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· 18 min read

With 10101 you can use your bitcoin to trade self-custodially and without counterparty risk. This means that you don't have to give us your sats to trade, and that your profit is guaranteed if you make smart decisions. In contrast, when you trade on a central exchange, you have to put money in someone else's wallet, and you have no assurance that the exchange will fulfil their part of the deal.

Simply put, with 10101 your Bitcoin investments are secure. This is possible thanks to Discreet Log Contract (DLC) channels, the topic of this post. In the next sections we will explain how 10101 uses DLC channels to enable self-custodial and counterparty-risk free trading on Bitcoin. We will also touch on the inner workings of the DLC channel protocol.

· 8 min read

10101 aims to bring self-custodial p2p perpetual futures trading to users without sacrificing UX. Centralized exchanges are easy as they only have to keep a book updating all events on their own system. But 10101 is distributed. Every user is running their own trading node through the 10101 app or dlc connect web app.

In order to compete with the simplicity of central exchange 10101 had to address the following challenges which are easy to solve on central exchanges, but harder to solve in a distributed p2p trading solution.

  1. Discovery: Matching traders on opposite sides of a trade.
  2. Sovereignty: Traders remain in control to decide when to close their position.
  3. Speed: A trade needs to be executed almost instantly.
  4. Free Option Problem: Avoiding the "free option problem" which gives one trader an unfair advantage.

What is the 10101 coordinator?

The 10101 coordinator is the solution component to address the before mentioned UX challenges when delivering a self-custodial p2p trading solution.

The 10101 coordinator acts as a bridge to connect all 10101 traders with each other, while at the same time providing an 24/7 online service to coordinate trades.

Discovery

On a central exchange a user is mererly a set of records in a database. A central system is keeping record of who opened what position at what price and handles the execution centrally. Clients are merely interfaces to interact with that central system, but the central system is in full control of all components at all time.

At 10101 trades are setup between equal parties. A trade can only be setup if both nodes agree to the contract (discreet log contract). The 10101 coordinator simplifies that discovery by being the only node the users have to connect to. Through the coordinator any 10101 trader can discover another 10101 trader.

Sovereignty

When submitting an order the coordinator will look for one or several matching counterparties. Once found the coordinator initiates the dlc protocol with each party. That means your direct counterparty will always be the 10101 coordinator, but implicitely whoever the coordinator matched you up with.

For executing an order all parties have to be online to exchange the required messages to establish a dlc. But once this is setup any 10101 Trader can independently control their position, without having to rely on their indirect counterparty to be online.

Simple example

  1. Alice wants to go $500 long and Bob wants to go $500 short. Both submit an order to the coordinator.
  2. The coordinator matches Alice with Bob and iniates the dlc protocol.
  3. The coordiantor establishes a dlc with Alice acting as the counterparty going $500 short.
  4. The coordinator establishes a dlc with Bob acting as the counterparty going $500 long.

Assume Bob wants to close his position.

  1. Bob submits a closing order going $500 long.
  2. The coordinator will look for a matching order going $500 short.
  3. If a match can be found (doesn't have to be Alice) the coordinator executes the same procedure as before with Alice but this time with a new party.
  4. If no match can be found. The order will remain open until a match has been found.

Two key take aways from that simple example:

  • The coordinator provides a service to the traders to trade whenever they want. Giving them control over their position without impacting the original counterparty.
  • Your position remains open until it either expires, get liquidated or the trader closes the position. If your originally matched counterparty decides to close their position, the coordinator will look for a replacement without you even noticing.

Speed

The bitcoin price moves fast and so must the trade. In a central exchange a trade is merely a database update. It can't really get faster than that, but with dlc channels we can get very close to it.

At 10101 your first trade will open a dlc channel. A multi-sig transaction that locks up your and your counterparties (coordinators) trading balance on-chain. This first transaction (funding tx) can take some time depending on the fee environment. But once confirmed any consecutive trade is nearly instant.

