The Technology

We worked hard to draw where the blockchain should be used, and where it’s better off to keep things off-chain. The result was an off-chain/on-chain protocol, motivated by Lightning and 0x Project.

— Off-chain —

The protocol simulates Ethereum’s ECDSA off-chain to facilitate contract agreement between makers and takers — or buyers and sellers — with blockchain-grade security. The protocol does not match buyers and sellers itself nor does it keep track of contracts.

When a buyer and a seller come to agreement on contract terms, they sign the contract with their respective private keys completely offline without the need for any type of connection but to wallet. The contract can be a long or a short on anything, like a stock, commodity or anything with a price. At this moment we have an off-chain contract signed with two private keys. It is worth saying that contract agreement is network-agnostic and may occur via email, twitter, text, pen and paper, an exchange, etc.

— On-chain —

The multi-sig contract is sent to HedgeBase Proxy smart contract. The Proxy is the brain of the protocol. It will issue a new smart derivative (smart contract), pulls funds from maker/taker wallets (using ERC20 allowance) and deposits them into the now collateralized smart derivative. The end user never has to give possession of their tokens until the contract is actually published. The user does not actively transfer funds.

The protocol uses the American derivative model (as opposed to European or Asian). This means the contract remains open for execution at any time prior to its expiration date. Prices are retrieved from the blockchain where we introduce a role for price providers to publish their prices and collect fees from transactions needing them. The market decides which price providers to use based on trust and track record accuracy.