MVP for privacy preserving CLOB DEX on Midnight

[Proposal setup] Proposal title

Please provide your proposal title

MVP for privacy preserving CLOB DEX on Midnight

[Proposal Summary] Budget Information

Enter the amount of funding you are requesting in ADA

100000

[Proposal Summary] Time

Please specify how many months you expect your project to last

5

[Proposal Summary] Translation Information

Please indicate if your proposal has been auto-translated

No

Original Language

en

[Proposal Summary] Problem Statement

What is the problem you want to solve?

Privacy preserving Swaps and Missing DeFi Capabilities in Midnight network

[Proposal Summary] Supporting Documentation

Supporting links

• https://docs.google.com/document/d/1M9NIm0AIpj4CXMyZgu0_Sn09eNkqdlyAsYAchVV3Bj4/edit?usp=sharing

[Proposal Summary] Project Dependencies

Does your project have any dependencies on other organizations, technical or otherwise?

No

Describe any dependencies or write 'No dependencies'

No dependencies

[Proposal Summary] Project Open Source

Will your project's outputs be fully open source?

No

License and Additional Information

MIT License for Swap Logic. CLOB and matching engine may be kept private due to security concerns in a sensitive DeFi component.

[Theme Selection] Theme

Please choose the most relevant theme and tag related to the outcomes of your proposal.

DEX

[Campaign Category] Category Questions

Describe what makes your idea innovative compared to what has been previously funded (whether by you or others).

The project innovates by integrating Midnight's ZSwap protocol for privacy-preserving atomic swaps.

Its hybrid model—off-chain CLOB for sub-millisecond matching and advanced orders, with on-chain settlement—delivers CEX-like speed and self-custody, unlike transparent DEXes on Ethereum or Solana.

It will bring new capabilities to the ecosystem

Describe what your prototype or MVP will demonstrate, and where it can be accessed.

The feasability of the hybrid on/off-chain approach for a privacy preserving DEX in Midnight.

It will be available to test on testnet with a cloud service deployment with limited throughput for the off-chain components.

The swap merge logic will be available for users to fork and further develop.

Describe realistic measures of success, ideally with on-chain metrics.

• Deployment on testnet
• Protocol stability
• Transaction count
• $50K+ Simulated TVL
  • On-chain sum of test tokens (e.g., tADA, tNIGHT from faucets or airdrops) deposited into settlement contracts for simulated orders and liquidity.
• 100+ Unique Active users
  • Number of distinct testnet addresses interacting with on-chain components (e.g., submitting orders or approvals)

[Your Project and Solution] Solution

Please describe your proposed solution and how it addresses the problem

We propose to build the initial steps of a high-performance, orderbook-based decentralized exchange (DEX) with focus on privacy on Midnight. This DEX will use a central limit order book (CLOB) model to deliver a CEX-like trading experience (fast order execution, deep liquidity, and advanced trading features) while maintaining decentralization and self-custody.

The goal is for this DEX to become a reference DeFi application on Midnight, showcasing Midnight's implementation of ZSwap protocol, allowing a third party to merge transactions without trust assumptions. Trust in the keepers of the protocol will be limited to the requirement of only submit swaps when the order conditions are met.

We envision a modular development of the DEX, initially supporting spot swaps, but adding additional DeFi capabilities in successive stages accompanying the growing Midnight DeFi ecosystem.

The protocol will consist of a series of on-chain and off-chain components

• Off-Chain Matching Engine – A high-performance order matching system that will privately commit matches on-chain.
• On-Chain Settlement Contracts - Submit balanced trades
• Peripheral Components – Front-end UI, APIs for integrations, and additional features post-MVP.

Our implementation will eventually support a full range of order types

• Market Order: Executes immediately at the best available current price.
• Limit Order: Buys or sells at a specified price or better
• Stop Market Order (or Stop Order): Triggers a market order when the token price hits a certain level.
• Stop-Limit Order: Similar to a stop order, but triggers a limit order instead of a market order. Sell only if the price drops to a stop but executes at or better than a limit price.
• Take-Profit Market Order: Triggers a market order to sell when the price reaches a profitable level.
• Take-Profit Limit Order: Triggers a limit order at a take-profit price, combining profit-locking with price control.
• Request-for-Quote (RFQ) Order: A simplified limit order for just-in-time quotes from market makers.
• Trailing Stop Order: Adjusts the stop price as the market moves in your favor, trailing behind the current price by a set percentage or amount.
• One-Cancels-the-Other (OCO) Order: Places two linked orders (e.g., stop and limit); if one executes, the other cancels automatically.
• Immediate-or-Cancel (IOC) or Fill-or-Kill (FOK): Executes immediately (partially or fully) or cancels if conditions aren't met, useful for large swaps without partial fills.

