How It Works
The Joint Protocol works like centralized P2P exchanges, sharing exact concepts that users already recognize and use. However, Joint Protocol decentralizes and democratizes these concepts for good.
For better understanding, It is essential to highlight the lifecycle of a P2P trade on centralized exchanges and then outline the approach taken by the Joint Protocol.
Lifecycle of P2P Trade
Registration
New users looking to trade on a centralized P2P exchange must create an account and provide their legal names, email and password and other private information. The exchange uses the data to create an identity, a profile and a custodian wallet for the user.
On Joint Protocol:
Users do not need to create an account. They will not be required to provide any personal information. There is no need to collect private information. All they need is an Ethereum wallet with the assets they want to trade.
KYC
After registration, most centralized P2P exchanges will not allow users to start trades or create ads. The law requires centralized marketplaces to know the user before offering their services. Therefore, users must complete a KYC (Know Your Customer) onboarding process before they are allowed to trade.
On Joint Protocol:
Joint Protocol cannot collect or store private information as a smart contract. It does not need users’ confidential information before it can provide service. As a blockchain application, it operates autonomously and forever.
However, interfaces and dApps that build on the Joint Protocol and operate in jurisdictions where KYC is mandatory may require users to go through KYC.
It is important to note that even when an interface requires KYC, users can switch to an alternative interface, deploy their own or interact directly with the contract using tools like Etherscan.
Since all interfaces and dApps building on the Joint Protocol are automatically non-custodians, users’ funds cannot be locked up.
Liquidity Provisioning
After completion of KYC, most centralized P2P exchanges set additional hurdles that users must overcome before creating ads (liquidity provisioning). For example, some exchanges require new users to be active for some time.
On Joint Protocol:
The Joint Protocol does not have these arbitrary requirements — by default, open to everyone. Users and merchants alike can join any open market to provide liquidity. Users can also create their market, provide their liquidity and trade with people in their community (e.g. WhatsApp, telegram etc.). The Joint Protocol supports all ERC20 assets.
Markets / Pools
Centralized marketplaces limit trading to a select number of trading pairs (or markets). Liquidity providers can only advertise liquidity and trade on these markets. They have no options and must accept the terms and fees of these markets.
On Joint Protocol:
On Joint protocol, liquidity is collected into a market. A market comprises two assets; a base asset and a quote asset.
Anyone can create a market, optionally set a fee and invite liquidity providers to add liquidity.
A market can also be open or permissioned. Liquidity providers can provide liquidity to any open market. Permissioned markets require users to be added to an allowlist before performing certain operations; this is useful for private markets.
Trade Engine
Centralized marketplaces run and manage a trade engine responsible for managing accounts, markets, liquidity, orders and dispute. This system is critical and must be up and running at all times; otherwise, users risk losing money if they cannot enter or exit a trade.
On Joint Protocol:
The Joint Protocol also features a trade engine. However, the protocol’s trade engine is implemented as a smart contract that lives on the blockchain. By existing on the Ethereum blockchain, the Joint Protocol’s service will always be available with 100% uptime. That’s not all! It will also be censorship-resistant - nobody can make it inaccessible to anyone.
Dispute Resolution
Not all trades go as expected; bottlenecks, disagreements or fraud attempts can occur unexpectedly. Centralized marketplaces use a combination of escrow and a dispute system to resolve trade issues. As a result, users trade with the comfort of knowing they can plead their case to the platform operators when problems arise. However, centralized dispute systems are prone to human error and fraudulent manipulations; the mediators can erroneously or unfairly rule in favour or against a party leaving the other party with no other option than to accept the ruling.
On Joint Protocol:
The Joint Protocol takes a different approach by decentralizing the mediation system. No longer can one company have a monopoly to mediate a trade. Instead, anyone can purchase a mediator ticket, stake some P2P tokens as a security bond and join a market to provide mediation service.
During a dispute, multiple mediators are randomly selected and drafted and are required to vote (predict) the ruling based on evidence received from the trade participants. Mediators that vote with the majority are rewarded with P2P tokens, while those that vote with the minority lose some of their security bonds as a penalty.
Unlike a centralized dispute system, disputes ruling can be appealed. However, each new re-appeal after the first appeal will cost the appeal creator a fee; this fee doubles for every new re-appeal. If the re-appeal creator loses, all re-appeal fees are transferred to the winner.
Market creators are free to create markets that specify a minimum security bond requirement for mediators.