►
From YouTube: Dutch Exchange: a decentralized exchange well suited for blockchain purposes - Dominik Teiml
Description
Recording by Livepeer.tv
A
Okay,
so
what
I'm
gonna
do
right
now
is
I'm
gonna
talk
about
the
exchange
for
ER
C
20
tokens,
which
are
tokens
on
a
theorem
that
we
developed
at
gnosis.
So
we
call
it
the
gnosis
Dutch
exchange
and
it's
a
decentralized
exchange
for
aetherium
tokens
using
the
Dutch
auction
mechanism
to
determine
a
fair
value
of
tokens
and
I'll
explain
what
that
means
in
a
second.
So,
first
of
all,
a
small
disclaimer
I
did
not
make
this
presentation
I
kind
of
read
through
it
and
I'm
pretty
sure
that
I
understand
everything.
A
So
I
do
understand
everything
on
the
technical
side
and
and
the
finance
stuff
it
shouldn't
be
very
difficult.
So,
let's
start
with
a
introduction
of
the
of
a
traditional
exchange
that
uses
an
order
book
and
a
continuous
auction
or
continuous
exchange.
So
you
can
either
do
limit
orders
whereby
they
get
placed
on
an
order
book.
A
So
a
market
order
is,
as
a
result,
immediately
executed,
and
you
have
so
that's
why
it's
called
a
continuous
exchange
is
there
is
a
serial
processing
of
orders,
one
by
one
and
also
like
on
a
different
note.
I
think
could
be
also
termed
a
continuous
exchange
because
order
can
be
fulfilled
as
soon
as
it
comes
through
right,
so
yep
and
orders
matched
using
pay
as
bid
actually
yeah.
So
that's
that's
that
so
the
okay.
So
the
problem
we
see
with
that
is
as
many
fold
there
is
yeah.
A
So
the
biggest
problem
of
all
is
the
possibility
to
front
run,
and
that
means
so
okay.
So
if,
for
example,
if
you
have
a
centralized
exchange,
then
if
you
submit
an
order,
then
the
exchange
knows
about
this
order
before
it
broadcasts
it
right.
So
it
can
actually
act
on
that
order.
Act
on
the
information
before
it
broadcasts
it.
So
it
gives
it
an
unfair
advantage
and
in
the
case
of
decentralized
exchanges
like
other
ones,
then
the
NAR
is
a
lot
of
them
use
a
centralized
order
book.
A
So
that
still
means
that
the
exchange
like
even
theoretically
has
the
possibility
to
act
on
the
order
before
it
fulfills
it
right.
So
that's
a
problem
with
with
our
exchange.
It's
fully
decentralized.
So
it's
fully
on
chain.
So
we
don't.
Nobody
has
any
more
information
than
then
other
people,
yeah
anyways.
So.
A
A
Yeah.
That's
basically
that
so
like
I
guess
it
can
be
summarized
by
the
by
the
paragraph
that
or
by
the
statement
that
applying
a
continuous
mechanism
to
the
blockchain
doesn't
make
a
lot
of
sense,
because
in
the
blockchain
there's
a
discrete
time,
obviously
and
yeah.
That
creates
all
of
these
problems.
A
A
So,
instead,
what
we
decided
to
go
for
is
something
more
appropriate
for
the
blockchain,
which
is
a
batch
option
system
and
in
particular
we
we
basically
collect
all
the
orders
at
once
and
then
we
auction
them
off
all
at
once
right.
So
we
we
batch
many
orders
together
and
we
and
we
sell
them
all
at
once.
Does
that
make
sense
cool,
so
in
particular,
we
use
a
mechanism
of
the
Dutch
auction,
which
is
like
kind
of
the
opposite
of
an
English
auction.
A
So
in
an
English
auction,
that's
the
thriller
auction
people
bid
and
every
bid
has
to
have
a
higher
price
than
the
previous
one
right
for
the
for
it
to
make
any
sense.
So
in
a
Dutch
auction,
it's
the
exact
opposite.
The
price
is
like
falling
and
the
first
person
to
like
take
that
price
wins
the
other
thing.
