Overview

The Local protocol is a decentralized peer-to-peer marketplace built around a dynamic transaction graph and native token. Producers (e.g. restaurants, drivers) earn a block reward by providing services for the network. Buyers earn rewards through an augmentation fee that Producers use as a means to market their services to the Buyer network. The graph allows for dynamic markets to discover optimal token distributions without having to make naive assumptions about the behavior of participants or the properties of the market in advance. Block rewards are paid out at the time of a new undisputed transaction relative to the state of the transaction graph.

In the case of a dispute, a decentralized network of arbiters provide a resolution service. The losing party in a dispute can have the edge-weights in their transaction graph slashed or burned, harming their future earning potential in the network. This mechanism reduces the frequency of false-claims for economically rational actors. In a dispute, arbiters are eligible to earn the block reward that would have otherwise been earned for creating the transaction, as well as a portion of the tokens slashed from the edge-weights in the transaction graph.

In future iterations, we may assume more data to be private, but our initial model assumes that data about participants and their history is public and anonymized. Because data is stored in publicly indexed data repositories, there is no information asymmetry.

Because there is no information asymmetry, the market-clearing price for insurance (service fees) can be dynamically determined through decentralized liquidity pools. Opening an insurance market for risk modeling allows for the emergent discovery of service fees based on the history of the transacting parties, and their reputation.

We also imagine dynamic information graphs emerging, using something like the Etherem Attestation Service, to decentralize information acquisition about peers in the network.

We are confident that this mechanism will result in more reasonable fees and strong protections against bad actors. Participants with a history of malicious behavior would be functionally blacklisted, unable to reasonably purchase insurance, and therefore inelligble to transact.