Published Jun 29, 2021
By Brian Spector, Chief Product and Technology Officer at Qredo
In this blog post, I will map out the lay of the crypto-land; looking at how far Qredo has come, and ahead to our vision of the future and the unique protocol we have built to take us there.
The flaws of crypto-finance
Crypto-finance suffers from a number of issues that restrict liquidity and impede common financial market operations.
Transaction confirmation times are extremely slow; pre-funding of trading accounts requires 100% lock-up capital across centralized exchanges; transaction fees are prohibitively high; and centralized exchanges and custodians -- as well as DeFi protocols -- are still not immune to hacking and blatant theft.
In addition, whilst large capital market players are keen to participate in crypto, lack of institutional-grade infrastructure often slows their adoption. This includes a lack of immutable and durable audit trails, governance visibility, and compliance workflows that support cross-platform liquidity.
Layer 2 blockchains are a significant step towards addressing some of these issues. They serve as a bridge between blockchains and can provide much-needed scalability for underlying Layer 1 blockchains such as Ethereum and Bitcoin (where slow confirmation times and adversarial mempools make real-time trading and settlement challenging for traditional finance firms interested in DeFi).
Until Qredo, however, no Layer 2 solution fully addressed the wider needs of institutions.
When Qredo launched Version 1.0 of its protocol several months ago, it became the first and only Layer 2 custody protocol with compliance and governance controls baked into the design of its consensus mechanism.
Every architectural design decision was driven by the development team’s desire to deliver on the vision of a decentralized Layer 2 network that can serve as a custodial vault, be secure enough for large fiduciary financial institutions, and provide a foundation for building liquidity services.
The unique benefits of Qredo’s V1.0 protocol include:
Speed. A fast-finality blockchain that enables the transfer or atomic swap exchange of digital assets privately between trader and counterparty in under a second.
Safety. Elimination of all counterparty, settlement, delivery and payment risk.
Security. Consensus-Driven Multi-Party Computation to eliminate crypto wallet compromise.
Transparency. All deposits and holdings within the network are 1-to-1 mapped to the underlying Layer 1 blockchain and visible through the Qredo block explorer. The solvency of the network is provable at all times.
The release of Version 1.0 enabled our developers to prove that Qredo's unique combination of technologies could deliver the vision of an institutional-grade decentralized custody network. However, Version 1.0 is by no means decentralized: The decentralized applications and the Validator and CD-MPC nodes are run solely by Qredo Ltd.
That does not mean Version 1.0 of the protocol is insecure. This is evident to anyone reading the security analysis of our MPC code library or our Version 1.0 Yellow Paper which describes the cryptographic architecture and security measures we undertook to secure the network. But, there is no question that Version 1.0 lacks the degree of trustworthiness that it would no doubt inherit if all Validator and CD-MPC nodes were run by separate, independent organizations in different geographical locations.
Qredo chose to take this route of first setting up a centrally managed, yet architecturally decentralized network, because it enabled all segments of our team to get a deep understanding of what kind of burden would be placed on participants to secure the network.
Equally important, this route enabled us to present to target users and stakeholders something more than a ‘concept’ or powerpoint presentation. Our development team also learned a lot and we created and deployed resilient production code (still running) that suffered no outages -- even in times of great market volatility.
Most importantly, a working (soon-to-be decentralized) custody network enabled us to reach out and have conversations with the kinds of stakeholders that we hoped would get involved; traders, custodians, their customers, market makers, liquidity providers and other smart folks who simply wanted to run validator nodes and help secure the network.
As it turns out, during the course of these customer discovery conversations, not only did we manage to pull excellent information that helped us refine our story and make our roadmap more relevant, but we ended up selling our vision to them. Several of these industry titans joined the incredible list of strategic investors in our seed round, and yet more have joined the private token sale.
What’s next for Qredo is obvious. We’re building Version 2.0 of the protocol, and getting ready to launch a fully decentralized custody network next year with independent validators, market makers, and liquidity providers — as well as migrating our customers from the Version 1.0 protocol network.
These are exciting times for us and the blockchain community at large, and I want to personally thank everyone who has given their time, ingenuity, and creativity to this project so far. It is truly humbling to work with such an amazing group of artists, engineers, creatives, financial modelers and managers.
Here's to an even better 2021 second-half, and a fantastic Version 2.0 protocol launch next year!
Chief Product and Technical Officer