Published Aug 25, 2021
By Anthony Foy, CEO Qredo
While traders are watching price action on exchanges, the bulk of digital asset trading is actually taking place elsewhere: over-the-counter.
This often ignored side of bitcoin trading, which involves two parties privately agreeing to exchange assets between one another, is already estimated to represent about two-to-three times the value traded on exchanges — a proportion that is growing as more institutions move into the market.
But, in its present state, this form of trading runs against the peer-to-peer spirit of Satoshi.
Over-the-counter deals typically rely on an intermediary. This trusted party acts as an escrow service, charging a fee for receiving assets from both parties, and sending them on to each user. Yet there is no guarantee that the assets will be delivered, or that the expected amount will be received. Nor can timeframes be guaranteed as transactions can be held up by rogue traders and changed plans.
Qredo's Liquidity Hub uses atomic cross chain swaps to take the middleman out of the picture; creating a trustless trading venue where peer-to-peer transactions can be made without the fees and friction of intermediaries.
The Liquidity Hub is a public forum for peer-to-peer trading via atomic swaps
Individual and institutional traders can securely share quotes and trade in a decentralized way
Qredo's cross chain atomic swaps are underpinned by a unique implementation of multi-party computation (MPC), coupled with an interoperable blockchain architecture that currently supports BTC, ETH, and over 20 ERC-20 tokens.
Traders benefit from inbuilt institutional-grade governance, instant settlement, low fees and zero slippage.
How to use the Liquidity Hub
On the Liquidity Hub, traders (makers) can anonymously pin quotes in public view, and other traders (takers) can respond by fulfilling the order.
To get started, create an order quote for your trade. This can be adjusted to specify time limits for expiration, and can be updated and removed as needed.
Then share your unique quote privately as a URL to trade directly with known counterparties, or share it publicly on the Liquidity Hub. Once taken, trades are executed immediately.
Alice creates a quote requesting 1 BTC for 15 ETH.
Bob sees the quote on the Liquidity Hub, and responds by indicating that he would like to take the other side of the trade, and linking the assets in his Qredo Wallet.
Once the trade is matched and governance conditions are met, the funds are simultaneously released to Alice and Bob via an atomic swap. All taken quotes are guaranteed to be executed.
Atomicity: a feature of databases dictating that a transaction must be all-or-nothing. It cannot be partially complete.
Under the hood
Beneath the shiny exterior, the Liquidity Hub relies upon a unique atomic swap mechanism:
Funds deposited on Qredo Network stay parked on the underlying chain where they are secured by an implementation of multi-party computation (MPC). The private keys controlling the assets are replaced with the right to run the MPC protocol that can sign transactions or generate deposit addresses.
When an atomic swap is made on Qredo Network, this ownership right is exchanged. On the underlying blockchains, nothing has moved.
Because the ownership right transfer takes place on the Qredo Network, there are no delays waiting for transactions to be confirmed on the underlying chain, and no miner or gas fees to pay.
Everyone’s a winner
The Liquidity Hub’s unique implementation of atomic swaps unlocks multiple benefits for both individual and institutional traders:
Full interoperability (coming soon)
Qredo will enable trading of 95% of blockchain-based assets without adding multiple layers of counterparty risk through wrapping or pegs. At present, Liquidity Hub beta supports BTC, ETH, and over 20 ERC-20 tokens.
Instant risk-free settlement
Unless the ownership of assets is cryptographically verified through the Proof of Coin protocol, then the transaction cannot take place. This eliminates counterparty, third party, and settlement risk. When asset ownership is verified and governance procedures are complete, the ownership rights are simultaneously transferred to the new crypto wallets in an all-or-nothing transaction.
Qredo enables peer-to-peer trading with built-in governance and reporting, making it easy to meet compliance obligations and customize custodial governance and approval workflows.
No exchange risk
In 2020 alone, around $300 million worth of digital assets was stolen from exchanges. Atomic swapping via Liquidity Hub allows traders to eliminate this risk by maintaining control of assets at all times. All funds are exchanged directly from crypto wallet to crypto wallet.
Economical trading fees
0.5 BPS (0.005%) transaction fees on Qredo are much lower than on both centralized exchanges (which often charge 0.2% to both parties), and decentralized exchanges that typically charge 0.3%, excluding gas or mining costs.
Slippage is impossible, even when swapping large amounts of cryptoassets in a single trade.
Experience the future of cross-chain liquidity...
In the full and final version, traders will be able to plug third-party exchanges and crypto wallets into the Liquidity Hub through the Qredo API and trade privately as on a dark pool.