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A distributed system for trading Futures

BlockchainFinancial marketsFuturesSecurity and privacyTrading

Introduction

A system to manage the inventory and the portfolio of a fully distributed financial market such as Futures while preserving the confidentiality of assets of the individual traders, and the integrity of the financial transactions of the whole market. It is possible to post traceable orders while keeping who posted or cashed the order fully confidential.

Technical features

In Futures Exchange, traders buy and sell contractual promises (futures) to acquire or deliver assets. The present invention provides the key operations for a secure, private, fully distributed Futures-Exchange. A trader can post an order and the participants check that the trader has sufficient margin in its portfolio to satisfy the order without revealing the amount of the deposit by the trader. Orders are visibile on a public order book (but traders are anonymized). If there is a matching between supply and demand, bought and sold orders, profits and losses are attributed to the appropriate traders without identifying them. If a trader has not enough margin to cover the market price its position is liquidated. The proof of concept implementation based on zk-SNARKs and SPDZ shows that computation of actual trading days (along with Thomson-Reuters TH DB) is feasible for low-frequency markets.

Possible Applications

  • Distributed Futures Exchange;
  • Other Auction mechanisms requiring confidentiality of bidders;
  • Auctions for the Large-scale Purchasing Consortia.

Advantages

  • Public order book but trader inventory is private;
  • Guarantee final solvency;
  • Preserve traders’ anonymity;
  • Computational burden is proportional to the posted orders’ number;
  • Aborters are financially penalized;
  • System security accepted by peer-review (IEEE Security & Privacy Symposium).