Note this is hoard 1.0 as of the current draft white paper. Likely upgrades and changes are coming.
The Smaug Network is an off-chain, 2nd layer solution for instant payments and microtransactions, enabled by the OAR token.
With traditional cryptocurrency exchanges, much of the activity is performed off-chain. For example, some exchanges offer free user-to-user transfers of the most popular cryptocurrencies. They accomplish this by having an internal ledger, backed by on-chain deposits, that record the balances of their users. These balances are not recorded on-chain until users decide with withdraw their assets outside of their networks.
This is very simple. Think of it just like a spreadsheet that updates and is accurate and is only a virtual asset while on the exchange, but the exchange must hold this asset to be able to create a virtual or liquid environment. Once the asset leaves the exchange fees and real blockchain transactions happen.
There is inherent risk in these types of transactions; the user who has been sent these funds intra-network does not have access to the private keys that store this balance (and in fact, neither does the user who sent this funds intra-network). In the case of an exchange becoming insolvent, there is little one can do to claim these funds.
The only safe way to exchange these funds is to make these transactions on-chain, commonly referred to as a withdrawal.
Withdrawals from traditional exchanges are plagued with issues: long confirmation times, complicated and user-unfriendly interfaces, high fees, and more. Exchanges utilizing the Smaug Network have a better proposition.
To begin, users who want to utilize the Smaug Network will first escrow an amount of OAR tokens greater than or equal to the amount of funds they would like to transact instantly across the network. These users deposit OAR tokens in a specialized smart contract, and these escrow operation is verified by the network of Hoard masternodes.
Once this has been accomplished, the user can begin trustlessly and instantly transacting funds using the Smaug Network for peer-to-peer transactions, exchange deposits, microtransactions, etc. This off-chain ledger is recorded in a database, similar to those used by traditional exchanges. However, with the Smaug Network, this database is distributed among the Hoard masternodes, adding decentralization and lowering insolvency risks. This off-chain transaction is backed by the escrowed OAR tokens to guarantee future settlement.
In the above figure, Bob sends a Settlement Message to the Smaug Network. Alice is periodically checking in with the Hoard Nodes to ensure final on-chain settlement. When a Settlement Message is received, Alice uses her keys to sign the on-chain settlement transaction on behalf of Bob.
There are many potential issues with this concept. While other solutions make use of on-chain opcodes and hash passing between users, we simplify the process and require Alice to make these settlements at the risk of losing her escrowed funds. Doing this prevents the following issues:
1. Alice is offline and not checking for settlement messages
2. Alice no longer has the required assets to settle the transaction
3. Alice refuses to make the settlement transaction behalf of Bob
If Alice is offline, she will never receive the message to complete the transaction. To prevent this, the Hoard wallet software will periodically check the distributed messaging service for messages instructing her to disburse her on-chain funds to intended recipient on-chain on behalf of the node user(s) she has transacted with.
In the absence of this check, a concept called Automated Settlement will be initiated by the nodes, wherein Alice’s OAR token stake is forcefully seized and used to repay the intended
receiver of the on-chain settlement.
Figure 6d. — The Smaug Transaction is settled on-chain, and the intended recipient is paid In the above figures, Bob has requested on-chain settlement of the Smaug Transaction from Alice, but Alice is non-responsive, either acting maliciously or offline. The OAR Token stake is seized via a consensus of the masternodes adjudicating the network and maintaining the messaging system that indicates settlement requests. This OAR stake is exchanged with our liquidity providers for the desired asset. This asset is disbursed on-chain to the intended recipient, settling the transaction. This Automated Settlement covers the cases wherein Alice is offline, non-responsive, or has spent the original assets on-chain apart from the Smaug Network.
There is another cause for Smaug Network transactions to undergo Automated Settlement and seizure of OAR tokens: This occurs when the OAR take used to guarantee the transaction has lost value, and is no longer sufficient to exchange with our liquidity partners in the event that Automated Settlement is required. We call this scenario Stake Value Deficit (SVD), and once again this scenario is prevented and adjudicated by the network of Hoard
Masternodes.
Cross Chain transactions or atomic swaps
Hoard allows you send any crypto for any crypto dynamically. So for example you have BTC and want to sent it to bob but in ETH. Traditionally you would need to first sell BTC for eth then transfer to Bob.
With hoard the receiver can choose what crypto currency they would like to receive with no extra cost to the sender. For example if they send 1 BTC the receiver can get 1 BTC worth of whatever token they want at the time.
I am a bit funny about this what are the time limits and how long does the receiver have? Does the sender care at all? Its up to the receiver to login and make the choice or can the pre make the choice so it happens instantly..
