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What is the principle and application of Oedax? aiming at this problem, this article introduces the corresponding analysis and solution in detail, hoping to help more partners who want to solve this problem to find a more simple and feasible method.

Today we introduce to LRC holders and the roadprint community the roadprint auction protocol we are developing: Oedax (short for Open-End Dutch Auction eXchange). Compared with the original Dutch auction, some features of Oedax are more suitable for decentralized transactions. We believe that the roadprint auction agreement and the roadprint dealmaking agreement (that is, the roadprint agreement) are complementary.

Dutch auction A Dutch auction is used to auction a certain amount of assets. The initial price of the auction is generally set to a price much higher than the fair price of the market, and then gradually reduced to zero according to a preset price curve over time. When the price curve is reduced to the actual price (the actual amount of participation divided by the number of assets), the auction can be completed successfully.

Dutch auctions have some good features. First of all, each auction will guarantee the transaction; secondly, the final transaction price of each participant is the same, regardless of the order and amount of participation. The second feature avoids the preemptive transaction (Front Running) problem faced by the order-based transaction model. However, this uniform price feature also has a drawback: participants will choose not to participate in the auction so early, but tend to choose to participate in the later stage of the auction, when there are fewer uncertainties.

Dutch auction is a very good price discovery mechanism, especially in a decentralized environment empowered by blockchain. Dutch auctions can also provide price predictions (Oracle) for decentralized applications (dApp).

The original Dutch auction was designed to sell a class of assets one-way, and once the auction began, it was generally not allowed to add more assets to the same auction. Based on the Dutch auction, we propose an open Dutch auction transaction model (Open-End Dutch Auction Exchange), referred to as Oedax, which is more like a two-way transaction than an one-way auction.

Oedax principle

Our goal of designing Oedax is to provide a new way of asset exchange for buyers and sellers, especially for the transaction of virtual assets and virtual currencies. So in this article, we will use tokens (Token) as an example, but Oedax is actually a general trading model that should be used to trade any type of asset.

Suppose the seller wants to sell TokenA for TokenB; while the buyer, instead, wants to use TokenB to buy TokenA. Oedax allows sellers to auction TokenA into TokenB, and at the same time, allows buyers to reverse auction TokenB into TokenA. So we can think of Oedax as a combination of two parallel Dutch auctions with a shared configuration.

We assume that the market fair price of TokenA relative to TokenB is P, and the initial price of TokenA in Oedax is set to misp, where M is a parameter greater than 1. We call P the target price and M the price factor. We also assume that the time span of the Oedax is T, which represents the amount of time it takes for the Oedax to end without anyone participating.

Next, we specify two price curves, namely the selling price curve of TokenA, the buying price curve of SC; and the buying price curve of TokenA, namely BC. These two curves meet the following constraints:

SC (0) = = Prunm and SC (T) = = Pachet M (Rule 1)

BC (0) = = Pramm and BC (T) = = pumped M (Rule 2)

There is a point in time t ≤ T such that SC (t) = = BC (t) = = P (Rule 3)

We further assume that at the point in time after the auction starts, the number of Qs tokens is Qs (t) and the number of TokenB is Qb (t). Then we can use p (t) = Qb (t) / Qs (t) to represent the actual price of t at the point in time, and draw p (t) with a series of line segments on the axis. We call the combination of these segments the actual price line (APL). It is important to note that more TokenB participation in Oedax will move the actual price line up, while more TokenA participation in Oedax will move the actual price line down.

Buy (green) sell (red) price curve when T = 40, P = 2.0, M = 4.0

Price limitation and settlement

Once the actual price p falls between the sell price curve SC and the buy price curve BC, p can only move between SC and BC, that is, for any time after that, tforce BC (t) ≤ p (t) ≤ SC (t) shall remain true forever (rule 4)

Once the sell price curve SC meets the actual price line, it must stop moving downwards. When the actual price moves down, SC can continue to move down, but must start with the previously stopped value. In other words, the SC line must be continuous. The buy price curve BC follows the same rule, but moves in the opposite direction (rule 5)

Once SC and BC intersect, it means the end of Oedax. If the actual price curve never falls between SC and BC, then there will be no settlement after the auction and the transaction will not occur; otherwise, the actual price curve must be the same as the value of SC,BC, and the transaction will be liquidated according to the actual price. Note: the actual transaction price has nothing to do with the target price. (rule 6)

The Oedax traded at a price of 3.0 at time 50. The  -  gray line indicates the actual price at different points in time.

Ideally, the initial conditions of Oedax should make the actual price fall between the buying and selling price curve soon after the beginning of the auction, so that there will be a successful transaction and settlement after the auction, and participants are encouraged to participate in the auction as soon as possible.

The premise of the final transaction of Oedax at different stages of the auction is that at a certain point in time, the actual price falls between the buying and selling price curve. We call the stage from the beginning of the auction to T' stage A. Stage A has the greatest uncertainty. After the point in time T', the auction enters stage B, which means that the transaction is guaranteed.

We can introduce another parameter N, once the spread of the buying and selling curve at a certain point is less than the price N, the smaller the stage C is, the smaller the price uncertainty of stage C.

