Decentralized liquidity without counterparty risk not yet implemented

erasmospunk 2015-03-31 10:58:51 UTC #21

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

Nagalim 2015-05-12 23:19:20 UTC #22

Can we unpin this please?

JordanLee 2015-05-13 02:36:39 UTC #23

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.

Sentinelrv 2015-05-13 03:49:19 UTC #24

@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…

JordanLee 2015-07-04 21:50:04 UTC #25

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.

Current Liquidity

JordanLee 2015-07-04 21:50:13 UTC #26

cryptog 2015-07-05 03:25:27 UTC #27

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?

crypto_coiner 2015-07-05 05:39:19 UTC #28

What’s the use of B&Cex then?

crypto_coiner 2015-07-05 05:41:00 UTC #29

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

JordanLee 2015-07-05 16:35:01 UTC #30

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.

JordanLee 2015-07-05 16:42:53 UTC #31

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.

cryptog 2015-07-06 09:54:26 UTC #32

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?

cryptog 2015-07-06 09:55:40 UTC #33

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
[/quote]

cryptog 2015-07-06 10:04:04 UTC #34

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.