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Article

Blockchain-Based Automated Market Makers for a Decentralized Stock Exchange

by
Radhakrishna Dodmane
1,
Raghunandan K. R.
1,*,
Krishnaraj Rao N. S.
2,
Bhavya Kallapu.
3,
Surendra Shetty
4,
Muhammad Aslam
5,6,* and
Syeda Fizzah Jilani
7
1
Department of Computer Science and Engineering, NMAM Institute of Technology—Affiliated to Nitte (Deemed to be University), Karnataka 574110, India
2
Department of Information Science and Engineering, NMAM Institute of Technology—Affiliated to Nitte (Deemed to be University), Karnataka 574110, India
3
Department of Mathematics, NMAM Institute of Technology—Affiliated to Nitte (Deemed to be University), Karnataka 574110, India
4
Department of Master of Computer Applications, NMAM Institute of Technology—Affiliated to Nitte (Deemed to be University), Karnataka 574110, India
5
School of Computing, Engineering and Physical Sciences, University of West of Scotland, Paisley PA1 2BE, UK
6
Scotland Academy, Wuxi Taihu University, Wuxi 214063, China
7
Department of Physics, Physical Sciences Building, Aberystwyth University, Aberystwyth SY23 3BZ, UK
*
Authors to whom correspondence should be addressed.
Information 2023, 14(5), 280; https://doi.org/10.3390/info14050280
Submission received: 2 April 2023 / Revised: 29 April 2023 / Accepted: 2 May 2023 / Published: 9 May 2023

Abstract

The advancements in communication speeds have enabled the centralized financial market to be faster and more complex than ever. The speed of the order execution has become exponentially faster when compared to the early days of electronic markets. Though the transaction speed has increased, the underlying architecture or models behind the markets have remained the same. These models come with their own disadvantages. The disadvantages are usually faced by non-institutional or small traders. The bigger players, such as financial institutions, have an advantage over smaller players because of factors such as information asymmetry and access to better infrastructure, which give them an advantage in terms of the speed of execution. This makes the centralized stock market an uneven playing field. This paper discusses the limitations of centralized financial markets, particularly the disadvantage faced by non-institutional or small traders due to information asymmetry and better infrastructure access by financial institutions. The authors propose the usage of blockchain technology and the data highway protocol to create a decentralized stock exchange that can potentially eliminate these disadvantages. The data highway protocol is used to generate new blocks with a flexible finality condition that allows for the consensus mechanism to configure security thresholds more freely. The proposed framework is compared with existing frameworks to confirm its effectiveness and identify areas that require improvement. The evaluation of the proposed approach showed that the improved highway protocol boosted the transaction rate compared to the other two mechanisms (PoS and PoW). Specifically, the transaction rate of the proposed model was found to be 2.2 times higher than that of PoS and 12 times higher than that of the PoW consensus model.
Keywords: centralized financial markets; liquidity; information asymmetry; decentralized finance (DeFi); PoS; PoW centralized financial markets; liquidity; information asymmetry; decentralized finance (DeFi); PoS; PoW

Share and Cite

MDPI and ACS Style

Dodmane, R.; K. R., R.; N. S., K.R.; Kallapu., B.; Shetty, S.; Aslam, M.; Jilani, S.F. Blockchain-Based Automated Market Makers for a Decentralized Stock Exchange. Information 2023, 14, 280. https://doi.org/10.3390/info14050280

AMA Style

Dodmane R, K. R. R, N. S. KR, Kallapu. B, Shetty S, Aslam M, Jilani SF. Blockchain-Based Automated Market Makers for a Decentralized Stock Exchange. Information. 2023; 14(5):280. https://doi.org/10.3390/info14050280

Chicago/Turabian Style

Dodmane, Radhakrishna, Raghunandan K. R., Krishnaraj Rao N. S., Bhavya Kallapu., Surendra Shetty, Muhammad Aslam, and Syeda Fizzah Jilani. 2023. "Blockchain-Based Automated Market Makers for a Decentralized Stock Exchange" Information 14, no. 5: 280. https://doi.org/10.3390/info14050280

APA Style

Dodmane, R., K. R., R., N. S., K. R., Kallapu., B., Shetty, S., Aslam, M., & Jilani, S. F. (2023). Blockchain-Based Automated Market Makers for a Decentralized Stock Exchange. Information, 14(5), 280. https://doi.org/10.3390/info14050280

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