[IMPACT] Please describe your proposed solution.
Problem Space
Existing Cardano DEX projects on mainnet represent some blend of two models:
- Order Book Style - This is often used by centralized exchanges as it is reasonably easy to implement. This pattern has fewer problems with transaction throughput within Cardano’s UTXO model, as independent BUY and SELL orders can be matched together without blocking other orders in parallel on chain. This model is exemplified by Muesliswap. This style of exchange is known for being vulnerable to price manipulations through placing of wash orders. Typically an automated actor is matching orders though, and orders can be ignored as well, though this can be overcome by allowing the automated actions to be performed by anyone by use of an open-source bot.
- Automated Market Maker (AMM) Style, With Order Batching - The automated market maker model, popularized by Uniswap, offers a solution to provide good price discovery, even in low trading volume, by creating a liquidity position which manages the price. Unfortunately, this model is notoriously difficult to run on Cardano, again without the use of an automated actor, this time to collect orders and make the aggregated adjustments to a single liquidity pool in order to complete a trade for each order. Again we have an element of trust, that the automated actor could leave off orders, and we have increased latency as there is no guarantee that your order will be matched immediately, resulting in price slippage which can be a suboptimal experience for the user. These batched transactions are actually quite large and can use up many of the resources needed in a block.
This brings us to the central problem Bashoswap seeks to solve - Can an AMM-Style DEX operate without batching on the Cardano Layer 1 network?
We assert that such a DEX can be built by utilizing the same technique leveraged by DripDropz and Heidrun to keep their services fast even in high-congestion. We call this technique ‘Transaction Chaining’ as each transaction holds a piece of secret information from the transaction that precedes it, before the prior transaction is included in a block.
This technique involves getting users to share the outcome of their transactions with each other off-chain, utilizing a service which is essentially a ticketing system, pre-approving the order of trades before they settle into a block. This service too could become decentralized.
Breaking things down a little more, let’s imagine Bob and Alice interacting with a DEX
- Alice places a trade on the DEX, her transactions have a number of UTXO-inputs and new outputs generated. These outputs contain critical information including the price of the tokens that would be paid by the next trader after Alice. In order to place her order, Alice must have it signed by a decentralized swap verifier service. Alice’s order may be included in this block, but the settlement is pre-approved.
- Bob is preparing to place an order, he is able to receive the important data from the decentralized swap verifier, learning about the new pricing information and other critical data, so that he can now place his own order. His order is also validated by the service, which stores information about the outcome of Bob’s transaction. To prevent a user from breaking the chain, the layer 1 smart contract must cryptographically ensure that the legitimate swap verifier has been used.
This changes the usage of an AMM DEX considerably. Both Alice and Bob are able to know with certainty the price they will receive for their trades. Since transaction order is known long before the transactions settle on chain, there is less room for extractable value exploits. Because each swap transaction will be quite small, many such transactions may fit into a single block. Especially after the introduction of reference scripts in the Vasil Hardfork, this model may represent a serious step forward for usability onchain.
For additional information about this technique - we would like to refer you to Andrew Westbergs’s youtube channel, where he discusses this method at length: https://www.youtube.com/watch?v=EGwJCiMy4_E&t=694s
[IMPACT] Please describe how your proposed solution will address the Challenge that you have submitted it in.
Bashoswap aims to create a proof-of-concept implementation of a transaction-chaining DEX, which can be brought to market as we work toward the broader feature set in our roadmap.
We have already been in development through Q1 and Q2 of 2022, and currently have a working onchain prototype capable of executing swaps. In this proposal we wish to complete the off-chain portion of the dApp and begin connecting our prototype to our User interface to reach one of our next major milestones.
In this proof of concept, our first stage is to create a simple centralized Swap-verifier service as described above, to be able to demonstrate and verify our claims about throughput and price stability. We will then seek to decentralize this design. One such approach to decentralization may create business opportunities for Stakepool Operators and Input Endorsers.
How will these resources help Cardano?
We assert that improved techniques for building high-throughput defi apps on Cardano helps everyone building on the chain by providing better best-practices and by enabling better user experiences, we make progress on the chain together. Our smart contracts and resources will be open sourced and other developers will be able to create similar solutions across the ecosystem.