So
that's
like
if
you're
auctioning
off
one
item
for
our
purposes
we
have
to
like
auction
off.
A
You
know
tokens,
so
it's
it's
many,
many
many
and
and
hence
we
adapted
it
for
it
to
be
usable
for
many,
not
just
one
one
thing
at
a
time
and
in
particular
the
way
that
works
is
I,
think
there's
a
graph,
even
that
explains
it
the
best
yeah.
So
on
the
x-axis
you
can,
you
can
view
time
and
on
the
y-axis.
You
can
view
the
value
right,
so
we
start
off
with
a
constant
like
cell
volume,
so
a
constant
amount
of
tokens
to
be
sold
and.
A
Yep,
so
as
a
result,
okay,
so
we
have,
we
have.
We
have
two
two
expressions
right.
We
have
the
the
cell
volume.
We
have
the
price
and
what's
what's
crucial
in
in
this,
is
that
the
price
is
decreasing
and
if
you
have
a
constant
cell
volume
and
you
have
a
decrease
in
price,
then
the
value
would
be
decreasing
as
well
right.
So
that's
what
we
can
see
in
the
graph.
Can
you
guys
see
it?
It's
it's
the
the
line
in
red.
Is
it?
Is
it
visible,
somewhat?
A
Right
right:
okay,
okay,
okay,
so
the
price
is,
is
like
the
the
the
cell
volume
in
terms
of
the
by
volume.
So
it's
kind
of
like
a
conversion
price
between
the
two
tokens
right.
So
as
it's
decreasing,
the
value
of
the
cell
volume
is
decreasing,
and
then
you
have
the
the
blue
thingy,
which
is
the
by
volume
and
that's
increasing,
and
at
some
point
it
will.
A
In
fact,
even
if
there
isn't
any
by
order,
they
will
intersect,
because
the
way
our
price
function
works
is
that
actually
reaches
zero
after
24
hours.
Does
that
make
sense?
So
basically
they
will
intersect
at
some
point
always
and
that's
when
we
close
the
auction,
what
happens
then
the
bidders
or
in
other
words
the
buyers
they
can
claim
the
tokens
that
are
being
auctioned
off
and
the
sellers
they
can
claim
the
tokens
that
the
buyers
sent
as
well.
So
yeah
this
that
makes
sense,
I,
think
that
makes
sense.
A
So,
let's
see
right
so
what's
what's
actually
very
crucial
here
is
that
the
the
price
is
the
same
for
all
the
bidders
right,
so
it
actually
doesn't
matter.
If
you
participated,
let
me
show
you
the
graph
again
like
at
the
very
beginning
or
at
the
very
end
say
the
by
volume
is
always
increasing
and
when
they
intersect
all
the
bidders
get
that
price.
Okay.
So
so
everybody
gets
the
same
price
at
the
end.
A
A
Right
right,
so
actually
this
is
a
very
good.
This
is
a
very
good
illustration
for
for
understanding
how
it
works.
So
you
have
you
have
a
two
by
two
diagram
and
you
have
so
prior
to
the
auction,
the
sellers,
they
deposit,
the
tokens
and
then
the
auction
starts
and
then
the
bidders
bid
for
them
right.
So
that's
that's
a
very
good
summary
of
kind
of
the
mechanism
that
I
explained
great.
B
A
Okay,
I'm
gonna
say
it
so
also
notice
that
there's
two
possibilities:
the
the
buyer
side
can
either
intersect
the
seller
side
like
by
with
a
buy
order
if
it
goes
up
or
it
can
intersect
it
by
the
seller
side
going
like
for
a
long
time
and
intercepting
it
from
the
top
down
right.
So
basically,
there's
like
two
possibilities:
either
a
buy
order
can
clear
the
auction
or
it
can
be
cleared
what
we
say
like
with
time
so
yeah.
That's
that
okay,
so.
A
So
that's
kinda
how
the
mechanism
works
and
there's
okay,
there's
there's
a
condition
which
is
that
the
next
auction
pair
received
a
combined
value
of
at
least
$1,000
worth
of
cell
volume,
so
that
could
have
our
sir
it's
not
combined.
