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Why Ripple will pay XRP to market maker?


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Pretty much all I can say is that we plan to announce a more detailed plan shortly and that we expect very significant progress on this front by the end of the year. People who plan to make markets between XRP and other assets will register with us, and so long as we can lawfully pay them money, we will pay them an XRP incentive based on how tight the spread was and how long they kept the liquidity on the books. To prevent the system from being gamed, it will not look at whether the liquidity was used or not but just whether it was available.

Everyone here know that Ripple will pay market maker XRP as incentive. But why?

from the coindesk article: http://www.coindesk.com/unsexy-earthport-blockchain-digital-currency/

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Studies conducted by Ripple still suggest users of its Ripple Consensus Ledger can save upwards of 40% on trades by using XRP, a figure slightly higher than the savings achieved by those who do not use XRP.

Jaramillo said that while he sees the value in potentially encouraging market makers to use a "common asset" between parties, regulators have perhaps not given sufficient guidance for financial services firms like Earthport to leverage these offerings.

it this the reason? regulators prevent FIs to use XRP as bridge asset, so FIs(banks) will make market on RCL between fiat currencies, and Ripple will encourage  personal market makers make markets between XRP and fiat currencies to provide a better FX rate? 

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My theory is that paying validators introduces contradictory and inappropriate incentives for network performance (and wasted energy on unnecessary "security") while leaving market makers scratching f

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Man! I knew we forgot something!!! 

In my opinion, the key to a bridge cryptocurrency are stabilized coins. Pegs with cryptocurrencies do actually work, like for instance with Nubits and within Bitshares. The best concept seems to be the Ethereum Dai, with the Maker DAO a blueprint on how to do it and Seigniorage Shares providing a theoretical background. Provided there are pegged coins on Ripple, then the market making is well defined and can be done by way of arbitrage between RCL and established FX markets. There can be rules that only licensed entities are allowed to hold and trade pegged coins (or whatever is necessary to become compliant with regulations). Giving out incentives to direct market making in XRP is questionable. It does not solve the problem on how it could work, and on top floods more XRP into circulation...

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So basically they will pay out interest when putting your xrp's in the game instead of hoarding. The closer to the heat, the higher the reward. Brilliant. I think that should work. This is a tiny bit similar to reddcoin's PosV, proof of stake velocity, to encourage moving coins between people. Would be good to give it a fancy name.

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18 minutes ago, lucky said:

So basically they will give pay out interest when putting you xrp's in the game instead of hoarding. Brilliant. I think that should work. This is a tiny bit similar to reddcoin's PosV, proof of stake velocity, to encourage moving coins between people. Would be good to give it a fancy name.

The way of putting XRPs in the game should be with stabilized coins that can be generated from XRP. Let's say there is a pegged USD. For your XRP holding you can get a certain amount of those USDs dependend on the XRP price. Then you can make a bid/ask for some fiat currencies and at the same time do the opposite on a low fee FX market. This would be a kind of arbitrage. Your risk management would be not to use too many pegged USD in relation to your XRP holding, otherwise there can be a risk that your XRP that is held as a collateral gets destroyed by a Dai implementation....If the XRP price falls, then in order to not get under water you would return pegged USDs to the Dai, or pay fiat as collateral in case you have sold pegged USDs. Something like this would be market making with pegged coins in relation to XRP. Since the pegged coins are very tight to their fiat counterparts they will as well have tight spreads to other fiat currencies. Why should direct market making in XRP makes sense unless XRP has a gigantic market cap?? The right coin stabilization tools/features are what is needed for Ripple/XRP...

Edited by yandel
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5 minutes ago, yandel said:

The way of putting XRPs in the game should be with stabilized coins that can be generated from XRP. Let's say there is a pegged USD. For your XRP holding you can get a certain amount of those USDs dependend on the XRP price. Then you can make a bid/ask for some fiat currencies and at the same time do the opposite on a low fee FX market. This would be a kind of arbitrage. Your risk management would be not to use too many pegged USD in relation to your XRP holding, otherwise there can be a risk that your XRP that is held as a collateral gets destroyed by a Dai implementation....If the XRP price falls, then in order to not get under water you would return pegged USDs to the Dai, or pay fiat as collateral in case you have sold pegged USDs. Something like this would be market making with pegged coins in relation to XRP. Since the pegged coins are very tight to their fiat counterparts they will as well have tight spreads to other fiat currencies. Why should direct market making in XRP makes sense unless XRP has a gigantic market cap?? The right coin stabilization tools/features are what is needed for Ripple/XRP...

that's why Ripple partner with Crypto Facilities.

Edited by yxxyun
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39 minutes ago, yxxyun said:

that's why Ripple partner with Crypto Facilities.

I believe Crypto Facilities is doing derivatives on XRP. Everything that directly stabilizes XRP would as much benefit transaction coins extracted from XRP....Getting it right is about utilizing what is available.

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The incentive to MM will:

  • Increase the liquidity, so that a payment of 2k USD won't make a slippage of 3% as it is now
  • Decrease spread for a more competitive FX rate. Right now is more convenient the intra-bank FX rate.
  • Probably decrease value of XRP in the short term because of injection of XRP that will be probably sold by MM.

IMO it is the best way to bring more big actors in Ripple and to increase liquidity, with the hope of a real usage of Ripple and not only being a speculative tool as all other crypto.

This should be paired with a policy to incentive lower transfer fees of the gateway, since now the standard is around 0.2% which for a market maker means  a gain only with a spread > 0.4% which is very high. Usually this spread for safety should be around 0.5/0.6% making it a very bad FX rate.

