Guardian Nodes: Making Centralized Components Unable to be Evil
Cryptographic Verification in High-Speed Matching Engines.
When Math Replaces Trust in Crypto Trading
Yamata is developing a design for cryptocurrency trading that intends to combine fast order books and advanced order types with a user experience that is simple, self-custodial, and onchain. At the center of this design is the Optimistic Hybrid Exchange Mechanism, combining a high-performance matching engine with a decentralized Guardian Node Network striving to ensure centralized components are "unable to be evil". The goal is to provide centralized exchange (CEX) speed with decentralized exchange (DEX) security.
This article details Yamata's Guardian Node architecture, its security implementation through cryptographic verification, and its economic incentive structure.
The Crypto Trading Dilemma: Why Guardian Nodes?
The need for Guardian Nodes becomes clear when considering the current challenges in the crypto trading landscape. For example, centralized exchanges (CEXs) currently dominate trading volumes by offering superior user experience, advanced trading features, and deep order books. Nevertheless, this convenience entails significant risks, particularly the necessity to trust centralized entities with user funds—a risk dramatically underscored by the collapse of FTX and other exchanges. Moreover, over $24 billion has been lost since 2012 due to hacks and failures of centralized exchanges.
Decentralized exchanges (DEXs) offer an alternative by allowing users to maintain custody of their assets. However, DEXs have limitations, such as slower speeds, fragmented liquidity, and high gas fees. In contrast, first-generation hybrid exchanges have attempted to bridge this gap but often fall short by moving order books offchain without proper validation. As a result, they leave the operator of the centralized component free to re-order trades, front run, and manipulate order execution. Essentially, DEXs still rely on a trust-based system.
Yamata aims to solve this dilemma through its Optimistic Hybrid Exchange Mechanism. Specifically, this mechanism merges the speed and efficiency of a centralized matching engine with the security and transparency of a decentralized Guardian Node Network. As a result, the goal is to create a trading environment where users can enjoy the benefits of both CEXs and DEXs without compromising on security or performance.
Dual-Layer Architecture Overview
Yamata's architecture employs a dual-layer design that separates execution from validation; this segregation is fundamental to achieving both speed and security.
In the execution layer, the Sequencer functions as a high-performance matching engine that processes trades with the speed of centralized systems. Consequently, its role is to manage efficiently and order transactions, providing the rapid processing capabilities required for professional trading.
Meanwhile, on the settlement side, Yamata utilizes Monad, a Layer 1 blockchain capable of processing 10,000 transactions per second with near-zero gas fees, which ensures efficient onchain finality.
Furthermore, the validation layer incorporates a decentralized network of Guardian Nodes that continuously validate every action, striving to ensure the Sequencer remains honest through cryptographic verification and economic incentives. In addition, these nodes act as independent referees, monitoring both the offchain sequencer and onchain data to detect discrepancies.
Real-Time Verification System
To guarantee the integrity of transactions, Yamata employs a real-time verification system that leverages cryptographic methods. The process begins when a user places an order, which flows through two parallel paths:
Method A: Offchain (Fast) When the user clicks "Buy" or "Sell," the order is quickly submitted to an offchain matching engine or service through a WebSocket or REST API. This direct submission path allows for instant order processing.
Method B: Onchain (Slower) Simultaneously, the order is submitted onchain and to a distributed storage system such as the InterPlanetary File System (IPFS), creating an immutable public record. The decentralized method generates a CID (Content Identifier), a unique code that links to publicly stored order data.
Sequencer groups process orders every ten seconds into epochs, posting Merkle tree roots onchain. An epoch can be thought of as a time bucket every 10 seconds, where the blockchain collects all the transactions during that time and puts them into one block. These epoch-based Merkle root commitments allow Guardian Nodes to verify against IPFS records, ensuring the Sequencer processes orders exactly as they were received.
Once received, the offchain transactions are organized in the correct order and grouped into batches that are then secured with a Merkle Tree, ensuring they are tamper-proof. A Merkle Tree is a method to bundle and verify data securely. Each transaction gets a label (into a "hash"), and then those labels are combined to form branches, eventually leading to a single label at the top called the Merkle Root. The Merkle Root is like a fingerprint for the entire group of transactions.
Finally, Guardian Nodes validate that orders processed by the offchain sequencer match their corresponding onchain records.
Challenge and Consensus Framework
Yamata's security relies on a robust challenge and consensus framework facilitated by the Guardian Nodes. The challenge process begins when Validating Nodes (VNs) detect a discrepancy in the transaction processing.
Guardian Nodes perform three critical functions:
Validate every order's execution sequence
Verify epoch commitments against IPFS records
Detect and challenge any discrepancies in the order flow
When a Guardian Node detects a potential issue, it compares the Sequencer's Merkle tree root with the order data on IPFS. Discrepancies trigger a challenge process that requires consensus from multiple nodes, preventing manipulation by the Sequencer and deterring frivolous challenges. Discrepancies can arise from:
A mismatch between offchain orders processed by the sequencer and their corresponding onchain orders.
