’re proud to be presenting it to you, as it brings to public attention the details behind what we believe is the next evolution in bringing decentralized trading to the mainstream.
For those of you who want to take a closer look, you can download a copy of the paper here.