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24 minutes ago, tommytrain said:

This is some serious hocus-pocus ... what would that do for valuation of XRP if say Ripple captured 15% of the float in the international remittances market?

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The hocus-pocus works on Nubits, and they have no use case at all...XRP as a stable coin generator share can have a near 100% utility for payment transactions on Ripple. With a Dai there are more use cases, for instance (moderate) margin trading and borrowing. Poloniex is big because of margin trading and using BTC as collateral. Having fiat on Ripple could earn some interest that is more competitive than on normal bank accounts. With competitive lending rates Ripple could be better than Poloniex, for instance...

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6 hours ago, yandel said:

The way of putting XRPs in the game should be with stabilized coins that can be generated from XRP. Let's say there is a pegged USD. For your XRP holding you can get a certain amount of those USDs dependend on the XRP price. Then you can make a bid/ask for some fiat currencies and at the same time do the opposite on a low fee FX market. This would be a kind of arbitrage. Your risk management would be not to use too many pegged USD in relation to your XRP holding, otherwise there can be a risk that your XRP that is held as a collateral gets destroyed by a Dai implementation....If the XRP price falls, then in order to not get under water you would return pegged USDs to the Dai, or pay fiat as collateral in case you have sold pegged USDs

Wow, it was all so obvious.  :bad:

Pardon my sarcasm, but I've seen this suggestion (pegging XRP to a fiat or other coin) come from yandel many times now.  It's not gaining any traction, and even the veteran crypto users and developers barely understand the logic.  It reminds me of the concept of mortgage derivatives, and then a derivative on those derivatives, etc... 

Any suggestions that serve to make the concept of XRP more complex to understand by FI's instead of less should be discarded if it's purpose is to solve a problem that is more easily solved by a straight-forward approach.

what problem would it solve?  The main point of this thread is whether or not incentivizing market makers is a good idea or not.  It solves a problem - lack of liquidity. 

Edited by Hodor
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1 hour ago, Hodor said:

Wow, it was all so obvious.  :bad:

Pardon my sarcasm, but I've seen this suggestion (pegging XRP to a fiat or other coin) come from yandel many times now.  It's not gaining any traction, and even the veteran crypto users and developers barely understand the logic.  It reminds me of the concept of mortgage derivatives, and then a derivative on those derivatives, etc... 

Any suggestions that serve to make the concept of XRP more complex to understand by FI's instead of less should be discarded if it's purpose is to solve a problem that is more easily solved by a straight-forward approach.

what problem would it solve?  The main point of this thread is whether or not incentivizing market makers is a good idea or not.  It solves a problem - lack of liquidity. 

Liquidity in XRP like in any other typical cryptocurrency is useless/inefficient for payment processing because of the wide spreads and the volatility. Pegged cryptocurrencies have very tight spreads to their fiat counterparts, and of course they have the volatility of the fiat currency. Thereby, using pegged currencies solves the lack of suitability that plain small cap cryptocurrencies inherently have. There is no nonsense about it, mathematically it is only an operation of a transformation/reduction. If an XRP holding has a nominal value of $200 at one moment, then you can generate, let's say $100 pegged USDs with a statistically significant half-life period from it, and you can adjust the level of risk exposure dynamically to stabilize it above possibility of foreseeable failure.

The problem that it solves is the dysfunctionality of XRP for payment processing because of the wide spreads and adverse volatility. Furthermore, using pegged cryptocurrencies makes market making well defined...With pegged coins and following the ideas that the groups around Ethereum have a lot of surrogate banking can be accomplished that would benefit Ripple even more.

Edited by yandel
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1 hour ago, yandel said:

Liquidity in XRP like in any other typical cryptocurrency is useless/inefficient for payment processing because of the wide spreads and the volatility. Pegged cryptocurrencies have very tight spreads to their fiat counterparts, and of course they have the volatility of the fiat currency. Thereby, using pegged currencies solves the lack of suitability that plain small cap cryptocurrencies inherently have. There is no nonsense about it, mathematically it is only an operation of a transformation/reduction. If an XRP holding has a nominal value of $200 at one moment, then you can generate, let's say $100 pegged USDs with a statistically significant half-life period from it, and you can adjust the level of risk exposure dynamically to stabilize it above possibility of foreseeable failure.

The problem that it solves is the dysfunctionality of XRP for payment processing because of the wide spreads and adverse volatility. Furthermore, using pegged cryptocurrencies makes market making well defined...With pegged coins and following the ideas that the groups around Ethereum have a lot of surrogate banking can be accomplished that would benefit Ripple even more.

You need a new bunch of mechanism to make a crypto safe and stable. I don't think it will ever be done with XRP.

But you know, in Ripple you can issue USD directly, so what is more stable than the USD itself as bridge currency? There is no need of an extra stable coin.

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22 minutes ago, tulo said:

You need a new bunch of mechanism to make a crypto safe and stable. I don't think it will ever be done with XRP.

But you know, in Ripple you can issue USD directly, so what is more stable than the USD itself as bridge currency? There is no need of an extra stable coin.

Tokenizing a fiat currency does not solve the counterparty problem to my knowledge. If pegging to the USD does not make sense on Ripple, then maybe pegging to the SDR or something that would have the lowest volatility in relation to the typical Ripple "currency basket" is at least  better for the purpose than plain XRP.

If the banana is right, then why does Ripple state "with XRP 40% less costs" or so....

For implementing pegging features a smart contract platform like Ethereum would be needed, it's not really complicated to do...

Edited by yandel
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