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FYI The FXRP whitepaper has a whole section on arbitrage. It's really abstract, but it's an intended part of the design to keep F-assets pegged to their native assets:

5 XRP-FXRP arbitrage
The convertibility of 1 FXRP for 1 XRP is the basis of the FXRP system and is further enforced by arbitrage criteria.
Indeed, if the price steps out of line whilst there is sufficient collateral in the system, then it may be profitable to exploit
the arbitrage criteria, which in aggregate will bring the price back into line.
Let XRP_price be the price of buying or selling XRP in some base currency, such as USD, and let FXRP_price be the
price of FXRP in the same base currency. Profitable arbitrage occurs in two ways. First, when it is possible to create an
amount of x FXRP, and sell it for more than the creation cost. Second, when it is possible to directly buy FXRP and
redeem it for a greater XRP value than the purchase price and the fees.
This creates arbitrage bounds for the FXRP price relative to the XRP price beyond which it will be profitable to create
or redeem FXRP, thus modifying supply and bringing the FXRP price back within any arbitrage bounds. This ensures
that FXRP value will remain tightly coupled to the XRP price. This can be considered the theoretical fair value of the
FXRP price relative to the XRP price (assuming the FXRP system is adequately collateralized).
5.1 Selling FXRP
In order to sell an amount of x FXRP, a quantity of x XRP must first be purchased, at a cost of x · XRP_price. Next,
FXRP can be created at a cost of x · (Creation_Fee_Rate + 0.001)XRP_price in USD, comprising of the creation
fee and the collateral reservation fee. Finally, the created FXRP can be directly sold to an exchange at a cost of
x · FXRP_selling_cost · XRP_price in USD, where FXRP_selling_cost is a percentage rate charged by exchanges for
selling FXRP into the chosen base currency.
Thus, the total cost of creating an amount of x FXRP and selling it is
x · XRP_price + x · (Creation_Fee_Rate + 0.001)XRP_price + x · FXRP_selling_cost · XRP_price, (9)
The amount obtained in selling it is x·FXRP_price. Thus, it is profitable to create FXRP and sell it when
FXRP_price > (1 + Creation_Fee_Rate + 0.001 + FXRP_selling_cost)XRP_price. (10)
As a consequence, the supply of FXRP will increase, and should thus lead to a lower price of FXRP.
5.2 Buying FXRP
Alternatively, at times,it may be profitable instead to directly buy FXRP from an exchange and then redeem it. An
amount of say y FXRP is directly purchased from an exchange, at a USD cost of y·FXRP_price·FXRP_buying_cost,
where FXRP_buying_cost is a percentage rate charged by exchanges for buying FXRP into the chosen base currency.
The cost of redeeming it and obtaining XRP (or, in the event of agent redemption default, an equivalent value in Spark)
is y · Redemption_Fee_Rate · FXRP_price. Thus, the total cost is
y · FXRP_price · FXRP_buying_cost + y · Redemption_Fee_Rate · FXRP_price (11)
The amount obtained in selling it is y· XRP_price. Thus, it is profitable to directly purchase FXRP and redeem it when
XRP_price > (1 + Redemption_Fee_Rate + FXRP_buying_cost)FXRP_price. (12)
As a consequence, the supply of FXRP will decrease, and should lead to an increase in the price of FXRP.

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4 hours ago, brianwalden said:

FYI The FXRP whitepaper has a whole section on arbitrage. It's really abstract, but it's an intended part of the design to keep F-assets pegged to their native assets:

