What is Deepwaters?
Current exchanges place traders at a disadvantage. The problems affecting trading platforms can be separated into two categories:
- 1.No confidentiality and poor integrity of order flow before it is recorded in the publicly available order book, resulting in:
- Order flow reordering and blocking
- Spread deterioration
- Poor fill rates
- Privileged rent seeking
- 2.Violability of the custody of customer funds, resulting in rehypothecation and commingling. This causes customer funds loss, normally during tail risk events.
Decentralized financial platforms attempted to solve these problems, but brought about its own set or problems which manifested in many of the same ways (poor execution, loss of funds, etc.). DeFi also involved massive sacrifices in efficiency and throughput; efforts to solve those problems have largely involved a tradeoff in decentralization and trustlessness. This is the paradigm which current markets are trapped in: a tradeoff between trustlessness and efficiency.
Deepwaters v1 is the fusion of traditional finance and blockchain technology into a Hybrid Architecture, leveraging proven concepts from both. Deepwaters aims to bring maturity to DeFi and enable systems that power the next generation of financial applications.
The key features of Deepwaters v1 are:
- 2.Order flow immutability. When you place an order, it gets equal priority with all other orders based solely on the temporal order in which they are placed. No one can rearrange orders or act on orders before they are either executed or placed on the public order book.
- 3.Protection of Liquidity Providers. Instead of their liquidity being treated as sacrificial and traded against by default, Deepwaters implements a number of mechanisms to protect their liquidity from impermanent loss while still rewarding liquidity providers based on volume (see Depositor). This role is more consistent with their profile as market agnostic yield seekers. It prioritizes capital preservation first, and risk-adjusted yield second.
- 4.Zero-cost rebalancing over-collateralized exposure tokens with composition protected by solid economic principles.
Deepwaters v2, coming in 2023, will upgrade the Deepwaters architecture to render the distinctions between centralized and decentralized platforms meaningless. It will provide a trustless, massively scalable, non-custodial platform which anyone can validate the operations of, regardless of whether it is deployed in a centralized or decentralized manner. The details of Version 2 will not be further discussed in this document.