Incentivizing liquidity providers

qwizzie

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Aug 6, 2014
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I have been thinking about liquidity providers again lately (i'm talking about running wallets with -liquidityprovider=<n> : Provide liquidity to Darksend by infrequently mixing coins on a continual basis (0-100, default: 0, 1=very frequent, high fees, 100=very infrequent, low fees) and how they can help with the mixing process a lot more if they got more rewarding to operate. I'm brainstorming here so bare with me ..

How about we setup an internal ''pool'' somewhere inside the darksend process that has a hardcap limit of lets say 25 liquidy providers as max and
reward those liquidity providers with some dash for x time period of mixing. Lets say for 12 hours mixing as liquidity provider they can receive x amount of dash.

Network has to determine they are indeed active liquidity providers and should also have a way of tracking
how long they have been actively mixing in order for them to receive rewards.

Edit :

we can also make the pool a lot bigger and see if we can attract more users to Dash, there is obvious
an interest in receiving steady rewards for either an investment (masternode style) or for time and energy (POW mining style).
The liquidity provider rewards could be the third reward option to attract new users to Dash
 
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snogcel

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What if the Darksend Collateral Fees went straight to this pool of liquidity providers instead of miners? I'm not sure if the tx volume is enough right now to make this compelling to Liquidity Providers but it would feel like a pretty natural way to go.

As another thought - I recall a long time ago the idea of a "DarkTor" network was being discussed. Though that idea isn't necessarily relevant to this topic, the idea of "Sub-MasterNodes" comes to mind. These could be nodes running on the network, carrying a lesser number of coins to run complimentary services (such as Liquidity Provider or DarkTor, or whatever). Just throwing this out there because whatever architecture is used to facilitate Liquidity Provider payment could be extended as part of a framework for other services as well.
 
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yidakee

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qwizzie - that is exactly why I started testing liquidity provider on testnet on friday. I was definitely going to make this into a proposal the budget system.

How though, is a different story. And Evan is tinkering with ideas, so it will happen somehow
 
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Sub-Ether

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Mar 31, 2014
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Thats a superb idea, and makes small amounts of Dash worth more as smart revenue thus attracting more outside interest.
Can we call these subnodes? :D
 

moli

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Aug 5, 2014
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Thats a superb idea, and makes small amounts of Dash worth more as smart revenue thus attracting more outside interest.
Can we call these subnodes? :D
If an AI robot could be created and launched into the network to do this job..... :)
All we have to do is feeding it with dash fees and let it keep mixing...
I'm just talking, of course lol.
 

yidakee

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Apr 16, 2014
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If an AI robot could be created and launched into the network to do this job..... :)
All we have to do is feeding it with dash fees and let it keep mixing...
I'm just talking, of course lol.
Not at all... keep it coming!

The way I see it is... for this to be truly effective, in terms of really boosting mainnet performance, we need dedicated servers like MN's. Fees will put people off from becoming LP's. We have 2 problems here.

a) Server for LP = hot nodes.
b) user QT's at home serving as LP's will have massive online/drop-off behaviour - help, but not really boost DS performance.

Then you have a second problem as Evan describes. You cannot prove (so far) you are an LP, like you can with the 1k vin for a MN. So you cannot reward an LP for X amount and Y time serving the network.

Evan and the dev's have worked their asses to decentralise as much as possible. We're on the verge of extinguishing the reference node. So it would be cool to brainstorm a solution that does not require a central operator, like a robot or a pool. As an interim solution, sure! lets do it.

Thinking long term here are my thoughts.

- LP's, while not essential like MN's, would significantly boost the performance of DS, especially in this early adoption of Dash's tech. The vast majority of uneducated-crypto population will either see it work and use it, or see it fail and become highly suspicious. So they are quite important to have.
- Create a second layer network similar to MN's, where you lock a significantly lower collateral amount to activate cold/remote VPS dedicated to LP and earn dividends. Because otherwise it's just way too risky to run a hot node.
- This will require an LP operator to work to keep this up to date and going, just like with MN's, so a financial incentive is in order.
- DS produces fees back to miners. This is a negative loop to the operator. As far as I know it there is no way to revert these fee's to a separate entity, unlike MN's cut from mining. The former a destination, the latter a derivation.

So how to finance the incentive run LP servers? Adapting from the MN code.

- LP's can't cold/remote setup as actual coins are needed for the mixing process. (unless a VPS serves as a blinding agent, in essence, the reverse of the cold/remote MN setup, and these would be extremely cheap to run)
- LP's could use a locked vin that activates and propagates the network. It could even be as low as 1Dash. Locked coins can't be mixed, but serve as PoSe entry. This would incentivise the current majority of Dash crypto-geeks to enter the LP network as the entry point is so low. And statistically solve the home-user-QT-drop-off issue. This network could ping every 12-24h and call the QT to check, instead of the current MN 70 minutes.
- The LP operator stakes X Dash to DS mix, but will start loosing money to fees. The idea is to recover these fee's and gain a little extra.
- LP operator can stake a fixed amount, or a variable amount. A fixed amount would be easier to netwrok control, a variable amount highly boost performance as the network scales.

Question. Once an LP is activated with a locked vin, how can we verify the staked amount?

From there, I do see the budgeting system rewarding LP's in proportion to their stake. How? Well... lets brainstorm.

.
 
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