5 XRP-FXRP arbitrage
The convertibility of 1 FXRP for 1 XRP is the basis of the FXRP system and is further enforced by arbitrage criteria.
Indeed, if the price steps out of line whilst there is sufficient collateral in the system, then it may be profitable to exploit
the arbitrage criteria, which in aggregate will bring the price back into line.
Let XRP_price be the price of buying or selling XRP in some base currency, such as USD, and let FXRP_price be the
price of FXRP in the same base currency. Profitable arbitrage occurs in two ways. First, when it is possible to create an
amount of x FXRP, and sell it for more than the creation cost. Second, when it is possible to directly buy FXRP and
redeem it for a greater XRP value than the purchase price and the fees.
This creates arbitrage bounds for the FXRP price relative to the XRP price beyond which it will be profitable to create
or redeem FXRP, thus modifying supply and bringing the FXRP price back within any arbitrage bounds. This ensures
that FXRP value will remain tightly coupled to the XRP price. This can be considered the theoretical fair value of the
FXRP price relative to the XRP price (assuming the FXRP system is adequately collateralized).
5.1 Selling FXRP
In order to sell an amount of x FXRP, a quantity of x XRP must first be purchased, at a cost of x · XRP_price. Next,
FXRP can be created at a cost of x · (Creation_Fee_Rate + 0.001)XRP_price in USD, comprising of the creation
fee and the collateral reservation fee. Finally, the created FXRP can be directly sold to an exchange at a cost of
x · FXRP_selling_cost · XRP_price in USD, where FXRP_selling_cost is a percentage rate charged by exchanges for
selling FXRP into the chosen base currency.
Thus, the total cost of creating an amount of x FXRP and selling it is
x · XRP_price + x · (Creation_Fee_Rate + 0.001)XRP_price + x · FXRP_selling_cost · XRP_price, (9)
The amount obtained in selling it is x·FXRP_price. Thus, it is profitable to create FXRP and sell it when
FXRP_price > (1 + Creation_Fee_Rate + 0.001 + FXRP_selling_cost)XRP_price. (10)
As a consequence, the supply of FXRP will increase, and should thus lead to a lower price of FXRP.
5.2 Buying FXRP
Alternatively, at times,it may be profitable instead to directly buy FXRP from an exchange and then redeem it. An
amount of say y FXRP is directly purchased from an exchange, at a USD cost of y·FXRP_price·FXRP_buying_cost,
where FXRP_buying_cost is a percentage rate charged by exchanges for buying FXRP into the chosen base currency.
The cost of redeeming it and obtaining XRP (or, in the event of agent redemption default, an equivalent value in Spark)
is y · Redemption_Fee_Rate · FXRP_price. Thus, the total cost is
y · FXRP_price · FXRP_buying_cost + y · Redemption_Fee_Rate · FXRP_price (11)
The amount obtained in selling it is y· XRP_price. Thus, it is profitable to directly purchase FXRP and redeem it when
XRP_price > (1 + Redemption_Fee_Rate + FXRP_buying_cost)FXRP_price. (12)
As a consequence, the supply of FXRP will decrease, and should lead to an increase in the price of FXRP.

 

Brother Maynard: Skip a bit, Brother...

Brother Maynard's Roommate: And the Lord spake, saying, "First shalt thou mint FXRP. Then shalt thou count FXRP pegged to XRP, no more, no less. 1 to 1 it should be, if not then arbitrage, for it should always be 1 to 1. 4 to 1 thou shalt not count, neither count thou two, excepting that thou then proceed to 1 to 1. Five is right out. Once the number one, being the first number, be reached, then lobbest thou thy Holy Flare Grenade of DeFi towards thy foe, who, being naughty in my sight, shall snuff it." 

Brother Maynard: Ramen.

All: Ramen.

King Arthur: Right. One... to... five.

Sir Galahad: One, sir!

King Arthur: One!

Edited by Wolfparty
Couldn't help myself. Read the whitepaper once before and this time around it just made me laugh.
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I'm too old for this s...

I only see smart contract for cryptos that don't have it themselves, and debt trading. Had to simplify it...🤔🤪🤔🤪🤪

Edited by Shime
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9 minutes ago, Shime said:

I'm too old for this s...

I only see smart contract for cryptos that don't have it themselves, and debt trading. Had to simplify it...🤔🤪🤔🤪🤪

Yeah, don't worry about all this. Just wait until Flare launches and see if you like it or not. The actual Flare Network will be much simpler than all this stuff.

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Binance - US customers with a claim for the Spark airdrop...
You have until Friday to make your claim to receive your share

Quote

We would like to provide you with guidance to finish your submission for receiving your SPARK tokens from the Flare Network snapshot on December 11, 2020. If you haven't done so yet, please go through the following steps to complete your submission. The cutoff for submitting your information is Friday, June 18 at 5pm EST / 2pm PST.

