On-Chain Order Books represent a decentralized exchange (DEX) model where all components of the order book—including order placement, modification, cancellation, and matching—are recorded and executed directly on a blockchain. This design ensures transparency, immutability, and censorship resistance for all trading activities.
Mechanism
Each order submitted by a user is broadcast as a transaction to the blockchain, requiring network confirmation. Smart contracts handle the matching logic, executing trades when bid and ask prices align. All changes to the order book state are publicly verifiable and permanently stored on the distributed ledger. This design inherently links trade execution to the underlying blockchain’s transaction finality.
Methodology
The strategic rationale behind on-chain order books prioritizes trust minimization and auditability, eliminating reliance on centralized exchange infrastructure. However, this design faces challenges related to transaction fees, network latency, and scalability, as every order action consumes blockchain resources. Methodologies often involve Layer 2 scaling solutions or specific blockchain architectures optimized for higher transaction throughput to mitigate these inherent limitations.
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