[IMPACT] What are the main risks that could prevent you from delivering the project successfully and please explain how you will mitigate each risk?
Of course, this is the first such implementation of an application with this mechanism in a DEX, and that carries inherent risks. Other risks include market forces, ability to fund the rest of the project, on-chain security and effectively decentralizing our verifier service. Cardano is still a very young ecosystem and it will be critical to operate efficiently as we move toward our goals.
[FEASIBILITY] Please provide a detailed plan, including timeline and key milestones for delivering your proposal.
Labor Budget:
650 Hours (Backend/Smart Contract/SDK Developer)
250 Hours (Frontend Developer)
Negotiated Rates:
Backend Developer - $90/hr USD
Frontend Developer - $70/hr USD
Total: $76,000
[FEASIBILITY] Please provide a detailed budget breakdown.
Feature Total Time
Prepare front-end demonstration of single swap - 100 hours Backend, 150 hours frontend
Create Centralized transaction verification system - 200 hours Backend
Update SDK to utilize Transaction verification system - 100 hours Backend
Roadmap decentralized verification system - 50 hours Backend
Prepare controlled speed tests to demonstrate Tx chaining viability - 200 hours Backend, 100 hours frontend
*Note: These are fairly conservative numbers and it is likely that the project will be seeking additional funding. To date the project has been self-funded and there will likely be subsequent funding required to bring the dApp to market.
[FEASIBILITY] Please provide details of the people who will work on the project.
MLabs
MLabs has quickly become one of the premier development firms in the Cardano Ecosystem. They are an IOG Plutus Partner and work regularly with IOG to develop the Cardano blockchain and ecosystem. They employ over 100 developers and have helped build community projects such as:
- Liqwid
- SundaeSwap
- Cardax
- Optim
- Many others
Through their work with early-stage projects, they have one of the largest groups of Haskell/Plutus developers in the community. Moreover, MLabs has the capacity to conceptualize and ship advanced financial applications in Plutus. These products provide the core building blocks of a decentralized financial system.
Mughira Ahmad - CEO : Has been in the blockchain space for over 2 years as consultant and development management of blockchain projects.
https://www.linkedin.com/in/mughira-ahmad-19722b1aa/
Beri Ardas - Co-Founder: A frim believer in blockchain technology and distributed systems. Got into cardano late last year
Jedi Blue - Front End Developer: Over 3 years experience developing sleek & intuitive user interfaces
Raymond - Chief Product Designer: I Design interactive products that people will use and will actually have fun doing it.
https://www.linkedin.com/in/rayflectx
Ethernal - Head Of Content : Used to be an ETH maxi but the gas fees got outrageous, seeked refuge in Cardano
https://twitter.com/Ethernal_ADA
[FEASIBILITY] If you are funded, will you return to Catalyst in a later round for further funding? Please explain why / why not.
The BashoSwap is an ongoing dApp project that looks to revolutionize DEXs on Cardano. Development is currently underway. Since the above budget amount is conservative and only intended to cover the deliverables describe, it is possible but not guaranteed that we will return to Catalyst in the future. To date the project has been self-funded, and further funding will likely be needed to be BashoSwap to market.
[AUDITABILITY] Please describe what you will measure to track your project’s progress, and how will you measure these?
The deliverables of this proposals will be easily audited by interested community members. All content will be publicly available, open-source, and marketed through our social channels once the project is completed.
Prior to project completion we will provide direct reporting to catalyst, as well as to the our community through social media, releasing video demonstrations and developer updates as we meet our milestones, along with public Q&A sessions with the community.
We’ll also be releasing a public testnet which anyone will be open to working with.
[AUDITABILITY] What does success for this project look like?
- Successful proof-of-concept for transaction-chaining on a smart contract/DEX
- Improved throughput, reduced latency, reduced trust relative to ‘batching’ approach used on other DEXs
[AUDITABILITY] Please provide information on whether this proposal is a continuation of a previously funded project in Catalyst or an entirely new one.
This is an entirely new project