Of course, other mechanisms can be introduced to measure the transaction and the uncertainty (risk) of the transaction price, so as to charge different transaction fees, and even provide rebates of transaction fees for early participants. This flexible fee mechanism is similar to the market maker reward in the order-based transaction model.

Participation and withdrawal in stage A, participants can successfully recharge any amount of TokenA or / and TokenB. If withdrawal is also allowed, participants can also withdraw any amount of TokenA or / and TokenB.

After entering stage B, the amount of recharge and withdrawal will be limited by the above price binding rules. At the point in time t, the upper limits of these recharges and withdrawals are:

The upper recharge limit of TokenA is: Qb (t) / BC (t)  -  Qs (t)

The upper recharge limit of TokenB is: Qs (t) * SC (t)  -  Qb (t)

The upper limit of withdrawal for TokenA is: Qs (t)  -  Qb (t) / SC (t)

The upper limit of withdrawal for TokenB is: Qb (t)  -  Qs (t) * BC (t)

In order to help later participants to buy and sell with a larger amount, Oedax can set up a recharge waiting queue (Deposit Waiting List) for the buyer or seller to temporarily host assets that exceed the recharge limit. Once a counterparty carries out a large recharge, you can participate in the Oedax with the participation of the counterparty, some or all of the assets in the recharge waiting queue. It is worth noting that at any point in time, there will only be a seller recharge waiting queue or a buyer recharging waiting queue. At the end of the Oedax, the assets in the recharge waiting queue are automatically returned to the participant.

The buying and selling price curve in Oedax can be defined and configured completely independently. For example, one curve can actually be a straight line, while the other can be a polynomial curve. However, we tend to make their configuration more relevant. After all, which commodity attribute is stronger and which currency attribute is stronger between TokenA and TokenB is completely subjective, in other words, the Oedax from TokenA to Token and the Oedax from TokenB to TokenB are completely equivalent and symmetrical. Therefore, we prefer to define the buying and selling curve as having the same change "speed" or "shape". Based on this concept, we further agree that at any point in time:

BC (t) SC (t) = = PP (rule 7)

With this rule, we only need to define one price curve and the other curve can be calculated. We also call an Oedax that obeys rule 7 a symmetrical Oedax. [1]

[1] in fact, the order of the road printing protocol follows a similar principle of symmetry. A TokenA-to-TokenB order is a TokenB-to-TokenA order, and vice versa. In previous blogs, we called this model the one-way order Model (unidirectional order modeling).

Compared with other trading models, Oedax has the following advantages:

It does not rely on other platforms or trading models to provide price reference

After the auction begins, both buyers and sellers can participate further without fixing the auction to its initial size; it even allows cancellation of participation (withdrawal)

Compared with uniswap, it has no capital pool requirements, so it is suitable for the trading of assets with small liquidity; at the same time, it is also very friendly to large transactions.

The recharge waiting queue of Oedax makes it possible to receive large buyers and sellers to participate in the closing auction at the later stage of the auction.

Oedax also has some shortcomings inherited from Dutch auctions:

The transaction is not real-time, and the auction can take hours or even days.

The rationality of the final transaction price depends on the degree of participation of the participants, and the auction price in a small range is not representative.

Rolling Oedax transactions for any trading pair, we can generate a series of automated Oedax auctions with fixed intervals. When the earliest auction ends, the new auction is automatically triggered [2]  -  with the target price set to the transaction price of the last closed auction. This will ensure that there will always be a fixed number of auctions going on over a period of time. We call such a series of Oedax auctions "rolling Oedex trading (Rolling Oedax)".

[2] in practice, this automation needs to be triggered by the user on the block chain.

When users participate in a rolling Oedax transaction, the money is recharged to the auction that starts first, the rest participates in the auction that starts the second time, and so on. If there is still a surplus after participating in all the running auctions in this series, the rest will be placed in a recharge waiting queue shared by all auctions. If there is still an undigested quota in the recharge queue before the start of the next new auction, it will be fully digested as part of the initial recharge of the next auction.

Rolling Oedax transactions can also treat each oedax as a recharge waiting queue for all its previous oedax auctions. This special design allows trading volumes to be more concentrated in the next Oedax that is about to end, rather than being relatively evenly distributed across multiple auctions.

Rolling Oedax transaction enables decentralized transactions to receive market orders, and ensures that the transactions of market orders have high fairness and transparency without using any external price prediction machines.

The application of Oedax in the road printing protocol the road printing protocol will use Oedax to implement the burning mechanism introduced in the protocol 2.0. This mechanism ensures that as the road printing protocol is used by more people, more LRC is automatically burned, making LRC an increasingly deflationary token. The combustion process will be completely decentralized, meaning that anyone can trigger the combustion of the LRC later, rather than by the roadprint Foundation. We believe this is an important part of decentralized governance.

In addition, the fees charged by Oedax will be auctioned into LRC and burned through the same mechanism.

The goal of R & D and motivation is to develop an Oedax auction protocol that is complementary to the road print agreement, completely decentralized and without authorization. Anyone, at any time, can launch any number of auctions, of any size, between any two tokens. The project team can complete it at no cost without going through the Road Printing Foundation.

The answer to the question about the principle and application of Oedax is shared here. I hope the above content can be of some help to you. If you still have a lot of doubts to be solved, you can follow the industry information channel to learn more about it.

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