What are the NRG collaterals for and do they have to match my order in value?

#1

What are all the reasons the NRGs are used in Borderless?

If other independent exchanges use BC will they need to use NRGs for collateral too?

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#2

Hi Again Satoshi,

What are all the reasons the NRGs are used in Borderless?

NRG is primarily used as collateral to give clarity to the counter party how much risk they are taking on board with making or taking an order. If you feel the collateral is not high enough you may want to be cautious with making or taking that specific order, in case the counterparty does not go through with the trade.

NRG is also used as fees on BC for all trades. All trades are also transactions on BC, ie proving the state, and therefore have “fees” in NRG.

If other independent exchanges use BC will they need to use NRGs for collateral too?

No they do not need to use NRG as collateral. They can use another currency as collateral or have no collateral. They could build their DEX in a way that smart contracts act as liquidity providers, but this would of course imply that there is enough liquidity for all the volume that is being traded.

Other ways is to have multi chain smart contracts that act as escrows to remove the need for collateral as a whole. But this in itself could have hiccups as well.

We could ultimately see services pop up that would support Borderless and other BC based DEXs.

Some of this covered in another thread as well, including ideas like insurers etc:

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#3

I would also add to @Exposed2u excellent explanation with a view on the philosophy behind Block Collider. NRG (Non-Relational Graphs) are the on-chain currency mined on Block Collider. Because NRG is not pre-mined, and is also mined trough a decentralized method that does not rely on validators, the use of NRG on Borderless adds to the ethos of Borderless’ decentralized nature.

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#4

So do both parties have to create a collateral by default? For example as the order Maker, I’am I automatically signing an order that executes once a Taker is matched?

Right now from what I understand it goes like this …
Maker - Creates Order and adds collateral, and then waits for Taker to sign???
Taker - Takes order, adds collateral, sign transaction, and waits for maker to sign??

In this flow doesn’t the maker have to agree to the takers collateral amount? so Making an order is a pretty manual process.

Now is the Maker waiting for the Taker to send first before singing his transaction or is the Taker sending waiting on the Maker. It seams like you would always need a high collateral because both parties dont trust each other and someone can back out of the deal if the collateral is not worth the trade amount. So the first signer always has the biggest risk.

It seams like both are playing a game of chicken, so who is encouraged to send their transaction first or in game theory who will always send first?

#5

I think there are a few factors to consider. First, it is difficult to consider using NRG as collateral without it having a market value assigned to it. However, once this market value for NRG is established, Makers and Takers will be able to easily see if the collateral from both parties sufficiently backs their assumed risk. I also imagine that a natural step for other independent exchanges who use BC would be to include suggested NRG values as collateral based on current market prices. In this way, the Maker and Taker can quickly see that the collateral is fair. I think that a not-to-be-overlooked part of Borderless, is that the app does not force you to choose a designated collateral amount, making the trade dynamics completely decentralized. This gives individuals the freedom to choose how they would like to execute their trades.

You are absolutely right about the process of trust in a transaction. I am not sure about the requirements of signing a transaction, and when a Maker or Taker should sign a transaction. Perhaps @multichain can elaborate further on this. Here is my take on how a transaction could work on Borderless.

  1. Maker - Creates order, adds collateral, but does not sign transaction.

  2. Taker - Takes order, adds the same amount of collateral as the Maker, signs transaction.

  3. A. Maker - Reviews order and signs transaction. In which case, the order executes, and each party retains their original collateral.

  4. B. Maker - Reviews order and does not sign the transaction. Because the Taker offered sufficient collateral, and the Maker decided to back out, the Taker would then receive the Maker’s original collateral.

I am not entirely sure if what I wrote is correct. After watching the webinar, this is my current understanding. I would love clarification from @multichain or @Exposed2u.

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#6

I agree in the beginning theres going to be a big chicken and egg problem because NRGs will need liquidity in order to be a safe collateral.

This is why its so important to have an order flow chart because right now it seams we are still wondering how the order flow works.

My understanding is that both Maker and Taker are performing manual transactions and at any time the second signer can back out, so trying to understand which party has the biggest incentive to sign first.

This also works more like an OTC desk with Borderless acting as a decentralized desk that holds both parties collateral.

#7

I assume that we will know more details from @multichain soon. With Borderless being in its infancy we are likely to see things like flow-charts and a more detailed UI interface that visualizes how collateral and miner fees are paid.

#8
  1. Maker places order and specifies how much is he willing to pay X in currency A to receive Y in currency B and also submits an amount of C collateral in the form of NRG.

  2. Taker sees the order and if he wishes to take all of it, also posts C collateral to the transaction.

  • Now both collaterals are locked in the transaction.
  1. Now either the Maker or Taker can sign and submit their respective currency A or B transaction that settles the order.

If neither submit their transactions, they receive their collateral back. If only one submits their order, they receive all the locked collateral. If both submit the proper transactions, both receive their collateral back.

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#9

Thanks Arjun. This makes sense. Just to confirm, in step 2 the Taker has to match the Maker’s original collateral?

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#10

But the Maker must then accept the Taker correct? since each taker can submit a different Collateral amount the maker can choose between different takers?

And is the Takers collateral returned if the Maker does not accept their collateral amount?

This is where I am confused since the collateral is dynamic the Maker can either accept a partial fill or a whole but in each scenario there is a different collateral, and still not sure what happens when a taker decides to fill an order but their collateral is not high enough. Does the order disappear until the Maker agrees or does it remain open and many offers can be submitted to the same trade?

#11

I’m not sure either. But I am of the assumption that the Taker must match the Makers collateral. Follow my train of thought below:

At 9:20 in the video, Arjun says “I can see exactly how much NRG I have to post in order to take this order.”
Arjun implies that matching the NRG collateral is a necessity in order for a Taker to Take a trade.

At 10:00 in the video, Arjun says “and then I’ll get a notification that the order has been sent to the miner, and it is waiting to be mined in a block.”
This implies that that Maker did not have to choose from a list of Takers with different NRG collateral offers. Instead, any Taker who decides to Take an order, immediately has their order sent to miners.

In this scenario, if multiple Takers try to Take the Maker’s order, the winning Taker will be whomever posts the highest miner fees.

#12

this makes sense so the Taker matches the Makers collateral. But it does not explain if they want to take a partial order, would the collateral be based on a percentage from the total.

This also means users will need extra funds just to participate in the exchange. Because in order to MAKE or TAKE an order you will have to post collateral matching the value of the order. So if I wanted to buy or sell 1,000 USD of BTC, I would also need $1,000 worth of NRG.

#13

Yes, this is my understanding.

#14

Yes, extra funds would be needed. However, I imagine that NRG lending platforms would form, allowing for people to quickly make Borderless trades. Imagine this scenario:

A Maker/Taker has a supply of BTC that they do not want to trade short term. They can lock up a portion of their BTC on a lending platform for a temporary amount of NRG. Once they are finished trading, they can return their leased NRG for their locked up BTC.

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