I love the concept of Decentralized Exchanges but I’m not a programmer and I haven’t been involved in such projects before. I’ve just been reading about it today and thought I might throw in my two cents as far as ideas for development are concerned.
One of the proposed problems and solutions with a decentralized exchange seems to be, “how do you exchange fiat for bitcoin with a stranger if you have no third party mediating the security of the transaction?”
Some projects like Coinffeine propose that a deposit is made by both parties as arbitrator for a transaction so that if anyone tries to cheat the transaction, they lose their deposit. But some say that doesn’t protect against wealthy trolls who want to just see the world burn. This is true, and unfortunately there are people who are that way inclined, and it is often wealthy people who are usually of that inclination.
So how do we guard against that?
Automated track records of trading activity should provide a rating of trust like that on Localbitcoin.com that can be requested by each party involved in a transaction prior to transacting with each other.
When two parties meet online to transact, the person with the lowest trust rating must go first in the “your turn, my turn” process of deposit A, deposit B, sell portion A, buy portion B, sell portion A, etc of the transaction process. This will encourage people to have a higher trust rating so they don’t always have to go first.
Once you reach a certain rating of trust, you go up to a new tier of trust, where you can now join and trade at higher volumes with other trusted traders who have achieved the same tier. Then the more trustworthy trades you do, the more people you can enjoy a trustworthy trading environment with.
Think of the verification process on Kraken.com. The more verification you provide, the higher your tier level, the more access to trading volume and activity you can make use of. In this case, the more trust you prove, the more access to trading volume and activity you can access.
Therefore, when you first sign up to trade, you are on tier one, and can only trade in small amounts, eg: 0.1btc max or its equivalent fiat value per trade. After successfully making, let’s say twenty trustworthy trades, you move up to tier two.
At tier two you can now trade at a max limit of 1btc per or it’s fiat equivalent per trade. After another twenty trustworthy trades, you move up to tier three, etc. This way each decentralized trader will gradually get access to more trading volume the more trusted trading they do. Cheat just once, and you are locked out of the system, and will have to sign up as a new user and start the trust verification process again.
Essentially your first few trades on signup will be under scrutiny by those you trade with, but the risk of loss is minimal because your volume to cheat with is minimal, and as you progress to the next tier of trust based on “how many trustworthy trades you have made”, and then to the next tier of trust with “how much trustworthy volume of trade you have you made”, you will reach a tier where you will be amongst your trustworthy peers, and are less likely to have to deal with the risk of cheaters.
Of course this doesn’t eliminate the risk entirely because if someone suddenly lost their personal wealth after achieving this trust, they might turn to the dark side and sabotage their own reputation in one foul swoop, but then their rating is gone forever, and they will never be able to achieve status again, and the loss will only be a portion of a trade to one unlucky individual. The odds of being that unlucky individual is very slim compared to the likeliness of this concept working for the majority.
Kind of like saying, yes, people do die on the road, but we will still continue use vehicles
for the sake of it being very convenient compared to no transport.
Let’s talk about it 