It's
like
an
or
so
either
auction
must
have
received
at
least
$1,000
worth
of
so
I
and
I
guess:
I
haven't
explained
the
the
price
function
so
kind
of
hinted
to
it.
A
So
the
way
the
price
function
works
is
we
always
start
at
two
times
the
closing
price
of
the
last
auctions
and
and
it
decreases,
and
after
six
hours
it
reaches
the
past
closing
price,
the
previous
closing
price
right
and
then
after
24
hours
it
reaches
zero.
So
I
don't
know,
maybe
it's
better
if
I
just
really
simply.
A
Right
so
yeah
I
mean
this:
is
this
diagram
just
summarizes
what
I
explained,
except
for
for
multiple
options
for
for
multiple
things
after
one
another
in
sequence,
cool
so
now,
I'm
gonna
get
into
like
the
more
interesting
stuff.
Apart
from
like
the
basic
mechanism,
so
you
don't
need
any
tokens,
obviously
to
participate
in
the
exchange
and
in
particularly
gnosis
tokens
are
not
required,
and
so
in
most
we
have
this
thing
where,
like
you
stake
those
tokens
and
they
generate
these
things
called
owl
tokens
and
then
those
are
used
to
pay
fees.
A
So
the
owl
tokens
you
do
not
need
them
to
participate
in
the
exchange.
But
if
you
have
them,
then
like
it's
worth
it
to
use
them
basically,
so
then
we
have
a
token
which
is
intrinsic
to
the
Dutch
exchange
and
that's
we
call
a
a
a
magnolia
token
and
it
is
used
to
decrease
your
fees.
So
there
are
fees
in
the
exchange
and
they,
let
me
just
I
remember
there
was
a
slide
yep,
so
there
is
0.5%
for
both
the
seller
side
and
the
buyer
side,
but
they
do
not
go
to
us.
A
However,
you
can
also
decide
to
spend
up
to
half
of
your
fee
in,
like
the
equivalent
amount
of
like
our
tokens.
Does
that
make
sense?
I
think
so?
So
that's
yeah,
that's
that's!
That's
pretty
much
it
and
how
do
you
actually
get
the
Magnolia
tokens
for
every
ether
worth
of
tokens
that
you
traded
on
the
exchange?
You're
gonna
get
one
magnolias
token.
A
So
it's
like
a
constantly
inflating
supply
of
of
tokens
based
on
how
much
value
was
traded
on
the
exchange,
and
there
is
a
specific
function
that
determines
the
transaction
fee
that
you
have
to
pay
so
when
I
say
pay.
If
you
also
participate
in
the
next
auction,
you
will
very
likely
get
some
of
it
back
because
it
does
it
since
it
goes
back
into
the
ecosystem
in
particular,
it
always
goes
to
the
next
auction,
so
that's
kind
of
a
way
to
incentivize
people
to
participate
in
succeeding
auctions
and
yep.
A
A
A
So
there's
there's
others
since
it's
everything
is
Unchained,
there's
no
front
running
by
any
party
apart
from
like
I
mean
this
is
with
respect
to
the
underlying
technology
that
we're
using,
which
is
aetherium.
So
if
the
rim
itself
might
have
front
running
issues
and
we
can't
deal,
we
can't
do
anything
about
that,
but
it
doesn't
introduce
any
new
ones,
because
there's
no
centralization
involved
at
all
right.
A
A
A
So
I
mean
this
is
kind
of
like
financial
stuff,
but
it's
yeah
and
a
huge
advantage.
We
think
who
worked
very
hard
on
this
is
to
make
it
very
like
gas
efficient,
so
to
make
it
to
me
out
to
make
it
very,
very
efficient
and
yeah
it's.
It
actually
turns
out
that
it's
that
that
we
did
a
good
job
that
is
very,
very
efficient.
So
one
one
like
point
to
note
is
that,
for
example,
ether
Delta.
A
So
if
you
or
other
order
book
changes,
if
you
post
an
order,
then
it's
very
likely
that
multiple
people
who
try
to
fulfill
it
at
the
same
time
with,
but
only
one
of
them
or
there's
a
chance
that
only
one
of
them
will
be
able
to
fulfill
it
obviously
can
be
partially
fulfilled.
