Decentralized liquidity without counterparty risk not yet implemented

Right now as a reward you can ask for both assets: NSRs or NBTs.
It is just that it is more complicated to ask for NSRs since it is not yet at protocol level (you need to trust JL to give you the shares once your mission is completed) but the automatic rewarding process is being implemented right now.

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Thanks for the info. As always i am pleased with the game plan going forward and hopefully we will have quick implementation going forward as well.

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When our liquidity operations are 100% conducted by self funded LPCs (or liquidity pools where users provide funds like what @henry is forming), we will be able to say liquidity operations are counterparty risk free, from the perspective of the network.

While what constitutes decentralized liquidity is a matter of degrees, my short term goal is to ensure that no single LPC provides more than 25% of total buy side liquidity, and that there be at least six LPCs providing at least 5,000 NBT in buy support each.

Once liquidity operations become counterparty risk free and decentralized according tho the above definitions, I will unpin this topic. In the meantime, I will periodically articulate our progress toward liquidity operations being counterparty risk free and decentralized.

Here is my present assessment of liquidity operations:

Using the getliquidityinfo RPC with B as the parameter, I can see that currently 21.1% of our liquidity is currently being provided by self funded LPCs where the liquidity operation poses no systemic risk or potential loss to the network.

There are six LPCs currently operating, although two LPCs have trivial funds at work (< 150 NBT). One LPC, @jmiller, provides 47% of all liquidity and more than 90% of all buy side liquidity. Having <5,000 NBT buy side liquidity being provided by all LPCs besides @jmiller is quite hazardous to the peg. @jmiller, @henry and @KTm: will you work together to balance the buy side liquidity among yourselves please?


Some questions:

Are these for NBT/Crypto pairs or also including NBT/USD ? NBT/USD has little exchange rate risk.

The 5000 NBT number seems arbitrary. We have seen that some exchanges don’t have more than a couple of hundred NBT traded everyday on average. Crpto activities in general has ups and downs. There is little need to risk many times liquidity when it is obvious that there isn’t all that much trading. So I think tier 1+2 should be adjusted maybe on a 10-day moving average of buy-side (or buy+sell) liquidity basis or on a10-day MA of daily volume basis (the calculation can be made by the bot).
Or give this speific decision to the LPCs to make and only ask the LPCs to follow general guide lines in the beginning. After a while when this new mode of operation goes well, more specific requirement can be added based on experiences.

Time for another evaluation of our liquidity operations:

Currently, 74.8% of liquidity is being provided by self funded LPCs that present no systemic counterparty risk (this excludes liquidity being reported from KTm, which is shown erroneously right now). This is a huge improvement over last week’s 21.1%. The change is due more to KTm and jmiller reducing liquidity than it is due to an increase in activity from new self funded LPCs (though that was a factor). This means total liquidity is very low at ~69,000 for both walls (once again excluding the erroneous KTm figure). More LPC proposals and shareholder approval of those proposals is needed. I’m hopeful the Nu Lagoon will improve things quickly once the motion paying for their operation is passed. Given that NuBits volume has been in the low 10,000’s recently, this low liquidity is not a serious problem. However, providing more liquidity should positively impact NuBit trade volume.

The buy walls of @henry and @creon are quite unbalanced, in opposite directions. Would the two of you consider balancing your walls together, please?

There are four LPCs providing liquidity, with 45% of all liquidity being provided by a single LPC. Quite a bit of improvement is needed in the area of decentralization.


The only thing that is holding be back doing this is that it would violate my grant proposal. If the liquidity balance generally is considered as something that can be changed later on then I can transform half of my funds into NBT.

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Could you please review this proposal if it fits the criteria of decentralized liquidity. @JordanLee

Can we unpin this please?

Let’s take a look at our progress toward providing decentralized liquidity without counterparty risk (from the point of view of the network).

Using the getliquidityinfo RPC with a B parameter, I can see that there is 98,760 of tier 1 liquidity. 72,672 (73.6%) of this is coming from Jamie Miller and Kiara Tamm, who are using shareholder funds. So, only 26.4% of tier 1 liquidity is free of systemic counterparty risk. That isn’t an improvement in raw numbers.

However, we can see very important progress forming that hasn’t quite manifested in the current numbers. Nu Pool appears on track to dramatically expand its operation to provide 70,000 in liquidity. Liquid Bits and NuPond have just started operations and are providing 3000 and 500 in liquidity respectively. I expect the amount provided by Liquid Bits to rise quickly. NuPond and Liquid Bits are both likely to expand operations in a few weeks. Jamie and KTm will be burning all shareholder funds in a few weeks except what is held hostage at CCEDK and BTER.

There is a reasonable chance that in 30 days we will see liquidity offered using shareholder funds drop to less than 30,000 while counterparty risk free liquidity rises to around 90,000 from our 4 pools. Most of this will be provided by Nu Pool, but in 60 to 90 days hopefully it will become more balanced among our pools.

So, if we continue to nurture the efforts already well underway, we will have liquidity that is both decentralized and free of systemic counterparty risk in 60 to 90 days.


