So we only need one and tzBTC is the chosen one. Bravo!
If we add multiple pairs, XTZ/tzBTC and XTZ/kUSD, as long as all the pairs are against XTZ, theyâll all provide liquidity to XTZ.
Well tzBTC isnât ideal for a number of reasons, but there arenât exactly many alternatives and there were even fewer when the TZIP was proposed. Itâs not a bad option, but I think in the future there will be better ones.
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The total amount of tez minted in this proposal is 1,314,000 or 0.15% of the total supply. The proximate risk to token holders from a centralized actors misbehaving is essentially capped at being diluted by 0.15% without some or any of the liquidity provision happening.
The correct way of framing it is 0.15% in extra inflation every 6 months, assuming the intent is to extend liquidity baking if it is successful (no reason not to), which means over time it may grow to be a significant percentage of the networkâs total value in inflation alone, and will certainly increase TVL (total value locked) of the tzBTC/XTZ pool way beyond 0.15% of the XTZ market cap.
I think the proper way to frame the centralization risk is to consider what happens if tzBTC/XTZ pool grows to $100M TVL or greater, what will âlosing the tzBTC/BTC pegâ mean for Tezos? It might mean immediately losing $50M of value in Tez from the protocol as the pool is drained by infinitely minted tzBTC - a worst case scenario, and pretty unlikely, tbh, but still something we should consider.
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Thatâs irrelevant because it takes an entire protocol amendment to extend it.
Thatâs flawed logic, but even assuming this were permanent and irrevocable â which it obviously isnât â this would add up to 1% inflation over a decade.
Sure, what does it mean? Itâs certainly a big deal for the people who chose to add liquidity to this pool. People who want to contribute to this pool should take a very good hard look at tzBTC, at the contract, at redemption rules, etc. Others are way less affected.
WBTC has $7B on Ethereum, held by a single counterparty : Bitgo. I donât see any hand wringing over what happens to Ethereum if WBTC breaks.
Conversely let me ask you, what does it mean for Tezos if it remains one of the least liquid cryptocurrency in the top 50 much longer?
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So it seems LB would provide a long term solution to tez being a store of value and have constant Liquidity without relying on Market Makers and Central exchanges dictating it.
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What are some examples of ââŚletâs have a bunch of defi by subsidizing itâ?
Generally take the form of: letâs do it for a bunch of other pairs or letâs do it with a bunch of different dexes. It misses the point.
I think you made the point abundantly clear. This is a proof of concept with a good chance of working as intended, an acceptable downside AND most importantly, in the future, if this works, we will be discussing doing other LB pairs.
For what itâs worth, everyone who has had feedback to give in this thread, you better pay attention to this place going forward so we can provide much feedback right out of the gate. This way once decision time comes we donât have to start from first principles.
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Youâd think so!
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wBTC/ETH liquidity providers donât earn an Ethereum mining reward every block though, so itâs a bit of a strawman.
The fact that there is a subsidy is accounted for in the 0.15% figure I gave. You claim that number doesnât account for everything, notably consequences for âTezosâ as a whole if the peg is lost. If youâre interested in the consequences beyond the 0.15% loss, then the example of WBTC is quite appropriate.
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The thing Iâm arguing is that if we want to give an economic advantage to a specific asset/liquidity pool at a protocol level, that implies the pool will attract more liquidity than normal - free money tends to do that. Certainly, if wBTC/ETH earned an ETH mining reward per block that might attract more liquidity than would otherwise exist in the wBTC/ETH pool.
So it seems reasonable that if a protocol wants to sponsor or provide economic advantage to a specific asset over others we should think through the systemic risks providing an economic advantage to that protocol carries. wBTC receives no economic advantage over any other ERC20 token on Ethereum, so using itâs market cap as a comparison with tzBTCâs market cap seems like an unfair comparison.
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Tks to all individuals who are participating into this debate.
Tks to all individuals who have put a lot of energy into this amazing project that Tezos is .
But I hope human emotions do not influence too badly each individualâs opinions.
