bZxOracle is fully decentralized and operates partially off-chain. When creating an order, an oracle provider must be specified. If the bZxOracle is specified, then anyone can call the liquidateTrade contract method and receive a bounty when the proper conditions are met. Support is provided at the protocol level to allow third-party oracles to impose whatever constraints necessary on when the liquidateTrade method can be called. With bZxOracle, bounty hunters keep track of all open trades taken using bZx, determining whether any have gone below margin maintenance. This pushes the most computationally intensive tasks off-chain. When a bounty hunter has determined that a position has gone below margin maintenance, they call into bZx to liquidate the trade with bZxOracle
The fees collected by bZxOracle will be tokenized and distributed to its users. Lenders and borrowers will receive Sugar (SUGR) tokens to compensate them for taker fees and gas. Bounty hunters will receive Sugar tokens as their bounty. This token will be used to decentralize governance of the oracle, giving the individuals invested in the network a vote in proportion to their usage. SUGR tokens are backed by Ether and redeemable for a fixed percent of the bZxOracle reserve. As bZxOracle collects more fees, the Ether reserve grows along with the value of the SUGR token. The distribution of the SUGR token will take strong inspiration from Ethfinex and their Nectar token. The SUGR token roll-out will be incremental, with the oracle initially distributing Ether to the lenders, borrowers, and bounty hunters.
The volatility of cryptocurrencies create a high risk that a cascade of margin calls could cause a flash crash. Part of the fees collected by bZxOracle will be set aside into a decentralized insurance fund denominated in Ether and BZX token to protect lenders in the event of a black swan event. If many lenders have lost principal due to abnormal market circumstances, the holders of the Sugar token are incentivized to use the insurance fund to restore the principal of the lenders. This maintains the reputation of the network as a safe place to loan funds and safeguards the future revenue of the Sugar token. Part of the task of governance of the oracle is to decide what loan order parameters are insurable.
The BZX Token
The BZX token is a utility token with two main functions:
The incentivization of order book aggregation by relays
Governance of the bZx protocol
The BZX token functions for the bZx protocol much like the ZRX token functions for the
0x protocol. Both tokens coordinate networks of rational economic agents around a protocol. Both are used to facilitate continuous, decentralized updates to the protocol.
Token Governance
The most common directions for governance in the space are Aragon and multi-signature wallet arrangements leading to a DAO. It has become clear that multi-signature wallets represent an unnecessary attack surface. On this issue we will continue to solicit feedback from the community. We are currently investigating the use of an upgradeable DAO.
bZx is built on Ethereum and integrated with the 0x protocol. It is the first fully decentralized, peer-to-peer margin funding and trading protocol. bZx is not itself an exchange, but a protocol that can be integrated into the current exchange infrastructure. Exchanges and relays are incentivized by fees denominated in the BZX protocol token (BZX) to offer decentralized margin lending and margin trading services. Assets are valued and liquidated via competing oracle providers. By decoupling the valuation and liquidation of assets from the protocol, the oracle marketplace approach allows competition to drive the oracle provider fee to its marginal cost while encouraging experimentation and flexibility.