@JordanLee, I was wondering if you had read this thread. It began about something else and then turned into a discussion about how to continuously pay for liquidity pool interest in the future. Right now we’re just printing NuBits to fund the pools, but can that go on forever? Please take some time to look it over if you haven’t read it yet. I was interested in hearing your opinion about it. For example, @Sabreiib talks about how we’re bleeding money out of the system through the 7.5% interest for pools…

The burn by jmiller means the undesirable practice of using shareholder funds for liquidity has been completely abandoned. Now our liquidity operations are free of counterparty risk (from the perspective of the network and shareholders) and it is decentralized, with a number of pool operators and many users of each pool. It was a monumental task that is now complete. Thank you to the dozens of people who played a role in making NuBit liquidity decentralized and free of counterparty risk.

The exchange defaults that occurred in February can never happen again as a result. Those were difficult for our network, but the network and design was so robust that it was able to maintain the peg even under remarkably unfortunate circumstances (the chances of so many simultaneous defaults are quite low) combined with a core part of the design not being implemented and operational yet. This speaks volumes for the reliability of our network and the peg. We have reason to be proud of what we have built. The facts that this can never happen again and the network remained stable throughout the crisis means that there is good reason to be confident in the future of the peg and the future of the network.

The only element that remains centralized is tier 4 liquidity. While this can be split into the custody of multiple entities now, it would still represent a reserve that is subject to a variety of risks. We can end it entirely by using B&C Exchange to lock down liquidity for a time period specified in a liquidity provider’s contract. While it won’t be implemented in the first version of B&C Exchange, it is possible to mark certain deposits as locked for liquidity provision for a configurable time period. Reputed signers could automatically place liquidity orders with these funds for the locked period. This means that if we had liquidity providers lock $100,000 there for six months, we could guarantee $100,000 in liquidity for the six month period. Liquidity providers would not be able to remove their funds in the event that they would like to for whatever reason. This increases the reliability of the peg, as liquidity providers might otherwise be tempted to remove liquidity at just the time it is most needed.

This is how I envision implementing our design goal of zero reserves.


So it is another way to use time locking (besides releasing user funds in case signers get non responsive) where some liquidity providers (could be reputed signers or not) would agree to lock their liquidity for a specific amount time in exchange for a reward specified into a motion agreed upon by shareholders?

What’s the use of B&Cex then?

Can anyone elaborate what tier 4 liquidity is? seems like B&Cex deals with it.

Time locking and placing liquidity provider funds in escrow are two fundamentally different processes that I hope to see implemented in B&C Exchange after the initial fully functional release (these two features are currently unfunded).

Time locking is a transaction that is broadcast but it isn’t valid until a certain user configured time or block height. If implemented in B&C Exchange it would allow a user to have their deposit sent to a withdrawal address under their control in six months or a year. If their deposit is transferred normally before then, the time lock transaction becomes invalid and never occurs. If funds remain in the address at the specified time, then they are transferred without any action on the part of the signers or anyone else. This means the transfer will occur even if all reputed signers fail to act.

Locking liquidity provider’s funds on the exchange and placing them under control of reputed signers as a result of a signed message from the liquidity provider to do so is a partial implementation of the escrow system that B&C Exchange is well adapted to support. As part of this, a liquidity provider will request that signers be given control of the account (so they can place orders) using a proxy multisig BlockCredit address. I suspect the usefulness and earning potential of the escrow system and reversible transaction system of B&C Exchange is under appreciated by shareholders at this time. While these features are described in the design paper, they are currently unfunded.


Tier 4 liquidity consists of BTC for buy support and NuBits for sell side that are held off exchange but can be promoted to tiers 1, 2 or 3 as needed. They strengthen the peg but introduce an element of counterparty and default risk. Having equivalent funds in escrow on B&C Exchange tremendously mitigates these risks while still having the same positive effect on peg strength.

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I feel that the escrow system can also be used to offer a totally decentralized wallet function.
Right now when using a wallet a la coinomi, the system does not hold your private keys but you need to use a server that holds the blockchain for you. I feel there is a risk that somewhat a rogue agent intercepts your private keys.
In B&C, you need to trust a multi-sig mechanism that controls the holding of your money by highly reputed holders that download the blockhain for you.
I feel it is more secure than coinomi.
Any thoughts on that?

My understanding is that it is also the role of Tier 3 in [quote=“JordanLee, post:1, topic:618”]
Tier 3This liquidity sits off exchange a

We have solved the problem of having liquidity depending on shareholders’ money.
The liquidity pools enable a lot of providers to participate without having to dealwith the fuss of creating custodial grants votes and setting up bots. The result of that is that we have created sufficient liquidity in those pools to completely shut down the operations of @jmiller or @KTm, in my understanding.
However, that in itself, does not guarantee that we have a very high liquidity.
In order to do so, we need to decrease the risks taken by providers.
We can do that by creating a totally decentralized exchange that would reduce drastically the chance of exchange default.
This is the purpose of B&C.
If B&C is able to perform its intended goal, then much more providers will be willing to contribute much more fund on the one hand because the risk of loss gets very low, on the other hand since there won’t be operations costs or very low costs, we could imagine letting providers increase the spread while keeping a very attractive exchange fees, thus giving more financial incentive to participate.