If the terms decentralised dark pool or trustless cross-chain atomic trading have left you scratching your head, don’t worry I’ll go over these terminologies in more depth in this article. Having a basic understanding of such terms is crucial in gaining a grasp of the Republic Protocol. Hopefully, by the end of reading this, you would have improved your crypto lingo (excuse the pun) and gained a solid understanding of Republic Protocol.
What is a Dark Pool?
Let’s start with a dark pool. What is a dark pool? In the simplest of terms, a dark pool is a private exchange or forum for trading securities (a tradable financial asset). So why would you need one? Well in the financial trading world, institutional investors making large trades of securities may not want to make this public knowledge or give any sort of inclination that they are about to make the trade. This is mainly due to the fact that such a trade would have a major impact on the market. For example, if an institution was about to unload a significant amount of shares in a security this could potentially devalue that security. Making this information known after the trade is likely to have less of an impact on the market. If you’re a crypto trader, you’ll slowly start to realise the importance of a dark pool.
Trustless cross-chain atomic trading?
It actually sounds more complicated than it actually is. All it is is the exchange of one cryptocurrency to another cryptocurrency without the need of trusting a third party like an exchange. You might be thinking, but how is this secure? Let me give you an example. If I had 10 ETH and I wanted to buy 73 NEO from a random individual and that same individual, in turn, wanted 10 ETH. We could trade directly with each other. We wouldn’t necessarily need to trust each other as there would be a mechanism in place known as hash time-locked contracts (HTLCs). This mechanism requires the recipient to generate a cryptographic proof of payment, to acknowledge that payment has been received. If this cryptographic proof of payment is not generated then this would result in the returning of funds back to the sender. This is fairly new technology but its potential is phenomenal.
What is Republic Protocol?
Now that you have a basic understanding of the more technical concepts, let’s dive straight into what Republic Protocol is all about. So based on what you’ve read so far, Republic Protocol can be summarised as a private exchange/protocol for the trading one cryptocurrency to another, these include Ether, ERC20 tokens and Bitcoin pairs (Bitcoin to another type of cryptocurrency).
What are REN tokens and how can they incentivise participants of the network?
The REN token serves as a way of incentivising participants of the network. How does it do this? Traders of the network use the REN token as a fee from which matching nodes are rewarded. The process of matching is the mining itself, which is responsible for the computational equation solving. Nodes are rewarded based on their computational efforts, meaning that the higher the issued by the trader can result in their order being prioritised. As an extra added layer of security, the REN tokens also act as a bond between traders and matching order nodes, providing identities to help rate limit orders and penalize suspicious or malicious matching nodes.
Why the need?
Considering how volatile the cryptocurrency market is, such a protocol could be very beneficial to the crypto world. I would even go far as saying that such a protocol could even help stabilise the markets. Due to the rapid pace in which the cryptocurrency market is growing, institutional investors have been largely attracted. Republic Protocol would be an alternative trading system for them where they could freely trade large volumes of crypto assets without causing any major impact to the cryptocurrency market. If this is the case then Republic Protocol has a vital role to play inside the crypto sphere.
Without going into too much technical detail about the processes, all trades on Republic Protocol are placed inside a hidden order book which is then matched through a custom built engine. What I like most about this protocol is the privacy aspect, the trustless mechanism and the removal of third-party entities to make a trade. Miners within the protocol earn REN tokens by running equation solving nodes that match orders without revealing information about the underlying trade. Republic Protocol is definitely a protocol we will be keeping a close eye on.