Neon Exchange (NEX) aims to combine the performance of centralized exchanges with the trust
and security properties of decentralized exchanges. The system consists of three main components:
an off-chain trade matching engine, a smart contract where trades are executed, and a payment
service where global assets such as NEO and GAS can be converted to tokens that can be transfered
directly by smart contracts, making them compatible with the exchange. In the following sections,
we describe each component in more depth.
Off-chain Matching Engine
An off-chain matching engine allows NEX to benefit from the performance characteristics of centralized
exchanges, while maintaining a decentralized user account model based on the blockchain
(Figure 1). Orders are signed and sent from user addresses to the matching engine, where they are
quickly and deterministically processed using high-performance hardware. Matched orders are then
signed off-chain and committed back to user accounts on the blockchain.
Figure 1: The NEX architecture provides fast, decentralized exchange using an off-chain matching
engine. Here we illustrate an example user interaction with NEX exchange. First, one user authorizes
a trade to exchange Token A for Token B (1) and sends the order to the matching engine (2). Next, a
second user authorizes and submits a trade for Token B in exchange for Token A (3-4). The engine
matches the orders (5) and submits them to a smart contract for execution (6). Note that steps (1-2)
and (3-4) can be initiated either via API call or the NEX exchange website.
To trade on NEX, a user must first authorize NEX to access the amount of token to be traded by
calling the NEP-5 approve method on the token’s smart contract. The user can then submit a signed
JSON request to the NEX matching engine API. Once the order is matched off-chain, the engine
will call the NEX smart contract to execute the order. Because a single invocation transaction on
NEO can contain many smart contract calls, the engine can batch a set of matched orders in one
on-chain transaction to minimize computation. Assuming 1,000 transactions per second, NEX could
potentially execute more than 100 thousand trades per second on the chain. In the future, such batches
could adopt match-rings to further enhance liquidity
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