How Would You Structure the Spread Incentive

[WitchTrading]

What do we know about the spread incentive model? From XRP Portal (https://ripple.com/xrp-portal/)

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To this end, we currently plan to distribute XRP primarily through business development deals, incentives to liquidity providers who offer tighter spreads for payments, and selling XRP to institutional buyers interested in investing in XRP. 

While I think it's cool that EURUSD could theoretically be incentivized to beat traditional markets, I worry that it wouldn't be sustainable. . and also, the amount of XRP distributed as a result of the spread incentive would cause downward pressure on the XRP markets. 

[WitchTrading]

Clicking around more, I found this forthcoming paper too

https://ripple.com/xrp-portal/xrp-resources/

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COMING SOON: Catalyzing Competitive FX Markets

 

[thinlyspread]

Yep that looks like the one we're all waiting for. Lots of questions around here. This is one of Ripple's trickiest manoeuvres to date, IMO.

[Tachyon]

There are many factors to that play into the price of XRP:

 

1. Price is based on supply and demand. Since the XRP is pre-mined, there is a huge supply from the beginning. Having so many available reduces price, even if half is owned by Ripple.

2. With Ripple holding half of all XRP, they can directly control the supply. They have stated In the future they expect to hold half of all XRP by 2020(?). This can increase the price as demand/adoption happens. 

3. From the outside looking in, I think their incentive program is based around the idea that by making XRP directly available to financial institutions, they are luring in more market makers that would otherwise looked over XRP.

 

In my opinion, XRP being utilized by market makers will increase demand by itself. As more people move to XRP to utilize forex, you will see huge demand increase as traditional forex traders try to arbitrage between the forex markets and ripple.

As more adoption happens, you'll see demand shoot up and supply remain steady. With a lot of XRP being held by banks/FI/Ripple, they will have tighter control on price.

[tulo]

There are many problems in XRP incentive, that I'd sum over:

• Make it really useful and enough to lower spread
• Make it not gameable

I'd split it into:

• A % of the fees for MM creating liquidity into pairs that have transfer fee. Conditions to gain the incentive: being a MM (easy to understand, also looking for example here Active Accounts), creating volume with a certain spread. Not gameable, since in transactions the MM paid the transfer fees, so making fake transactions would cost more than the gain if the incentive is less than the actual fee. It would improve markets that already have volume.
• Incentive on putting static liquidity, i.e. put offers that maybe won't get used. The incentive should pay only for maintaining the liquidity, also if the offers are not taken. This is the original idea I heard from  a Ripple's employee. Problems: it can be gamed, how do they decide on which pair the incentive goes? if it is in every pair I could create my own fake markets that none care and use and create liquidity there that is never taken --> free profit. This would help markets that doesn't have volumes, small markets.

[yandel]

This kind of "market making" is simply not possible with sustainability, it does not help saving costs but will only burn XRP. With a crypto token there is no market like that for bananas. I had already proposed stablecoins as an efficient bridge currency, or better said transformer. A pressure cooker is better than a simple pot and crude oil is refined and not used directly, the same principles of distillation apply to this kind of application. Pegging mechanisms (which has nothing to do with counterparty) are what will determine real world mass adoption of cryptocurrencies. 

Edited September 18, 2016 by yandel

[WitchTrading]

7 hours ago, tulo said:

Incentive on putting static liquidity, i.e. put offers that maybe won't get used. The incentive should pay only for maintaining the liquidity, also if the offers are not taken.

I wonder if this could be gamed by watching consensus, determining the probability of a crossing offer, payment, or market movement, and place an offer that you know will not be executed. The lays off all the risk of actually making the trade, and opens the firehose to XRP incentive. 

Maybe there's a compromise though. If placing two sided offers, and if an execution occurs, it should pay exponentially more than a offer that is funded, but never executes. 

7 hours ago, tulo said:

I could create my own fake markets that none care and use and create liquidity there that is never taken --> free profit. This would help markets that doesn't have volumes, small markets.

Ripple Labs is never going to fall for that. I think they should choose to roll it out into strategic markets that will drive liquidity. Gatehub ETH (or ETC?) is a hot topic right now, for example. 

[tulo]

3 minutes ago, WitchTrading said:

Ripple Labs is never going to fall for that. I think they should choose to roll it out into strategic markets that will drive liquidity. Gatehub ETH (or ETC?) is a hot topic right now, for example. 

Yeah, but in that case small markets will never have good spread because they are unknown and not into XRP incentive.

BUT what I'm afraid of (or maybe it is good) is that the XRP incentive won't be on RCL but it will be on ILP  They never talked about incentive on RCL.

[WitchTrading]

1 minute ago, tulo said:

the XRP incentive won't be on RCL but it will be on ILP

I have no idea what that means. What specifically, should I be reading about?

[tulo]

2 minutes ago, WitchTrading said:

I have no idea what that means. What specifically, should I be reading about?

https://interledger.org/

It's the InterLedger Protocol, what Ripple is pushing more right now....

[WitchTrading]

Are there any pairs trading on interledger today? 

[tulo]

3 hours ago, WitchTrading said:

Are there any pairs trading on interledger today? 

ILP will be live (maybe) on 1st October.