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02-settlement.md

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Settlement

RenEx supports two Settlement Layers that are compatible with the Republic Protocol Settlement ABI: one for exchanging ETH and ERC20s, and another for exchanging ETH and BTC. The two Settlement Layers are not compatible with each other.

ETH and ERC20s

Settlement Identifier: 1

Settlement for ETH and ERC20s is immediate and non-interactive. As part of the standard process for Republic Protocol Settlement Layers; Darknodes call submitOrder for two matching orders and then call settle using the IDs of those two matching orders. The Settlement contract will:

  1. verify that the orders are confirmed matches in the Republic Protocol Orderbook,
  2. verify that the orders are matching,
  3. and execute the settlement at the midpoint price and the maximum volume.

Settlement between ETH and ERC20s

Before opening an order, RenEx uses a combination of KYC/AML and zero-knowledge proofs to ensure that the traders have a sufficiently funded balance to settle the order. Fees in this Settlement Layer are deducted from the received amount, and so are accounted for as part of this check.

Paying Fees

The fee paid by each trader is 0.2% of the volume used during settlement. The fee is deducted from the amount received by the trader. Of this 0.2% fee:

  • 40% is paid to the Darknode that calls submitOrder for the buy order,
  • 40% is paid to the Darknode that calls submitOrder for the sell order, and
  • 20% is paid to RenEx — to be used for the Liquidity Incentive Program.

Example

  • Let's say that Alice wants to buy REN, in exchange for ETH, at a price of 1ETH for 1REN, and Alice is willing to buy up to 10REN.
  • Let's also say that Bob wants to sell REN, in exchange for ETH, at a price of 1ETH for 3REN, and Bob is willing to sell up to 4REN.
  • Both Alice and Bob open their orders using a Settlement Identifier of 1.
  • Using the Secure Order Matcher, the Darknodes find that these two orders match.
  • Darknodes call submitOrder for both orders, and then call settle.
  • The call to settle immediately executes the settlement between Alice and Bob. The price point is 2REN for 1ETH (the midpoint between the two orders). Alice receives 3.992REN in exchange for 2ETH, and Bob receives 1.996ETH in exchange for 4REN (the maximum volumes after accounting for the fees). The balances of Alice and Bob are updated to reflect the settlement, and the difference between the paid amount and the received amount (0.008REN and 0.004ETH) is used to pay the fee.

ETH and BTC

Settlement Identifier: 2

Settlement between ETH and BTC

Before opening an order, RenEx uses a combination of KYC/AML and zero-knowledge proofs to ensure that the traders have a sufficiently funded balance: 0.6% of their order, in ETH. See "Paying Fees" for more information.

Paying Fees

The fee paid by each trader is 0.2% of the volume used during settlement. The fee is not deducted from the amount received by the trader, the trader pays the fee in addition to the trade. Of this 0.2% fee:

  • 40% is paid to the Darknode that calls submitOrder for the buy order,
  • 40% is paid to the Darknode that calls submitOrder for the sell order, and
  • 20% is paid to RenEx — to be used for the Liquidity Incentive Program.

The nature of an atomic swap is highly interactive. Therefore, it is possible that a malicious trader might abort the atomic swap. This leaves the honest trader having paid a fee of 0.2% for a trade that never happened. To protect honest traders from this behavior, traders must have at least 0.6% of their order (in ETH) in their balance:

  • 0.2% is used to pay fees,
  • 0.2% is taken from a malicious trader that has aborted the swap, and is used to repay the opposing trader, and
  • 0.2% is taken from a malicious trader that has aborted the swap as a further punishment.

Example

  • Let's say that Alice wants to buy BTC, in exchange for ETH, at a price of 10ETH for 1BTC, and Alice is willing to buy up to 10BTC.
  • Let's also say that Bob wants to sell BTC, in exchange for ETH, at a price of 10ETH for 3BTC, and Bob is willing to sell up to 4BTC.
  • Both Alice and Bob open their orders using a Settlement Identifier of 2.
  • Using the Secure Order Matcher, the Darknodes find that these two orders match.
  • Darknodes call submitOrder for both orders, and then call settle.
  • The call to settle immediately pays fees from the balances of Alice and Bob, however settlement is deferred to an atomic swap. The balances of Alice and Bob are used to pay the 0.04ETH fee. The price point of the atomic swap is set to 2BTC for 10ETH (the midpoint between the two orders). Alice will receive 4BTC in exchange for 20ETH, and Bob receives 20ETH in exchange for 4BTC.

Failure to Settle

Due to the interactive nature of an Atomic Swaps, it is possible that a trader will refuse to participate honestly — resulting in matched orders not being settled.

In these situations, RenEx issues a fine to the dishonest trader as a penality and to discourage dishonest behaviour. Furthermore, the RenEx Broker will blacklist the trader and refuse to approve order openings and withdrawals. This limits the exposure failed settlements.

To enforce that such a fine can be issued, RenEx will refuse to approve the opening of orders unless the trader has a sufficient bond stored in their RenEx Balances.

Future Improvements to Settlement

  1. RenEx is currently being upgraded to utilise zkSNARKs to further reduce the possibility of these actions. A series of chained zkSNARKs will be used to prove, in zero-knowledge, that (a) an order has a reasonable chance of being opened, and (b) the sum of all orders does not exceed the amount held by the trader.
  2. RenEx is currently being upgraded to utilise a BTC multsig contract that will be used by traders to store funds for Atomic Swaps. A signature from the trader and RenEx is required to spend these funds, however, after 72 hours the funds can be returned to the trader. This means that a trader that refuses to participate in an Atomic Swap will not only be fined and blacklisted, but will also have their funds suspended for 72 hours. If there is less than 48 hours remaining in the timeout, RenEx will not consider these funds when verifying the zkSNARK proofs discussed above.