An Alternative to the Order Book As the Market Design of Crypto-Economic Platform

A true, decentralized crypto-economy involves not only distributed ledger technology (DLT) layer but also a transaction layer involving a shift in computer architecture from client server to p2p. 

A traditional order book (two sided auction) is client server and not truly decentralized. 

What is needed is an innovative p2p market design along the lines a many-to-many, high frequency “take it or leave it” (TIOLI) publish-subscribe mechanism.  It a discrete time, many-to-many, high frequency version of the Myerson auction.

Value Proposition:

  • simple FFS business model
  • eliminate all rents captured by intermediary and their favored trader via a completely simple, transparent, stateless market design.

Traders would move to this platform as intermediary rents would disspate 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


A new crypto-economic platform alternative to dark pool must petition  for an exemption from the definition of “exchange” under Exchange Act Rule 3a1-1(a)(2) and then file as an Alternative Trading System (ATS) similar to the existing dark pool ATS listed above.

Quotes from the SEC on filing as an “exchange” versus filing as an “ATS”

Although falling within the statutory definition of “exchange,” an ATS is exempt from that definition if it complies with Regulation ATS. Regulation ATS includes the requirement that, as an alternative to registering as a national securities exchange, an ATS must register as a broker-dealer with the Commission, which entails becoming a member of an SRO, such as the Financial Industry Regulatory Authority (“FINRA”). Unlike national securities exchanges, ATSs are not approved by the Commission, but are instead required only to provide notice of their operations by filing a Form ATS with the Commission 20 days before commencing operations as an ATS.

Finally, Rule 301(b)(11)114 expressly prohibits any ATS from using the word “exchange” or derivations of the word “exchange,” such as the term “stock market,” in its name.

To date, the SEC has not made market design a feature that distinguishes an “exchange” from an ATS.  This may change once a company registers a crypto economic platforms as an ATS.

ATSs offer a wide range of order types, which are a primary means by which subscribers communicate their instructions for the handling of their orders on the ATS. Based on Commission experience, some NMS Stock ATSs allow subscribers to submit indications of interests, conditional orders, and various types of pegged orders, often with time-in-force, or other specifications, which are similar to those offered by exchanges, such as all or none, minimum execution quantity, immediate or cancel, good till cancelled, and day. Unlike registered national securities exchanges, however, most NMS Stock ATSs have adopted a dark trading model, and do not display any quotations in the consolidated quotation data.