I would like to bring the attention of shareholders to three liquidity provider custodian proposals that to date, have not been passed by shareholders. I'm doing this for two reasons:
- Some shareholders may be unaware of these proposals and will now now vote for them simply as a result of being made aware.
- To initiate a discussion about whether these LPCs should be accepted or rejected and why.
The three proposals I'm writing about can be reviewed here:
Currently there is a lot of reliance on KTm and Jamie Miller to provide liquidity and buy support. This is contrary to the design I penned in my whitepaper. While I am very grateful for the important work that Jamie and KTm have done, their roles are improvised ones that should have no permanent place in our network. The reasons are that LPCs funded by custodial grants introduce counterparty risk into our network and represent somewhat centralized services that will be tempting targets for those opposed to our network. While I have confidence in KTm and Jamie, LPCs given funds by the network can easily take those funds as their own. For this reason the practice cannot be extended to others and appropriately decentralized. It requires a great deal of trust, which we should eliminate wherever possible.
Benjamin began an interesting and relevant discussion about the uselessness of reserves like those held by KTm and Jamie here:
He contends that reserves cannot effectively back NuBits, or any decentralized currency. He is right, and my original vision of the network was reserve-less.
We went down the road of liquidity funded by custodial grant when we realized we needed to bring liquidity to crypto trading pairs, and not just USD/NBT. This introduced exchange rate risk to LPCs and required a much higher degree of complexity within NuBot that also introduced risk. At first, there was no good way to measure the degree of risk being taken on by LPCs in this new context. So we arranged to have the network itself pay for any losses by having the network front the funds used for liquidity. As time goes on, the risks are being minimized but also measured. So we are making a transition back to the original design. It is important that shareholders support and facilitate this transition by electing LPCs. It would also be helpful if LPCs allowed the community to know what their costs have been, so new LPCs can price their proposals accordingly.
There are modest risks involved in electing a custodian. Clients will distribute liquidity information signed by them for 6 months. This means they could add meaningless traffic to the network or fraudulently over represent the level of liquidity. They cannot do so anonymously nor do they have a motive for doing so. Furthermore, these are not actions that have the potential to cripple the network. As a result, I believe the benefits of electing the three LPCs listed above outweigh the risks of doing so. If you disagree with this assessment, and have chosen not to vote for these proposals, will you please post why so we will have a chance to address and examine those objections please?