For this MVP, only Market and Limit Orders will be implemented

[Your Project and Solution] Impact

Please define the positive impact your project will have on the wider Cardano community

This project could elevate Midnight's profile in privacy-centric DeFi, driving adoption and ecosystem maturity. Early development is crucial for co-evolution, risk mitigation, and positioning Midnight as a leading blockchain for secure applications.

As Midnight's mainnet is still to be deployed, this early DEX could showcase its capabilities and drive growth.

Key Impacts are expected through

• Utilizing ZSwap for a DeFi application, showcasing ZK features through real-world use, refining security and efficiency
• Bootstrapping DeFi with modular features, attracting liquidity and developers.
• Offering advanced private trading will appeal to users and boost network activity.
• On the long run, generation of economic value via fees and tokens, enhancing Midnight's tokenomics.
• Maturing the Platform
  • Battle-testing of ZSwap and runtime, providing feedback for improvements.

[Your Project and Solution] Capabilities & Feasibility

What is your capability to deliver your project with high levels of trust and accountability? How do you intend to validate if your approach is feasible?

Our company has a proven record delivering successfull and high quality DeFi products (Hatom and Soul protocols) as well as experience working with ZK technologies.

Midnight's ZSwap implementation and the availability of open source matching engines to use as a starting point makes this project feasable in the expected timeline.

The initial milestone will be devoted to analize the best resource allocation to complete the project in the defined scope, budget and timeschedule.

Internal audits and testing will be perfomed to guarantee its functionality.

[Milestones] Project Milestones

Milestone Title

Protocol Final Design

Milestone Outputs

• Detailed documentation outlining the off-chain architecture, including CLOB implementation characteristics, matching engine design, and order merging/submittal processes.
• Detailed documentation outlining the on-chain architecture, including the extent of on-chain order verification capabilities, available oracles, risk management strategies, and admin functionality.
• Comprehensive report on on-chain and off-chain architecture, including security considerations such as potential vulnerabilities, encryption standards, and access controls.
• De-risking report identifying potential risks (e.g., technical, regulatory, or operational), mitigation strategies, and contingency plans.

Acceptance Criteria

• All architectural designs must clearly define interfaces between components (e.g., APIs, data flows) with no ambiguities in how off-chain and on-chain elements interact.
• Security considerations must cover at least encryption, authentication, DDoS protection, and smart contract vulnerabilities, with references to industry standards (e.g., OWASP for off-chain, formal verification for on-chain).
• De-risking report must quantify risks and include at least 80% coverage of identified risks with actionable mitigations.
• All documents must be peer-reviewed by at least two team members, with feedback incorporated, and formatted consistently (e.g., using Markdown or PDF with diagrams).

Evidence of Completion

• Shared repository or document folder containing the architecture documents, roadmap file (e.g., in Gantt chart or spreadsheet format), and de-risking report.
• Version control commits showing iterations on the documents.
• Diagrams (e.g., UML or flowcharts) embedded in the documents visualizing component interfaces and data flows.

Delivery Month

1

Cost

10000

Progress

10 %

Milestone Title

Swap logic Development

Milestone Outputs

• Source code for swap settlement logic, including order posting, merging, on-chain submission, and admin functionality (e.g., pause/resume controls).
• Comprehensive unit test suite covering all contract functions, edge cases, and failure scenarios.
• Deployment scripts for automating contract deployment to test environments.
• Documentation including code comments, API references, usage guides, and explanations of the swap logic mechanics.

Acceptance Criteria

• System compile without errors and handle core functionalities like order merging and settlement.
• Unit tests must achieve at least 95% code coverage, with all tests passing in a clean environment, including simulations of invalid inputs.
• Deployment scripts must successfully deploy to a local or testnet blockchain, with error handling for common issues like network failures.
• Documentation must be complete, accurate, and accessible, enabling a new developer to understand and deploy the contracts without additional guidance.
• All code and tests must adhere to coding standards and be free of known vulnerabilities.