Ref: 
https://support.binance.us/hc/en-us/articles/1500002619681 

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4 hours ago, brianwalden said:

The agent himself can redeem the FXRP he has minted. He doesn't have to wait for whoever bought it to convert it back to XRP. He can go buy FXRP himself (or acquire it from doing transactions in the other direction) and repay it to free up his collateral.

The agent can free up his FLR by buying FXRP and redeeming the sum he has locked up, but the point I wanted to make is that for every $1B worth of XRP that is circulating as FXRP, there must be $2.5B worth of FLR locked up (for the entire lifetime of the FXRP). It may not be the same FLR that was used originally when the FXRP was minted, but someone has to provide that collateral, and that means that for every $ circulating as F-assets (any of them), there is 2.5x as much locked away.

The irony of this is that Flare was created "to free up all the liquidity in tokens that don't have Turing complete smart contracts". Whilst it will do that, it does it at the cost of locking up 1.5x worth of the equivalent funds. To make that cost worthwhile - someone'd better be doing something really amazing with those F-assets.

5 hours ago, brianwalden said:

If you've ever used DeFi/CeFi collateralized loans, this is essentially what this is. Agents put up FLR as collateral to take out an interest-free FXRP loan from the FXRP-minting smart contract. They can keep the loan for as long or as short as they want, but if the value of their collateral falls too low relative to the loan, it gets liquidated to pay off the loan and square things up again.

Agents put up FLR and receive your XRP/DOGE/LTC/etc and you get the F-asset. A self operating agent can put up his own FLR and swap his own XRP for FXRP, but then that FXRP must really be the dog's bollocks to make it worthwhile to lockup 2.5x to do it. I wonder how many people will want to lend $2.5 worth of FLR to get $1 of DOGE in return. I can imagine a lot of DOGE holders wanting to get rid of DOGE and receive FDOGE (because it will have more uses in theory), but then minting fees will have to be quite high to incentive people to lend their FLR for it.

I look forward to seeing how much these F-assets actually get used for real-world business uses that generate the income needed to make them successful and cover the costs (and not just the F-Asset rewards being pumped out that in effect 'devalue' the system). Can anyone point me to a good resource that shows how ethereum smart contracts are used in the real world to facilitate business (not counting just trading useless tokens against other ones)?

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1 hour ago, jbjnr said:

The agent can free up his FLR by buying FXRP and redeeming the sum he has locked up, but the point I wanted to make is that for every $1B worth of XRP that is circulating as FXRP, there must be $2.5B worth of FLR locked up (for the entire lifetime of the FXRP). It may not be the same FLR that was used originally when the FXRP was minted, but someone has to provide that collateral, and that means that for every $ circulating as F-assets (any of them), there is 2.5x as much locked away.

The irony of this is that Flare was created "to free up all the liquidity in tokens that don't have Turing complete smart contracts". Whilst it will do that, it does it at the cost of locking up 1.5x worth of the equivalent funds. To make that cost worthwhile - someone'd better be doing something really amazing with those F-assets.

You’re thinking retail though. That’s not how market makers operate. Agents get to make money irrespective of bull/bear markets and their collateral also let’s them get FTSO rewards and profit off of arbitrage. Also, if there’s no market for 2.5x collateral, the ratio will probably change - either as a result or governance or dynamically. Imagine an asset with significant liquidity and extremely low volatility - say XRP in 10 years from now (one can only hope). You’ll probably not need 2.5x collateral. Market making is consistent profits with significant initial investment. Retail trading/investment has a low barrier of entry but provides inconsistent returns.

Edit: One reason a retail investor might choose to be their own agent - no tax ambiguity. 

Edited by Ripley
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6 hours ago, jbjnr said:

The agent can free up his FLR by buying FXRP and redeeming the sum he has locked up, but the point I wanted to make is that for every $1B worth of XRP that is circulating as FXRP, there must be $2.5B worth of FLR locked up (for the entire lifetime of the FXRP). It may not be the same FLR that was used originally when the FXRP was minted, but someone has to provide that collateral, and that means that for every $ circulating as F-assets (any of them), there is 2.5x as much locked away.