But
there
is
a
chance
that
some
of
the
orders
or
some
of
the
transactions
will
not
be
able
to
fulfill
the
order
they
wanted
to,
in
which
case
there's
a
lot
of
gas
wastage.
A
A
You
have
to
sign
the
order
and
then
it
goes
into
like
a
centralized
order,
book
and
smart
contracts.
They
can't
sign
stuff
because
they
don't
have
a
private
key.
So
in
this,
in
this
model,
even
smart
contracts
can
participate
because
they
just
have
to
call
a
function
of
our
exchange.
So
so
we
think
that's
that's
really
powerful
and
it
kind
of
like
changes,
the
concept
of
an
exchange.
It
doesn't
have
to
be
just
an
exchange.
It
can
be
a
platform
where,
like
you
know,
some
contract
might
want
to
sell
or
exchange
tokens.
A
A
You
will
change
the
market
price
of
the
token
and
if
you
sequence
your
transactions
in
the
right
way,
then
you
can
take
advantage
of
that
for
your
gain,
which
means
that
the
price
Oracle
isn't
isn't
reliable.
Well,
in
this
case,
you
know
yeah,
you
can
do
thinking
yourself.
There's
there's
a
way
to
do
that
and
yeah.
So
we
have
a
bit
of
front
end
as
well.
A
It's
it's
looks
quite
quite
slick,
so
you
choose
yep
I,
think
it's
it's
pretty
straightforward
self-explanatory
and
you
can
use
meta
mask
or
gnosis
safe
in
the
future,
and
you
submit
your
order
and
you
can
see
the
status
yep
and,
let's
see
so
yeah
I
mean
there's
a
lot
of
potential
audiences
for
this
right
now
we're
we're
we're
actively
looking
for
market
makers,
which
are
you
know,
professional
traders.
So
if
anybody
is
into
that
business
then-
and
you
feel
like
you
want
to
trade
on
this
exchange-
please
get
in
touch.
A
So
yeah
and
last
thing
I'm
gonna
kind
of
kind
of
an
offer,
so
we
develop
this
exchange.
We're
also
doing
many
other
projects
and
notice,
one
of
the
other
ones
we're
doing
is
gnosis
X,
which
is
a
competition
for
you
to
think
and
develop
of
prediction,
market
use
cases
and
yeah.
So
there's
currently
three
categories
and
they
all
have
a
deadline
in
like
August
and
September.
A
So
that's
kind
of
an
offer
that
I
wanted
to
make
and
with
that
so
yeah,
no
sex,
id8,
that's
kind
of
the
logo
and
oh
okay.
So
the
three
categories
are
science
and
R&D:
touken
diligence
and
blockchain
project
integration,
and
we
have
a.
We
have
an
SDK
de
that
will
allow
you
to
do
that
in
a
better
way.
A
A
Post
a
sell
order,
well,
okay,
so
the
question
is:
how
do
you
get
liquidity
into
the
market
and
the
answer
is
very
simple:
you
post
a
sell
order.
That's
that
so
the
sell
order
will
include
the
information
of
which
auction
you
want
to
participate
in
and
how
many
tokens
and
that's
it-
you
can
either
participate
using
the
front-end
in
which
actually,
right
now
or
in
the
first
version,
there
will
only
be
a
sell
side
front-end.
A
C
C
C
A
In
fact,
I
think
it
opposite
is
true,
so
the
reason
is
that
let's
say
you
have
an
order
book.
I
guess:
I'll
just
use
a
diagram,
it's
the
easiest,
so
you
have
like
or
the
book
and
it
looks
I
don't
know
something
like
like
like
like
this,
whatever
right
and
so
suddenly,
when
you
start
selling
a
lot
then
like
this
stuff,
like
always,
will
move
to
the
right
right
and
it
could
like
move
very
fast.
A
You
know
you
know
this
is
very
steep,
then
it
will
move
very
fast
and
the
price
will
change
a
lot
right.