The hub and spoke design pattern of 10101 allows to optimize the generation of these dlc channels and thus minimizes the corresponding on-chain costs. Assume in the diagram provided above, every 10101 Trader would open a direct dlc channel with each other 10101 Trader. That would result in 30 (n * n-1 | n=6) channels. With the 10101 coordinator in the middle we only need 6 (n | n=6) channels.

Note, its absolutely possible that two 10101 nodes can open a dlc channel with each other and trade independently from the 10101 coordinator. This makes sense if two trades want to trade bigger volumes and generally only want to go the opposite direction.

Capital Efficiency

Another benefit of using a coordinator is the capital efficiency. Assume you want to trade with 1 Million sats. If you'd want to be able to trade that volume with any of the other 10101 traders (from the example above) you'd have to lock up 6 Million sats in dlc channels, which would leave you with an inefficient use of your capital.

Note, this might be optimized by routing dlc contracts similarily to how lightning routes payments.

Free Option Problem

The free option problem allows a trader to delay or back out of a trade after both users have collateralized it. He would do so based on whether the exchange rate has moved for or against their favor since the time that the terms were set.

Because DLC protocols are synchronous, one trader must be the first to sign all corresponding transactions. The second user should do the same afterwards. This stepwise process gives the second user the unique ability to delay the trade while monitoring the prevailing exchange rate. If the rate has moved in their favor since the time that the terms were set (prevailing rate is now worse than the agreed-upon rate), then we should expect them to complete the swap. Conversely, if it has moved against them, it is in their best interest to let the swap expire, take their refund, and begin the process again.

This is called the Free Option Problem and has been exploited in the past 1.

Centralized exchanges do not face this problem because the platform ensures safe execution.

In 10101 - the coordinator connects two traders with each other holding back both signatures until all signatures are available. This way, we solved the free option problem.

Conclusion

The coordinator is a necessity to mitigate the UX challenges that a self-custodial trading platform has to deal with and offers an easy to use solution to enable traders to take back custody of their funds.

It is comparable to Lightning Service Providers (LSP) and provides liquidity and accessibility to a whole network of nodes.

With the technology and the spec evolving LSPs become more and more of a commodity entering a competitve market within lightning wallets. The key drivers here are provided liquidity, smoothness of service operation and fees. Equally we believe that the coordinator will evolve into a similar service provider which will eventually enable a competitve market with the same key drivers.

Get Involved

  • Try Our Platform: Experience the future of Bitcoin trading today by downloading the 10101 app. Available for Android and iOS, you can start exploring all our features in the current beta version. Visit our website2 for direct links to download the app.
  • Follow Us on Social Media: Join our community on Twitter3 or Telegram4 to stay engaged with our developments and participate in discussions with like-minded individuals.
  • Provide Feedback: As a beta user, your feedback is invaluable to us. Help us refine and perfect our app by providing your insights and suggestions. Contact us through the Telegram or on Twitter.
  • Spread the Word: If you believe in what we’re building, share our story and app with your network. Every mention helps us grow our community and improve our offerings.
  • Contribute: 10101 is open source. Checkout our Github5 and contribute by starting discussions, opening issues and/or pull requests.

Thank You for Your Support

We are grateful to everyone who has joined us so far on this exciting journey. Your support and participation are what fuel our continuous innovation and dedication. Together, we are paving the way for a decentralized financial future that aligns with the true ethos of Bitcoin—empowering and liberating.

Footnotes

  1. https://medium.com/boltzhq/the-problem-with-free-options-69f9f59a2d48

  2. https://10101.finance

  3. https://twitter.com/get10101

  4. https://t.me/get10101

  5. https://github.com/get10101/10101

· 11 min read

Logo

Welcome to a new chapter in financial freedom. At 10101, we are not just building a platform; we are crafting the future of how Bitcoin trades, driven by the vision of an economy liberated from central authority. Join us on this transformative journey, where innovation meets security, and individual sovereignty is the standard, not the exception.

Trading Bitcoin is Broken!

· 7 min read

If you are reading this post, you may have already heard that we have closed all Lightning channels with our users, replacing them with DLC channels. That may sound like a step backwards, so we want to explain our reasoning behind this decision and tell you why we think it is actually a good thing.

