The TRAIN Protocol enables two parties to exchange assets across different blockchain networks using an enhanced version of Atomic Swaps called PreHTLCs. While effective, this method introduces specific operational constraints that shape the type of market the protocol can realistically support. This document outlines these constraints and explains the participants and markets that emerge as a result.

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How the TRAIN Protocol Works

The TRAIN Protocol operates through a sequential process:
  1. Party 1 locks funds for Party 2.
  2. Party 2 locks funds for Party 1.
  3. Party 1 decides to either:
    • Release the funds and complete the trade.
    • Cancel and refund.

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Key Constraints

  • The total operation time is limited to 15–20 minutes to protect both parties.
  • Under normal conditions, a transaction can complete within 1–2 minutes if both parties act promptly.
  • Both parties can cancel the transaction at any time before finalization without penalty (except for blockchain transaction fees).

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Challenges in Cross-Chain Trading

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Market Price Fluctuations

  • Within the 20-minute window, market prices for assets may fluctuate:
    • If the price moves unfavorably for Party 2, they are incentivized to cancel the trade.
    • If the price moves favorably for Party 1, they are incentivized to proceed, disadvantaging Party 2.

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Rational Behavior and Market Instability

  • If both parties act rationally to maximize profit:
    • No stable market equilibrium can form.
    • Trades will be canceled whenever market movements make them unprofitable for either party.

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A Sustainable Market: Necessity vs. Profit

A sustainable market can only exist if one side of the trade (Party 1) is motivated by necessity rather than pure profit maximization. For example:
A person needing gasoline in an emergency may be willing to pay a slightly elevated price without overanalyzing market conditions.

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Characteristics of Participants

  • Party 1: Acts as a retail, non-sophisticated participant.
    • Their primary goal is to execute the trade for practical or urgent reasons, not financial optimization.
  • Party 2: Acts as a strategic actor.
    • They must offer prices that balance two factors:
      1. The price must not be so unfavorable that Party 1 refuses the trade.
      2. The price must account for potential market fluctuations over the next 20 minutes to ensure Party 2 still wants to complete the trade (avoiding wasted transaction fees).

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The TRAIN Protocol Market

The TRAIN Protocol inherently creates a specialized type of cross-chain market:
  • A market where Party 1 acts out of necessity rather than trading sophistication.
  • A market where Party 2 strategically prices the trade, accounting for volatility and transaction costs.
  • A market that cannot support active speculative traders on both sides because the structure incentivizes trade cancellations under rational profit-seeking behavior.

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Conclusion

The TRAIN Protocol does not simulate traditional exchanges. Instead, it creates a transaction environment that prioritizes execution certainty over financial optimization. This unique approach enables cross-chain markets to serve users with practical needs, ensuring trades are completed even in volatile conditions.
Key Takeaway: The TRAIN Protocol thrives in scenarios where one party prioritizes necessity over profit, creating a stable and reliable cross-chain trading environment.