Offchain orders being processed out of sequence by the sequencer
Exclusion of an order from the blockchain entirely by the sequencer
Each challenge requires specific evidence:
Complete order details from the blockchain, including transaction IDs, exact timestamps, and transaction amounts
Cryptographic proof of order location in both Sequencer data and onchain data records
Clear demonstration of the sequencing violation with supporting data
The challenge process follows a strict two-stage verification:
Stage 1 - Initial Threshold
Five Guardian Nodes must independently verify and support the identical challenge, each validating the same evidence
This prevents spam and ensures initial merit before proceeding
Stage 2 - Final Consensus
Only challenges clearing the initial threshold move to network-wide voting
More than half (½ + 1) of all active nodes must validate the evidence and agree for the challenge to succeed
The VNs then vote on the validity of the challenge. For the challenge to be upheld, a majority of VNs (½ + 1) must agree that the sequencer was wrong. If the challenge is successful, the sequencer is given an opportunity to defend its actions by providing clear evidence that it processed the transactions correctly, no orders were excluded, and the onchain and offchain data match.
Economic Incentive Structure
Yamata’s economic model is designed to align the interests of all participants, making honesty profitable and cheating expensive.
Transaction fees are distributed as follows:
40% goes towards buying back YMTA from the open market
10% (or 1/3rds of the 30%) is allocated to Guardian Nodes for validation
30% (or 2/3rds of the 30%) is allocated to a Future Reward Pool
10% is allocated to Yamata for operations
50% is kept in the Treasury, locked for 14 days for validation, and if there is no challenge, released to the protocol
Guardian Nodes earn rewards through multiple streams:
Base rewards for active validation
A share of transaction fees
Substantial rewards for catching discrepancies
The opportunity to claim Yamata's locked revenue on successful challenges
A reputation system tracks performance, impacting both reward rates and slashing penalties. Nodes start with a base reputation score, which increases with successful validations and decreases with failed challenges or downtime. A higher reputation results in better rewards and reduced slashing risk.
False challenges result in slashing penalties and temporary exclusion from the network. Successful challenges unlock the Sequencer's locked fees, equivalent to 14 days' worth of revenue, which is allocated to the challenging nodes.
The Guardian Network creates a "Mexican standoff" incentive structure: Yamata risks losing 14 days of revenue if the Sequencer misbehaves, while nodes can split this reward pool by identifying those misbehaviors. The economic incentive structure encourages Yamata to maintain the Sequencer's honesty to retain revenue, while nodes are motivated to detect misconduct.
Performance vs Security
Yamata balances performance with security. The offchain Limit Order Book Sequencer is engineered for speed:
It can process 84 million transactions per second
It has a matching latency of 2ms
It ensures fair order sequencing to prevent front-running
Built on Monad, Yamata aims to push these performance boundaries further:
10,000 TPS blockchain throughput
1-second block times
Single-slot finality
Near-zero gas fees
The Guardian Network offers continuous oversight through:
Real-time monitoring of order execution
Verification of epoch commitments
Challenge capabilities for any discrepancy
Economic penalties for misbehavior
Yamata's architecture and economic incentives ensure that centralized components are "unable to be evil". By combining cryptographic verification with economic incentives, Yamata replaces trust with mathematical guarantees and aligned incentives.
Technical Implementation
Becoming a Validating Node (VN) involves several steps, combining technical setup with specific requirements:
Activation Fee: A small amount of $YMTA tokens is required to activate the node
Node License NFT: Users need to purchase a Node License NFT, which serves as a digital certificate granting the rights to run a validating node
Hosting: Users can choose to deploy their node on a Virtual Private Server (VPS), use a Node as a Service (NaaS) provider, or run the node on their own machine
Yamata Software: Users must install the YAMATA software, which contains the necessary tools to operate the node, validate transactions, and participate in the order validation process
Key system specifications include:
The Monad blockchain for high throughput and low gas fees
The dual-layer architecture separating execution from validation
The Guardian Node network providing continuous oversight
Performance metrics for the Yamata system are:
84 million transactions per second processing capability
2ms matching latency
10,000 TPS blockchain settlement throughput
1-second block times
Reputation System Details
The reputation system plays a crucial role in maintaining the integrity of the Yamata network. Validating Nodes (VNs) earn or lose reputation based on their actions. The reputation score, ranging from 0 to 1000, affects their rewards and ability to participate in validation. All nodes start with a base score of 500 and can increase or decrease their score based on their performance.
Reputation Gain/Loss
Reputation Gain Behaviors: VNs gain reputation points through successful validations and challenges.
Reputation Loss Behaviors: VNs lose reputation points for failed validations, invalid challenges, misconduct, and inactivity.
The following table summarizes the key actions that lead to reputation gains and losses for VNs:
Punishment Process
Slashing Penalties: As a node's reputation decreases, the slashing tax on its rewards increases. Nodes with minor reputation issues may face small slashing penalties, while nodes with very poor reputations may lose all their rewards.
Exclusion from Validation: Nodes with a high reputation face no exclusion, while those with a moderately low reputation may be excluded for several hours, and those with a lower reputation may face exclusion for a few days or weeks.
Reputation Score Ranges
The node's reputation range determines two critical factors: the slashing tax applied when withdrawing rewards and the potential exclusion from validating.
The reputation score is calculated as follows:
Reputation = Base Score + (Success Points) - (Penalty Points) - (Inactivity Points)Where:
Base Score: The starting score, which is 500 for all nodes
Success Points: Earned from successful validations and challenges
Penalty Points: Deducted for failed validations, invalid challenges, or misconduct
Inactivity Points: Lost due to inactivity or extended downtime
This system incentivizes good behavior while holding VNs accountable for failures or misconduct. The higher the reputation score, the lower the slashing and exclusion penalties, encouraging nodes to maintain their reputation in the network.
By implementing these technical components and economic incentives, Yamata aims to create a trading environment that is both efficient and secure, where centralized components are "unable to be evil," and traders can operate with confidence.
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