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🟡 $YELLOW Basics: State Channels 🟡
A key component in @Yellow #Layer3 architecture, state channels may be the definitive solution for speed and scalability in high frequency trading.
If you have used the $BTC Lightning Network, you've used something very similar. LN uses payment channels, which handle specifically transfers of funds. A state channel can handle any change of state - any kind of transaction. Let's go for an analogy.
Imagine a major sports league where, in all weekend games, every single event that changes the game state (not just goals, but each action from blocks to passes) needs to be reported using the proper form to a Grand Referee-in-chief in charge of the game rules and league standings, who must evaluate, reject or approve each event and then register the new game state before the match can go on.
The Referee may be 100% trustworthy, but a game takes forever. And as more and more teams and players join the league, even if that Grand Referee becomes amazingly fast, he'll still be the bottleneck.
Until someone points out that for league standings to be reliable, once a valid match is registered only something else will be required: the final score. Everything else should be up to the players and to a local referee who only steps in if a game rule needs enforcing. So games become self sufficient, game speed is now only limited by the players speed and skill, and paperwork is reduced to one valid opening statement (lineups, time, etc) and one closing game report. The Grand Referee can trust the local ones and relax now in the weekends, even with hundreds of teams playing.
As you guessed, league results and standings correspond to the blockchain ledger, the Grand Referee is the consensus mechanism (while @Yellow calls the local referee, the simple smart contract overseeing a game, "Adjudicator") and game reports are on-chain transactions. In this analogy, every game instance can be seen as a state channel.
@Yellow is implementing state channels to achieve in a trustless way extremely high transaction throughputs, instant finality and trading privacy, while also dramatically reducing blockchain fees and congestion. Real time profits and losses, only settled in blockchain at the end of the session.
As in the analogy - a game changer.
Learn more: docs.yellow.org/yellow-network…
#DeFi #TradFi #Yellow
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