The third-party behavior of the DeFi game: how to design the trigger operator?


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The non-linear structure of the trigger operator can be combined with large-scale contracts to form a certain self-reinforced non-cooperative game, and has significant economic value.

Original Title: “Lecture 4 | Trigger Operators for Research on the Nature of DeFi Industry”
Written by: Banach

Why is there a trigger operator? When the internal logic of the contract meets certain conditions, the state of the contract needs to be changed. At this time, the contract will not be automatically realized and needs to be triggered by an external operation . This is determined by the nature of the smart contract under the Satoshi Nakamoto architecture: each operation is a global auction. Many designs that attempt to trigger automation have not seriously considered the problem of this game. If ordering is forced, game conflicts are likely to occur : attack/arbitrage, more essentially, there is a dominant strategy for on-chain behavior.

What is the nature of the trigger operator? The essence is an exchange based on GAS consumption + information carrying cost and state change benefits, but this exchange is non-linear (in terms of scale) . Because of its non-linear characteristics, can it form self-reinforcement in a certain dimension to precipitate value? This involves careful analysis of the trigger operator.

Generally speaking, there are three types of trigger operators: whether it contains power, that is, whether the trigger object is restricted , such as borrowers and lenders, the trigger for repayment must be the borrower, and the trigger for liquidation can be anyone; the second is trigger When carrying information into the contract, including whether to carry assets , in this case, the trigger cost is likely to change, because the trigger for not carrying information is more of the GAS fee, and there will be no additional costs (there may be additional benefits, see Depending on the contract), but carrying information generally includes some additional costs, especially carrying assets, at least the cost of capital risk is also a kind. Finally, whether the effectiveness of the trigger is related to time , the greater the correlation, the more it will affect the trigger strategy, so the time correlation is also an important variable that the trigger operator needs to consider.

In DeFi design, the trigger operator is defined as the third-party behavior of the game, that is, it is not triggered based on the direct parties of the transaction, but is completed by any third party, and is mainly used for liquidation, which brings about the issue of incentive design . In different scenarios, different incentives will be designed, especially whether to add information cost and time effects, which constitute the different characteristics of many trigger operators. Triggering based solely on information costs may result in the eventual beneficiary being a miner, because this is an auction behavior, and the triggering of time effects can be designed into a Dutch auction structure, so that most of the value is owned by the real trigger . However, it should be noted that who owns the value brings about two differences. The first is the difference in the speed of time, and the second is the difference in willingness to participate. You can look at various DeFi liquidation models for this.

In addition to clearing, the trigger operator has a very important function, that is, automatic hedging . At this point, the industry has not practiced it in depth, that is, the core value of the trigger operator has not been deeply explored. For this point, please refer to CoFiX 2.0 Version agreement. In addition, the trigger operator for creating information or actively contributing information is also a kind of application. For example, in the NEST system, quotation can also be regarded as a complex trigger operator. I believe that you can develop more uses instead of confining to the current liquidation. Over time, the trigger operator will become the first operator on the chain to capture value because of its non-linearity and universality (collateralization, transactions, etc. are all linear operators and cannot precipitate value).

A more important question is, can the trigger operator independently form a GAME ? Since each trigger operator follows a specific “scenario”, different scenarios are difficult to complete under a unified incentive system. This is different from Ethereum specifying how much gas each instruction consumes, because this is the standardization of the underlying instructions. , And then reversely select the contract structure. If an independent trigger operator GAME is involved, it is equivalent to requiring different trigger scenarios to design trigger models according to the same standard to ensure the consistency of input and output values. This is difficult to achieve, unless All contracts are formulated under the same standard, but this is also an important research direction: whether triggering should be the starting point for smart contract development. Here you can try to explore:

The cost of the trigger operator includes three types, one is the GAS cost g, and the other is the net cost of information x. The total cost of each operation is C=g+x , and after simplified to GAME, its revenue is represented by a unified token , Denoted as Y, it should be noted that the scene may contain time factors, so a time coefficient t and a scene coefficient s should be assigned. Finally, for the entire system to operate normally, someone must deliver the value V, that is, the basic reward Y0 should be equal to V Related: Y0=F(V) (In particular, there are no random factors here, they are deterministic variables). If all scenarios are required to be symmetrical and no arbitrage, then F needs to be consistent and linear, then this GAME can be expressed as, An operation C obtains Y, where C=g+x, Y=stY0=st F(V) . From this formula, we can see that if there is no arbitrage between scenes, s must be symmetrical to all scenes, otherwise it will be expressed in g In terms of competition, t itself is linear. In this case, the output of Y and C have almost established a linear relationship, which is unlikely to form self-reinforcing properties. In a fully open contract, it can be copied 100% of. From the above analysis, if the trigger operator is to become an independent GAME, a random operator must be introduced.

However, as a link in a large GAME, the trigger operator may have some self-enhancing characteristics, such as hedging and quotation. There will be other participants contributing value, which makes the operator The excitation is not completely linear. Taking NEST as an example, triggering a quotation requires a cost, but the value of NEST is determined by the caller, and the caller’s value does not establish a linear relationship with the NEST output, which results in the NEST system with self-enhancement properties. Similarly, the incentive for CoFiX hedging is not entirely determined by hedging transactions, but by the value of normal transactions. This part does not establish a linear relationship with hedging incentives.

In turn, in the above formula, several corrections can also be made. For example, s is not symmetric, but a higher s appears randomly, or F is not linear, which is equivalent to stimulating a large amount of trigger. This type of design It is possible to bring about some fuzzy non-linear structures, thus forming some special equilibrium, and have the non-replicability. This kind of design is more like a game between multiple scenes , or scene gambling, which does not reflect the role of triggering and serving the scene well, nor does it see any unique attributes that such equilibrium can create. As mentioned earlier, random attributes can be added to eliminate the shortcomings of linear structure being copied, but if randomness is added, all linear operators may become a lottery model , which only supports transactional games of internal participants in the operator. There is no exogenous value and it is not a desirable direction.

Summary: The non-linear structure of the trigger operator can be combined with large contracts to form a certain self-reinforcing non-cooperative game, and has significant economic value, but it cannot independently complete the design of a GAME and precipitate value. From this perspective, some existing products are logically problematic and have been built into internal lottery systems.

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