Evidence of Completion

• Git repository link with source code, test files, deployment scripts, and documentation folders.
• Test reports or CI/CD pipeline logs showing passing unit tests and coverage metrics.
• Screenshots or logs of successful local deployments and contract interactions.

Delivery Month

2

Cost

20000

Progress

30 %

Milestone Title

CLOB and Match engine development

Milestone Outputs

• Source code the off-chain Central Limit Order Book (CLOB) and matching engine, including order matching algorithms, data structures, and integration points.
• Unit test suite for the CLOB and matching engine, covering matching logic, performance under load, and error handling.
• Audit-ready codebase with inline comments, modular design, and adherence to best practices.
• Documentation detailing the implementation, APIs, configuration options, and usage instructions.
• Deployment scripts for cloud services (e.g., AWS, GCP) and initial deployment artifacts.

Acceptance Criteria

• CLOB and matching engine must process simulated orders (e.g., 1000 orders/sec) with matching accuracy of 100% in test scenarios, including cancellations.
• Unit tests must cover at least 90% of the codebase, with benchmarks for latency and throughput.
• Codebase must pass internal linting and static analysis, with no critical issues, and be structured for easy auditing (e.g., separated concerns, no monolithic files).
• Documentation must include architectural diagrams, API endpoints, and examples of order flows, sufficient for external auditors to review without clarification.
• Deployment must succeed on a cloud environment, with monitoring setup (e.g., logs, metrics) and scalability tests confirming handling of peak loads.

Evidence of Completion

• Git repository containing the matching engine source code, tests, scripts, and documentation.
• Test logs and performance reports from unit tests and load simulations.
• Deployment confirmation (e.g., cloud console screenshots, URLs to hosted instances).

Delivery Month

4

Cost

50000

Progress

80 %

Milestone Title

Integration, Internal testing ,Optimization and testnet Launch

Milestone Outputs

• Deployed on-chain components on a testnet.
• Integrated system with end-to-end flows connecting off-chain to on-chain.
• Full-coverage test suite including integration tests, end-to-end scenarios, and optimization reports.
• Revised documentation and repositories incorporating testing feedback.
• Internal testing report from an independent team within Rather, highlighting issues found and resolutions.

Acceptance Criteria

• End-to-end tests must cover all flows (e.g., order posting to settlement) with 100% success rate in simulated environments, including failure recovery.
• Integration must handle real-time interactions without data loss or desyncs, verified through stress testing (e.g., 500 concurrent users).
• Documentation revisions must address all gaps identified in testing, with updated diagrams and guides.
• Internal testing by the independent team must confirm no major bugs, with at least 90% of test cases passing and all critical issues resolved.

Evidence of Completion

• Testnet deployment addresses and transaction hashes for on-chain components.
• Integration test reports, logs, and videos demonstrating end-to-end flows.
• Updated git repositories with revised code and documentation commits.
• Signed-off report from the independent testing team, including bug trackers or issue logs.

Delivery Month

5

Cost

20000

Progress

100 %

[Final Pitch] Budget & Costs

Please provide a cost breakdown of the proposed work and resources

Cost breakdown:

• Protocol design
  • Full Stack Engineer | 80h: $6400
• Swap logic Development
  • Full Stack Engineer | 200h: $16000
• CLOB and Match engine development
  • Full Stack Engineer | 280h: $22400
• Integration, Internal testing, Optimization and testnet Launch
  • Full Stack Engineer | 120h: $12800

Total: $64000 / (0.6 [$/₳]) =~ ₳ 100000

[Final Pitch] Value for Money

How does the cost of the project represent value for the Cardano ecosystem?

The Midnight CLOB DEX project offers exceptional value for money. It has enormous potential to attract new users to the ecosystem and to serve to showcase Midnight's exceptional capabilities in privacy preserving swaps.

It can potentially fill a currently very requested role in private and compliant DeFi, attracting users and generating ecosystem growth.

[Required Acknowledgements] Consent & Confirmation

Terms and Conditions:

Yes