Key Components
The architecture of our decentralized options trading protocol is built on a set of well-defined components that work together to ensure efficient, scalable, and decentralized trading. Below, we provide a comprehensive breakdown of the core components, explaining their purpose, workflows, and how they interact to achieve CEX-like performance in a decentralized system.
Intent Processing Layer
The Intent Processing Layer is the starting point for all user actions within the system. Think of it as the part of the system that listens to what users want to do, like placing a trade. It takes these requests (which we call “intents”), checks if they are valid, and makes sure everything happens smoothly.
What is an Intent?
Think of an intent like placing an order at a restaurant. For example, when you order Chicken Tikka Masala, you don’t tell the chef exactly how to cook it. You don’t explain each step, like marinating the chicken or adding spices. Instead, you simply tell the waiter what you want, and the restaurant takes care of all the cooking steps behind the scenes.
In the same way, when you submit an intent in our system, you’re telling it what trade you want to make (like buying an option or selling an asset). The system handles all the complicated steps of sourcing liquidity, executing the trade, and settling it. You just see the final result without worrying about the detailed process.
In the Intent Processing Layer is crucial for ensuring that each trade request is handled systematically and accurately.
When a user submits a trade request (e.g., placing a call or put option), the intent is logged and categorized based on the type of trade and specific parameters (e.g., asset type, strike price, expiration date).
The Intent Processing Layer performs validation checks to ensure that the request meets all predefined criteria. This includes verifying the user’s available balance, trade parameters, and system limits.
After validation, the intent is forwarded to the Liquidity Aggregation Layer, where the system begins sourcing liquidity from CEXs, DEXs, or market makers.
Once liquidity is sourced and matched, the Intent Processing Layer triggers the Execution Layer to complete the trade. The intent is marked as fulfilled, and the user is notified of the successful execution.
Liquidity Aggregation Layer
Liquidity is just a fancy way of saying, “How easily can we buy or sell something?” If you can quickly buy or sell an option, there’s good liquidity. If not, liquidity is low. The Liquidity Aggregation Layer is like a pool finder for the system. Its job is to gather liquidity (which is the ability to buy or sell assets) from different places, such as CEXs, DEXs, and market makers. Without enough liquidity, the trade couldn’t go through, so this layer ensures there’s always enough to make the trade happen.
Once the Intent Processing Layer forwards a validated trade request, the Liquidity Aggregation Layer starts looking for liquidity:
Check CEX's & DEX's for liquidity.
Send RFQ's to market makers. MM responds with their best offers.
System chooses the best offer among all sources.
The Cross-Chain Liquidity Layer makes sure users can trade across multiple blockchains, not just one. This is where ERC-7683 comes into play, allowing the system to find and use liquidity from different chains, like Ethereum and Binance Smart Chain, and then settle the trade on one chain.
Strategy Layer
The Strategy Layer enables users to implement predefined trading strategies or customize their own, offering flexible options for executing complex strategies without needing to manually interact with each aspect of the system. These strategies can range from simple buy/sell actions to more sophisticated options trading strategies, including hedging or leveraging positions.
This layer is highly flexible, allowing the system to connect to various third-party smart contracts or platforms to build a strategy pipeline. We currently provide predefined strategies by integrating with fixed-yield platforms like Pendle and Term Finance.
Think of the Strategy Layer like Lego blocks—each block represents a strategy or a component of a strategy that can be connected and combined to create more advanced strategies. These components can be reused, making the entire platform highly modular and extensible. This flexibility also allows third-party providers integrating with our system to develop and implement their own unique strategies.
Execution Layer
The Execution Layer is the core of the trading system, responsible for settling trades once the intent is validated and liquidity is aggregated. This layer ensures that trades are executed efficiently and recorded on the blockchain for transparency and verifiability.
After liquidity is sourced by the Liquidity Aggregation Layer, the Execution Layer takes over to complete the trade. It ensures that all assets are moved to the correct wallets and records the transaction on-chain.
The Execution Layer interacts with both on-chain liquidity pools and off-chain systems (e.g., centralized exchanges and market makers via RFQ) to complete the trade.
In cases where liquidity is sourced from multiple blockchains, the Execution Layer coordinates with the Cross-Chain Liquidity Layer to ensure that assets are properly settled across chains.
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