The irony of this is that Flare was created "to free up all the liquidity in tokens that don't have Turing complete smart contracts". Whilst it will do that, it does it at the cost of locking up 1.5x worth of the equivalent funds. To make that cost worthwhile - someone'd better be doing something really amazing with those F-assets.

Agents put up FLR and receive your XRP/DOGE/LTC/etc and you get the F-asset. A self operating agent can put up his own FLR and swap his own XRP for FXRP, but then that FXRP must really be the dog's bollocks to make it worthwhile to lockup 2.5x to do it. I wonder how many people will want to lend $2.5 worth of FLR to get $1 of DOGE in return. I can imagine a lot of DOGE holders wanting to get rid of DOGE and receive FDOGE (because it will have more uses in theory), but then minting fees will have to be quite high to incentive people to lend their FLR for it.

I look forward to seeing how much these F-assets actually get used for real-world business uses that generate the income needed to make them successful and cover the costs (and not just the F-Asset rewards being pumped out that in effect 'devalue' the system). Can anyone point me to a good resource that shows how ethereum smart contracts are used in the real world to facilitate business (not counting just trading useless tokens against other ones)?

Locking up your collateral is the price of getting access to being an agent. An agent might lock up $250K worth of FLR to be able to be able to process $100K with of FXRP transactions at any given moment. But as soon as he sells it all, he's going to looking to buy it back one way or another for less than he sold it for. He wants to be an agent for as many transactions as he possibly can in a day. Agents are basically arbitrage traders constantly keeping their funds in motion to try to collect a little bit of profit on each trip through the cycle.

Edited by brianwalden
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6 hours ago, Shime said:

I'm too old for this s...

I only see smart contract for cryptos that don't have it themselves, and debt trading. Had to simplify it...🤔🤪🤔🤪🤪

Like Brian said, we are really just passing the time until we get more announcements. You don't actually have to know any of this to use Flare haha

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14 hours ago, Ripley said:

You’re thinking retail though. That’s not how market makers operate. Agents get to make money irrespective of bull/bear markets and their collateral also let’s them get FTSO rewards and profit off of arbitrage.

Anyone can get FTSO rewards without locking up their FLR anyway, so that is irrelevant. And no, I'm not thinking retail.

14 hours ago, brianwalden said:

Locking up your collateral is the price of getting access to being an agent. An agent might lock up $250K worth of FLR to be able to be able to process $100K with of FXRP transactions at any given moment. But as soon as he sells it all, he's going to looking to buy it back one way or another for less than he sold it for

I'm not sure why you two are trying to lecture me on arbitrage. You've just locked up $250k of FLR and got $100K of XRP in return. Now you can trade your $100k of XRP for $101k of FXRP and then redeem the original $250k of FLR, and make a profit. (But now there is no FXRP in circulation any more). Everyone else can do this anyway, by just trading FXRP and XRP directly (assuming someone else has paid to create it), there is no need to lock up FLR, when you can sit back and let someone else do it. What I actually was saying is that to make it worthwhile to lock up huge amounts of FLR is that the minting costs of XRP->FXRP, DOGE->FDOGE will have to be quite high to make it desirable. Originally we saw 5% quoted in the whitepaper (I forget where?), and then it became a market rate. This market rate will in effect be set by the level of utility of F-assets, because only when people actually need F-assets for their smart contracts will they be willing to pay the fees to turn tokens into F-tokens and thereby give the incentive to anyone to lock up funds and do the arbitrage (ok, there will be rewards for holding F-assets from the rewards pool granted essentially by devaluation of FLR for everyone else, so this will offset the high minting costs a little, but this is just making sure that everyone else (not holding F-assets) devalues faster than you do by holding them - though it may work well enough to inflate the price of FLR initially. I have not modeled the balance between minting costs, F-asset rewards, arbitrage costs (we don't know the fees for trading yet do we?) and the cost of having FLR locked out of circulation, but I find the system very curious indeed. 

[You will both be glad to know that I have been writing arbitrage software recently and applied to the xrp grants project to turn it into an open source market making tool for cross ledger/exchange trading. In the unlikely event that it is funded, you can both contribute your knowledge to the rules needed for providing liquidity and earning from xrp/flr/others].

