To ensure the security and orderliness of the whole block chain, a block can only be generated upon certain consensus. The consensus algorithm is one of the key elements of a block chain. In terms of the choice of the consensus algorithms , blockchains face the same challenge of all distributed systems - the CAP 10 principle , i.e.,only two of the three following properties can be achieved at the same time: Consistency , Availability and Partition - Tolerance.
Correspondingly , all block chains can only excel two of the following three aspects : energy efficiency , decentralization and security . The commonly used consensus algorithms are POW , POS , DPOS and PBFT.Their performances in terms of these three aspects are shown below:
POW: Proof of Work, generate a new block through massive hash computations which result in an appropriate random number. This is most secure mechanism.But it also comes with the highest energy cost
POS: Proof of Stake , reduces the difficulty for block generation according to the amount and time of tokens possessed , which also greatly reduces the energy cost of POW. However, its security is sacrificed and is susceptible to bifurcation
DPOS: Delegate Proof of Stake. A certain number of delegates are elected by voting. These delegates will generate blocks in a certain sequence , which greatly reduced the number of verification nodes that are needed. In this mechanism, deal verification is greatly accelerated with no sacrifice of security. However, the system becomes more centralized.
PBFT: Practical Byzantine Fault Tolerance. No token is required in this mechanism, making it suitable for alliance chains.
After weighing all the pros and cons, FORTUNA decides to use an improved hybrid DPOS algorithm for consensus determination , establishing a secure and efficiency consensus mechanism. Besides increased centralization, DPOS has another obvious problem: the voting rights are controlled by users with more FOTA, which marginalized the roles of other users with less FOTA. To overcome this issue , FORTUNA introduced an active index , to reflect how active a user is on the platform . This purpose of this active index is to 1) encourage the active participation of users; 2) balance their financial contribution and activeness contribution. The active index is calculated as follows.
The 101 delegates elected according to the DPOSA in each round will reach an agreement on the block generation sequence ( 2 / 3 of the nodes need to reach agreement ) before the blocks are generated. Unless more than 1 /3 of the delegates collaborate to sabotage the system, no bifurcation will occur.
FORTUNA not only introduces a structured smart contract with three layers, but also supports two kinds of trading mode: PrC and PuC. PrC Mode will enable every trading node of FORTUNA to launch a peer-to-peer derivative transaction without any cost of agency. PuC Mode offer opportunities for every node of FORTUNA to be a market maker and create a new market for a new type of derivative which can bring profit for the creator related to the trading volume of the new derivative contract. PuC is similar to the standardized contracts traded in exchanges which have better liquidity. The biggest difference between PuC and the exchange-traded contract is that the exchange-traded contract is designed and issued by exchange, but on FORTUNA, every node could design and issue any kinds of derivative contract on their demand.
As a distributed risk hedging block chain platform , the purpose of FORTUNA is to achieve rational risk management through decentralization. However , as the only medium used on the FORTUNA platform , FOTA is actively traded on the secondary market as a digital asset. It will cause devastating damage to the risk hedging trades if its value is unstable. Therefore, FORTUNA introduces the FOTA Value Locking Service ( FVLS ) to make sure risk hedging trades can be completed under the stable FOTA value.We use the exchange rate between FOTA and RMB as an example to illustrate FVLS. Suppose user A and B signed a simple risk hedging contract: each of them pays 100 FOTA as deposit. A will earn 100 FOTA if its expectation is right, it will lose 100 FOTA otherwise. The trading modes with and without FVLS are as follows.
In this case, upon the maturity of the contract, if A’s judgement is correct, it will earn 100 FOTA. A receives 200 FOTA (profit and deposit). But because FOTA devalued 50% against RMB, the 200 FOTA still worth the same as the 100 FOTA that was paid before the deal. Effectively, user A did not profit nor lose.
