Fair Digital Asset Trading Protocol Using Dynamic Compensation Fees
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Solution Overview
Problem
Existing atomic swap protocols in cryptocurrencies lack fairness, as the buyer can advantageously abort or proceed with the swap before the time limit, unfairly impacting the seller.
Innovation Solution
A fair-trading protocol that calculates a compensation fee based on the fluctuating prices of digital currencies during the exchange, encouraging early completion and discouraging cancellation by setting time-dependent limits for both parties in the exchange process, implemented through a smart contract and atomic swap script.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Loss of time
If a time limit is set for the swap transaction, then the transaction can be completed within a specific timeframe, but the buyer gains an unfair advantage to abort or proceed with the swap before the time limit, impacting the seller unfairly
Solution Approach 1:
The patent applies parameter changes by making the compensation fee dynamic and time-dependent. The fee structure changes based on when the transaction is completed or aborted, with higher penalties for later abortions. This transforms the static time limit into a dynamic economic parameter that adjusts fairness throughout the transaction period.
Solution Approach 2:
The patent implements feedback mechanisms where the system continuously monitors transaction timing and automatically adjusts compensation fees based on the current time and price fluctuations. This feedback loop ensures that the economic incentives remain aligned with fairness requirements throughout the transaction lifecycle.
2Object-affected harmful factors
If a compensation fee is calculated based on fluctuating prices, then fairness is improved by discouraging cancellation, but the complexity of the protocol increases due to time-dependent price calculations
Solution Approach 1:
The patent introduces smart contracts as intermediary entities that automatically handle the complex price tracking and compensation fee calculations. The smart contract acts as a mediator between the buyer and seller, embedding the fairness logic directly in the contract code executed on the blockchain, thereby managing complexity without increasing protocol overhead.
Solution Approach 2:
The system implements self-service by enabling automatic compensation fee calculations and adjustments through smart contracts that monitor price fluctuations and enforce fairness rules without requiring external intervention. The protocol autonomously manages the complex pricing and penalty calculations.
Data Source
AI summary
A method for a protocol in digital asset trading includes step as follow. Trading information is exchanged between the first and the second nodes, in which a first digital currency belonging to the first node and a second digital currency belonging to the second node are expected to be exchanged, and prices of the first and second digital currencies are time-dependent. An atomic swap script and a smart contract are generated. A compensation fee to be paid to the second node by the first node is computed. A redeeming or refunding event is performed in response to the atomic swap script and the smart contract with paying the compensation fee to the second node, in which the compensation fee is dependent on the prices of the first and second digital currencies such that is time-dependent.