Well
here,
if
you
sell
a
lot,
then
will
not
necessarily
change
the
market
price.
Did
you
see
that?
So
if
you
sell
a
lot
in
an
order
book,
it
will
necessarily
change
the
market
price.
But
if
you
sell
a
lot
in
a
batch
auction
system,
it
will
not
necessarily
change
the
market
price
because
you
would
just
have
a
larger
cell
volume.
A
D
D
A
Okay,
so
yeah
I'm
gonna
start
with
the
first
question.
I
mean
IIIi,
don't
know
like
I
guess.
The
reason
was
that
tulip,
it
kind
of
has
a
connotation
of
like
the
the
a
bubble
and-
and
we
didn't
want
that.
The
second
question
was:
how
do
you
model
this
economically?
What
effect
would
this
have
on
the
financial
system
if
this
takes
off
and
like
if
this
model
becomes
like
really
really
prevalent?
A
F
Yeah
thanks
for
the
talk,
my
question
is:
if
either
said,
the
Dutch
auction
model
correctly
chooses
to
reduce
on
chain
events
and
also
to
have
avoid
these
concurrent
transactions
and
waste
of
gas
right
and
have
you
ever
studied
the
possibility
to
use
a
lightning
or
rain
and
completely
go
off
chain
and
do
the
and
matching
engine
off
chain,
and
only
when
people
go
in
and
go
out.
They
sign
on
chain.
A
A
F
A
A
A
Right
yeah,
so,
in
order
to
like
aggregate
all
the
liquidity,
we
don't
divide
it
by
like
having
everybody
start
their
own
auction,
everybody
just
all
they
do.
Is
they
post
the
sell
order
and
we
a
great
all
the
liquidity?
And
we
have
a
uniform
rules
of
the
game
that
that
all
the
liquidity
follows
cool.
A
Yeah
absolutely
I
mean
yeah
totally
so
there
there
will
I
mean
there.
There
is.
There
is
a
possibility
for
arbitrage
right,
so
in
particular,
if
the
price
ever
goes
below
the
market
price
in
other
exchanges,
then
the
auction
will
be
closed,
because
all
the
bidders
will
buy
up
that
at
that
price
because
they
can
get
it
at
a
lower
price
than
at
other
exchanges.
So
that
means
that
the
sellers
will
actually
never
get
a
worse
price
than
the
market
price.
A
At
that
point,
after
the
six
hours,
so
yeah
I
mean
as
a
buyer
or
as
a
seller,
you
can
decide
which
exchange
you
want
to
use,
whether
this
one
or
a
different
one.
So
inherently,
there's
always
going
to
be
arbitrage
between
the
exchanges,
which
is
good
because
as
a
as
a
trader,
you
should
get
the
same
price
on
all.
The
exchanges
and
arbitrage
works
to
achieve
that
yeah.
E
G
A
Really
so
I
mean
like
here
it
doesn't
matter
what
the
market
price
is
like.
The
world
could
be
burning,
we're
here
and
like
that,
doesn't
matter
right
but
like
what
matters
is
like
once
we
get
close
to
the
to
the
closing
I
mean
unless,
though,
so
it's
there's,
like
two
mechanisms
are
going
on
right,
there's
time
going
on
and
there's
price.
D
A
A
B
A
A
I
mean
obviously,
so
there
are
many
many
advantages
to
this
model.
One
of
the
possible
disadvantages
is
so
let
me
start
with
the
bidders
so
the
the
bidders
or
the
buyers
they
actually
are
like
really
well
off
right
because
they
they
come
in
like
at
the
last
whatever
and
they
get
the
tokens
very
very
soon,
so
very,
very
low
lag
and
low
volatility
risk
the
sellers.
A
So
it's
like
it's,
it's
all
the
other.
It's
all
the
things
together
right,
so
you
have
you
have
a
smaller
chance
for
for
the
exchange
to
front
run.
So
basically,
this
this
mechanism
allows
you
to
get
the
fair
value
of
tokens
because
there's
no
trust
needed
the
miners
yeah.
So
there's
no
trust
with
respect
to
the
protocol.