Towards Crypto-Economic Market Design: Discrete-Time, High Frequency, P2P

“In a crypto-economy,  the network is the exchange”

Exchanges are regulated by the SEC and take years to gain approval.  Recently, the SEC has announced that all crypto exchanges are illegal unless they register with SEC.

There are two key design principles informing a market design presented below for a crypto-economy platform involving the exchange of digital assets including cryptocurrency deemed securities by SEC.

  • Eliminate enormous multi-million dollar rents captured by exchange intermediaries and front running HFT
  • Accept regulation by the SEC, but as an Electronic Communications Network (ECN) not an exchange. 

Traditional currency or asset exchange involve a two-sided auction market design better known as an order book.  Currently,  all crypto exchanges whether custodial, so-called “decentralized” exchanges (DEX), or relays with Ox smart contracts , still feature order books as a market design.

What we propose is a market design where “the network is the exchange”.  We strongly believe that this design would allow for registration with the SEC as a broker-dealer running an Electronic Communication Network (ECN) which is a subset of a Alternative Trading System (ATS) .  Getting approval for an ECN would be must faster than getting approval as an exchange.

The market design choices we make are based on cost-benefit trade-offs with bias against the use of any intermediaries.  We are not a decentralization maximalist.

“In a crypto-economy, the network becomes the exchange”

Traders would move to this platform as intermediary rents would dissipate into better pricing.  This is an example of the services offered today to rent-seeking HFTs by Instinet – A Nomura company

MZ’s Satori pub-sub serverless architecture is missing a Post-Walrasian market design

Specification suggestions:

  • high frequency, many-to-many Myerson “take it or leave it” (TIOLI) pub-sub
  • stateless bid-ask protocol with data log of past events (bid-ask, matches)
  • algorithmic shredding of order size
  • discrete time, batch process (i.e. events) following  Eric Budish’s work on continuous time design flaw in  HFT platforms 
  • third party AI bid bots
  • third party custodial and clearing functions 
  • settlement a function of DTL layer

Companies with pub-sub platforms

  • Satori (formerly MZ)
  • Facebook (WhatsApp)
  • TenCent (WeChat)
  • Google (Cloud Pub/Sub)

Some relevant URLs

Gabe Leydon, CEO Satori (MZ) Fireside Chat Crypto Invest Summit, May 2018

Satori’s “AI Mesh network” transaction layer  stats — 500 Million “messages” per second or 1 million subscribers sending 100 bytes a second 

Hadera Hashgraph’s DLT stats — 500,000 transactions per second with less than a second to 100% consensus based on a “gossip of gossip protocol”

Eric Budish, The Design of Financial Exchange, Some Open Questions at the Intersection of Econ and CS.  Simons Institute of Computing UCB, November 2015

Eric Budish, “Will the Market Fix the Market?”, AEA/AFA Joint Luncheon Talk, January 2017

Albert “Pete” Kyle, “The Changing Nature of Trading Markets, U of Maryland Conference,  May 2017

Fisher Black, Toward A Fully Automatic Stock Exchange, 1971

Targets — continuous time order-processing client-server exchanges with massive multi-million dollar rents going to server owners and HFT snipers.


  • Pseudo-crypto DEX with client server order books
  • FOREX with tokenized fiat money
  • Swaps
  • Options
  • Dark Pools
  • Replace “book-maker” gambling with p2p gambling

Leaders in working toward high speed scaled p2p crypto-economy:

Settlement is done by DLT

Time to consensus

The hashgraph is Byzantine Fault Tolerant (BFT) by the strongest definition – asynchronous BFT (aBFT)

These tests used Amazon AWS m4.4xlarge instances, and measured throughput up to almost 500,000 transactions per second and time to finality measured in second latencies.

Hedera has Permissionless Consensus (or Open Consensus) with a closed Governance Model. This separation of governance from consensus is designed to ensure continued decentralization over time.

The Hedera platform and governance council will provide transparency, open innovation with platform stability, tools to enable opt-in KYC and AML, and global, cross-industry expertise to provide governance and decision making for a globally distributed network and cryptocurrency.

Hedera Hashgraph is fair, ensuring the consensus order of transactions reflects the transaction order received by the community. The platform ensures no single user can block the flow of transactions into the community, and no small group of users can unduly influence the consensus order of these transactions.

Others with scaled pub-sub platforms: Facebook with WhatsApp, Tencent with WeChat.