I hope we are having a constructive discussion that is helping Tezos move forward for the better.
Finally, I feel it is easier to get triggered on a forum like this than say during a real time discussion face to face.
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First off, the goal isnât to âgive an economic advantageâ to an asset other than tez. The fact that this might make tzBTC more popular on chain is a side effect, not the goal.
Second, there is already deep liquidity for Bitcoin, so this might improve liquidity at the top of order book for tzBTC, but not deep into it. The advantage, no matter how much you cut it, is rather minor.
Third, advantage over what? The goal is to help Tezos, and bakers should be concerned about how this affects Tezos first and foremost, not would be token projects. Of course these policies can have an effect on how attractive the platform is to build upon, but thatâs second order and if anything this might attract more assets who aspire to replace tzBTC.
Fourth, the size of wBTC with respect to the market cap of Ethereum is comparable in magnitude to what you might expect tzBTC to become under the incentive. So if you want to look at what a failure of tzBTC to convert to BTC looks like, you can decompose that failure into to part:
- The wasted subsidy
- The effect of a wrapped bitcoin with a large presence on the chain failing
So 1 + 2
1 is the 0.15% figure
2 is the comparison with wBTC
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I know there is a lot of specifics and technical talk here about what is good and what is bad and most of you are a lot better qualified then me on those subjects. But as a person who understands people better than computers i find it interesting u donât want to even take a second to look at it from another persons shoes or angle and instead just continually defend and argue your point. It is almost as if you stand to lose something if this doesnât happen. Why is it so difficult just to take a second and maybe just maybe look at the negatives or see the rational of the other people rather then just continue to shove down our throats how it is the only or best option available. If the response is âBecause it isâ then i dont know what to say anymore.
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Letâs just bootstrap this with tzBTC. As soon as we switch LB to a non-KYC (trustless & permissionless) BTC stable coin (âtBTCâ) the liquidity from tzBTC will move to the new tBTC. That will essentially undo this mess. Therefore we can test in production with tzBTC for now, and then hit full throttle once tBTC is ready knowing it will work for sure.
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Everyone should just agree on this stance. Bootstrap and test it out, if it doesnât work then turn it off or let the period run out.
The benefits far outweigh any concerns of using tzbtc and honestly, Tezos needs liquidity or we will continue get hammered in price. We wonât attract developers or large investors with such low liquidity already.
Iâm not saying itâs guaranteed either but itâs worth a shot at this point.
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Who will provide liquidity for tzBTC? Iâd be willing to bet that the number of people who are eligible non-US investors who have passed through the KYC process can be counted on 2 hands. I predict the following will happen after Granada is activated:
- There will not be enough tzBTC liquidity, but the 4 Tez per block reward will be significant with such a small amount of liquidity, so the price of tzBTC in the pool will quickly rise way beyond the price of BTC as single-sided liquidity swaps for tzBTC (without caring about price) and âapes inâ to the pool to collect the LP reward.
- Those few market makers, of which Arthur almost certainly knows several personally, will have an incredibly unique opportunity to mint more tzBTC and capture the excess XTZ by arbitraging the pool back to equilibrium.
- Rinse and repeat as total liquidity in the pool exceeds the amount of tzBTC and more tzBTC is minted.
This isnât necessarily a terrible thing in and of itself, but it does enrich a few lucky investors/market makers at the expense of the rest of the network (to the tune of diluting their Tez by 0.15% over 6 months) and the expense of XTZ liquidity providers in the pool, who end up effectively selling their Tez at a discount.
Ultimately Iâm fine if we want to experiment with this, but I would have selected a different liquidity pool. Something like wUSDC/XTZ makes more sense to me as the Wrap signers are a decentralized group that is well trusted in the community and USDC can be acquired by almost anyone on any number of centralized or decentralized exchanges. USDC will not have the liquidity problems that tzBTC will have.
Disclaimer: I am a wrap signer, so have some bias on this.
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If you start your argument with âeveryone should just agreeâŚâ then youâve already lost, Iâm afraid. People donât agree, which is why we are having this discussion.
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