Rewards and penalties

Strategies

We provide several strategies for integration into our orderbook:

1. Exchange-Managed Validation and offchain Incentives:

   • Routers direct volume to the exchange and encode their venue into the order. No on-chain punishment or reward will occur for them. The exchange is responsible for validation, rewards, and punishments. Incentives will be managed later on with respect to the volume provided. Volume will be calculated based on the emitted events on-chain, tracing back to the order origins.

2. Router-Managed Validation and onchain Incentives:

   • Routers direct volume to the exchange and take responsibility for ensuring the validity of the taker order at the time of on-chain settlement.

Router-Managed Validation and onchain Incentives

Routers are responsible for ensuring traders can place valid orders and hold the necessary permissions for our Smart Contract to settle the trade.

We have designed a rewards and penalty system where Routers are rebated for proper routing but penalised where malicious activity and trades are directed to our Exchange. This establishes a transparent and fair method to rebate Routers for their services while ensuring they do not engage in malicious activities. It also guarantees that Routers effectively perform their designated tasks.

The trade settlement flow for the Router Book on-chain is as follows:

1. The Router checks if the user has sufficient ERC20 tokens.

2. The Router verifies that the user has granted the necessary permissions.

3. The Router verifies that the order's signature is valid.

Router commitment

Routers must commit 0.1 ETH into the LayerAkira smart contract before they are eligible to route orders to our Exchange ("Router Deposit"). Once a Router has the Router Deposit locked in our Smart Contract, they can register their address as the taker fee recipient to start earning fees. This is achieved by interacting with the smart contract method register_router.

Router rebates

In cases where all the conditions in the flow for trade settlement are met, the trade is executed, and the Routers will receive a portion of the taker fees.

Official integration partners will receive a 2bp rebate All other integration partners will receive a 1bp rebate

Routers may use this rebate to improve pricing for their users

Router penalties

If any of the conditions in the settlement flow above are not met, we will enact a "penalty" on the Router ("Router Penalty"). The Router Penalty will be the gas cost of executing the transaction and this is deducted directly from the Router's Deposit in our smart contract.

The Router's Penalty will be split between our Exchange and the Maker providing liquidity for the affected trade.

• The deducted amount that is allocated to the exchange will be calculated in accordance with the following formula: punishment_factor * gas_price * gas_per_action

• The deducted amount that is allocated to the maker will be calculated in accordance with the following formula: punishment_factor * gas_price * gas_per_action

Pricing

Routers can improve price discovery for their traders by lowering their part of the taker fees.

Consider an example:

• Taker fee set to 10 basis points

• Router A has a tier that specifies that he can charge up to 8 basis points

• This means that Exchange will take 2 basis points and the Router can vary the amount he charges up to 8 basis points