· 7 min read

2024 kicked off at full speed in the Bitcoin world: we celebrated the 15th Bitcoin anniversary on January 3rd; Bitcoin ETFs were approved and have recorded record-breaking trading volume; and, of course, we are heading towards the next Halving after block 840,000, which is estimated to happen around April 19th.

While this alone is already plenty to digest, we at 10101 will continue pushing the boundaries of self-custodial trading on Bitcoin using Discreet Log Contracts (DLCs).

· 5 min read

This is the third and last part of the series on how to bring DLCs to Lightning. Check out the first two blog posts if you haven't already.

  • Part 1: A quick overview of Lightning, Adaptor Signatures and DLCs.
  • Part 2: Discusses an approach of expanding the commitment transaction with a custom output.

In part 3, we are going to show you how 10101 is utilizing virtual channels to bring DLCs to Lightning.

· 5 min read

At 10101 we are working on extending the Lightning network to support DLCs, allowing Bitcoiners not only to pay and receive payments, but also to trade right from their channels.

In this series of blog posts, we will delve into how 10101 brings DLCs to the Lightning Network. The series will consist of three parts:

  • Part 1: A recap on Lightning and DLCs.
  • Part 2: Exploring the incorporation of a Custom DLC Output on top of the Lightning commitment transaction.
  • Part 3: Discussing the integration of a Virtual DLC channel alongside the Lightning channel.

· 7 min read

In a previous blogpost we talked about self-custodial settlement paths in 10101. In this blogpost we explore how the 10101 app will enable you to stay self-sovereign in your self-custodial trade setup.

Without a certain level of self-sovereignty, your self-custodial setup might not be as protective as you think. If you depend on a single service provider too much, then you might not be able to act in a worst case scenario.

· 4 min read

In our previous blogpost we wrote about the motivation for self-custodial trading and when it matters. In this blogpost we explore how the self-custodial setup works and what happens when you click the button to close a position.

When you trade in 10101 there are three phases:

  1. Discovery: Finding a trading partner through the 10101 orderbook

  2. Execution: Opening the position by setting a P2P smart contract on Bitcoin

  3. Settlement: Closing the position by resolving the contract

· 5 min read

This is the first in a series of blogposts that explores self-custodial trading with 10101 - why and when self-custody really matters, and how it works.

Bitcoin is objectively the best ledger out there. But, as great as Bitcoin is at solving the problem of self-custodial ownership, when it comes to using your coins you depend on centralized platforms. On an exchange you deposit your funds giving up custody - you rely on the exchange to be honest and return your funds once you want to exit. What if there could be a financial system where nobody can lie of cheat?

With 10101 you never give up custody. The app empowers you to trade self-custodial, eliminating the need for a centralized custodian, and enabling autonomy. You stay in charge at all times: Your keys, your coins.

· 2 min read

crypto exchange app, white background , minimalistic, 8k, clean same style as in the picture referenced

Midjourney: crypto exchange app, white background, minimalistic, 8k, clean

Hello Awesome People! 🚀

Drum-roll, please... 🥁 Today marks the beginning of an incredible journey as we proudly commence rolling out the much-awaited 10101 beta to the lucky few from our ever-growing wait list! We truly appreciate your enthusiasm and are grateful for your participation.

· 5 min read

Welcome to the world of decentralized trading, where the power of self-sovereign Bitcoin finance is unleashed! At 10101, we are passionate about creating an economy that is free from central authority. Our mission is to empower individuals like you to take control of your own finances and make the most of the incredible opportunities that the crypto world has to offer.

We know that choosing the right platform for decentralized trading can be a challenge, but we are confident that 10101 is the only real solution. Why? Because 10101 will never ask you to hand over control of your funds! In this blog post, we dive into the segmented USPs of 10101. From our brand (in green) to our product (in blue) and our team (in purple), we have everything you need to succeed in the world of crypto trading. Join us on this exciting journey and discover for yourself why 10101 is the ultimate choice for decentralized trading!