It's no secret that the current exchange landscape is suffering from its share of growing pains, making network congestion an expensive pill to swallow for many. Moving towards a more economical and secure solution means that research and exploration must be undertaken and new solutions formulated to deliver on these requirements.

On the horizon, lies the advent of the Polkadot Network and cross-chain message passing (XCMP/CCC), but the challenge of blockchain interoperability still remains an open question.

Cited in this research paper titled Communication Across Distributed Ledgers the point is made that true XCMP is impossible without a trusted third-party, contrary to popular belief among much of the blockchain community.

Thus far, many attempted solutions which use PoA or PoS validator networks have failed to deliver, leaving these attempts economically bounded when it comes to how much is staked or bonded by validators on the network. In a world where there is always a bigger whale, even decentralized architectures resort to centralized strategies. With hands tied, they must resort to strategies such as enabling or disabling bridges from a super-account, or to implement less than savoury contract upgrade architectures to fully close the system.

It begs the question, how do we go about providing a guarantee where a user’s crypto cannot be stranded, while at the same time providing a guarantee of a bridge’s accounting integrity?

Honor Box Exploration

Our team has been researching ways to implement a novel blockchain bridging architecture that would allow the bridge crosser a security guarantee against both centralized and decentralized bridge operators through the use of an honor box.

Many people are already familiar with the concept of the honor system. We see this system in action in places such as museums and national parks where it's up to the participants to contribute admission costs or information without a staffed post, through the use of an honor box. The application of this sort of system, via an honor box, can serve as an advantageous addition to the Sigmadex Protocol.

A user could deposit their crypto into a bi-signature wallet contract called an honor box, where both the user and Sigmadex can unilaterally withdraw from, but not without losing the box in the case of the users dishonorable actions, or the loss of integrity for Sigmadex. The bridge's integrity is secured by coupling the bridge to the use-case (in our case the swap of two cryptocurrencies) and structuring a carrot and stick policy that induces cooperation between rational participants through the repeated prisoner's dilemma.

The Repeated Prisoner's Dilemma

The glue that holds this conceptual architecture together is predicated on the idea that rational participants facing the repeated prisoner's dilemma game will pick the most efficient collusion strategy if they believe the other party will play the game again, given the payoffs. This allows us to understand how rational players will choose to cooperate if they believe the other user is likely enough to continue using Sigmadex in the future. We can then apply this model upon the decision to honor or dishonor a swap agreement on Sigmadex.

Applying to a Swap Agreement

Using this honor box architecture, we can model the game as a prisoner’s dilemma between honoring and dishonoring the swap. External variables for transaction costs on both networks, the rate of return of the asset, and the internal variable for swap volume is included. Parameters that characterize the swap utility and honor utility are also included.

Critically, a punishment strategy is implemented, so that if a player dishonors their commitment, Sigmadex can seize the honor box from the user, and place it into a separate marketplace. Redemption allows for the refunding of whomever was wronged, and allows a new player to not have to start from the bottom by buying this box. This allows Sigmadex to generate efficient estimates on the marginal price of honor and a box's particular value.

The key is that every honor box is an NFT that competes for prestige and credibility and grows with the user’s good behavior, opening up more risk and more prestige. The value of honor and a user's box is inferred from the market price of dishonored boxes.

When a user commits a dishonor, Sigmadex has the right and obligation to remove the box from the possession of the counterparty. Sigmadex then places it on the open market for NFT honor boxes. Individuals who would rather pay to win than start from scratch can purchase these boxes by refunding the person who got scammed, reclaiming the box and its honor. This process is known as redemption.

Forward-thinking Solutions

A bridged solution would embrace the trust of rational participants in a way that benefits the Sigamdex protocol and it's users. Introducing this concept in its fullest capacity could offer a reliable and secure solution to the varied attempts at XCMP.