In this case, the exchange rate between FOTA and RMB will be locked by FORTUNA until the delivery date of the contract. In the above scenario, when A receives the 200 FOTA, FORTUNA will offer 200 extra FOTA to user A in order to offset the loss due to change of exchange rate between FOTA and RMB. The FLVS makes sure users can hedge without being affected by the fluctuation of FOTA value.
The structured smart contract of FORTUNA is as follows
The FORTUNA Main Contract is the only main contract accepted by FORTUNA and the clauses are similar to the main contract of NAFMII,SAC and other self-regulatoryorganization for OTC derivatives. Every trader on FORTUNA will sign the main contract before they start trading activities and will come to an agreement about theconstitution of contracts, efficacy level of contracts, duty of payment and delivery, definition of default, default management, definition of termination, interest,compensation,expense, arbitration and other non-transactional elements.
A Contract Template is called CoT and all the users of FORTUNA can create their own CoT with different underlying assets (commodities, currencies, bonds, stocks,credit assets, crypto-tokens, events, etc.), deal structures (forwards, swaptions, American Options, European Options, LMSR 9 , etc.), restrictive clauses and other coreelements of transactions. Every CoT can produce a lot of contracts.
A Private Contract is called PrC and a PrC is a kind of derivative contract which is appropriate for peer to peer trading mode. PrC will inherit all the clauses of thecorresponding CoT and will define the settlement time, delivery price, margin ratio,contract price, short/long direction and other elements of transaction. PrC hasdisadvantages of liquidity and matching efficiency, but it has the advantages of peer to peer trading and lower cost of agencies.
A Public Contract is called PuC and a PuC is a kind of derivative contract which is appropriate for N to N trading mode requiring the participation of market makers.The creator of the corresponding CoT is the market maker in default unless the creator choose another node to be the market maker for the PuC under the CoT. PuC willinherit all the clauses of the corresponding CoT and will define the settlement time, delivery price, margin ratio, contract price and other elements of transactions. PuC isvery similar to the contracts traded in the derivatives exchange. However, the biggest difference between them is that the standardized contracts traded in exchange isdesigned and published by exchanges and no users can make changes. On the contrary, PuC are designed and created by users of FORTUNA. Another big difference isthat the commission of the standardized contracts traded in exchange is all for the exchanges while the commission of PuC will all belong to the CoT Creators. Therefore,although the PuC has the feature of great liquidity with market making, the PuC is a new type of derivative contract compared with the contracts traded at exchanges.
The Quoting mechanism , a mechanism providing the current market price of underlying assets , needsto minimize risks from malicious entities and provideadequate incentives for quoters to post high - quality quotes at the same time. FORTUNA is equippedwith an SVD-based decentralized quoting mechanism that can preventmarket manipulation from a small number of malicious entities in an effective way . In the meantime, it introduces “ Quote Corporation ” , which uses an incentive schemethat is analogous to corporate governance and equity redistribution , motivating quoters to providehigh - quality quotes continuously . The detail mechanism is describedbelow:
The overall scheme of FORTUNA’s decentralized quoting mechanism is as follows:
Every node in the network can become a quoter once certified by QNS (Quote Name Service). A quoter needs to join one or more Quote Corporation (QC) beforeit can post any quotes. A quoter can query the FQCT catalogue to find and join QCs that match the category of quoting services it provides. If no such QC exists, a QC ofthe new category will be automatically created.
In a certain cycle , when multiple smart contracts that using the same QC’s quoting service matures , the quoters in this QC will provide independent quotes . The QC will compile a quote matrix using all the quotes provided for each underlying asset by all the quoters and obtain a consensus price using the SVD consensus algorithm.This consensus price will be used for contract fulfillment. The details of the SVD consensus algorithm will be described in later sections.
After each cycle, the consensus algorithm will determine the consensus quote as well as every quoter’s impact weight in this cycle, which is used as an indicator ofthe quality of its quotes . Then the QC will set aside a certain amount of equity as to redistribute among all quoters according to their impact weights , motivating them toprovide high-quality quotes actively. This equity redistribution mechanism will be detailed in later sections.