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1 hour ago, jbjnr said:

I have not modeled the balance between minting costs, F-asset rewards, arbitrage costs (we don't know the fees for trading yet do we?) and the cost of having FLR locked out of circulation, but I find the system very curious indeed. 

[You will both be glad to know that I have been writing arbitrage software recently and applied to the xrp grants project to turn it into an open source market making tool for cross ledger/exchange trading. In the unlikely event that it is funded, you can both contribute your knowledge to the rules needed for providing liquidity and earning from xrp/flr/others].

I think just as 5% became a market price for minting, so too will the collateral ratio. I doubt it’ll be 2.5x. In any case, I’d imagine the Agent in question would be willing to give up on their FLR because they would presumably make more from holding the native assets.

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1 hour ago, jbjnr said:

. I have not modeled the balance between minting costs, F-asset rewards, arbitrage costs (we don't know the fees for trading yet do we?) and the cost of having FLR locked out of circulation, but I find the system very curious indeed.

Thanks for the post. As you said if you can buy FXRP direct without the minting fee then there will need to be a premium on FXRP to make that worthwhile to sell. Not sure how that is going to work.

 Also as you say in the beginning there will be little reason to hold F-assets except to earn rewards and/or put them in FF LPs for YFIN. 

Do you have any thoughts on the kind of applications that might appear in the future that would utilize F-assets?

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13 minutes ago, Seoulite said:

Do you have any thoughts on the kind of applications that might appear in the future that would utilize F-assets?

Well, I wrote

18 hours ago, jbjnr said:

Can anyone point me to a good resource that shows how ethereum smart contracts are used in the real world to facilitate business (not counting just trading useless tokens against other ones)?

Because I'd like to know the same thing.

Personally, I'd love to see something like airline flight insurance done on smart contracts,

  • Pay a premium of P when booking your flight to cover delays/cancellations 
  • if your flight is delayed by N hours, receive payment proportional to N x P
  • If your flight is cancelled, receive a larger payment proportional to P
  • Oracle is data feed from flight info systems globallly. there are companies who provide reliable data streams for this kind of thing.  

I would use this every time I (used to before the pandemic) fly. AXA the big insurance firm actually tried this and cancelled it https://finance.yahoo.com/news/axa-drops-ethereum-based-flight-160027248.html but it seems like it would be an absolute winner to me and I am amazed that a massive insurance company couldn't make it work. (I'd happily work on something like that to make it viable on flare if it was ethereum that was the problem)

Stuff like this that would actually bring value into a blockchain would be great, but I do not know of many examples of real world usage. For me ODL is a killer app, but xrpl is fine for that, FX swaps might benefit from flare to hedge your ODL traffic.  

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1 hour ago, jbjnr said:

Anyone can get FTSO rewards without locking up their FLR anyway, so that is irrelevant. And no, I'm not thinking retail.

I'm not sure why you two are trying to lecture me on arbitrage. You've just locked up $250k of FLR and got $100K of XRP in return. Now you can trade your $100k of XRP for $101k of FXRP and then redeem the original $250k of FLR, and make a profit. (But now there is no FXRP in circulation any more). Everyone else can do this anyway, by just trading FXRP and XRP directly (assuming someone else has paid to create it), there is no need to lock up FLR, when you can sit back and let someone else do it. What I actually was saying is that to make it worthwhile to lock up huge amounts of FLR is that the minting costs of XRP->FXRP, DOGE->FDOGE will have to be quite high to make it desirable. Originally we saw 5% quoted in the whitepaper (I forget where?), and then it became a market rate. This market rate will in effect be set by the level of utility of F-assets, because only when people actually need F-assets for their smart contracts will they be willing to pay the fees to turn tokens into F-tokens and thereby give the incentive to anyone to lock up funds and do the arbitrage (ok, there will be rewards for holding F-assets from the rewards pool granted essentially by devaluation of FLR for everyone else, so this will offset the high minting costs a little, but this is just making sure that everyone else (not holding F-assets) devalues faster than you do by holding them - though it may work well enough to inflate the price of FLR initially. I have not modeled the balance between minting costs, F-asset rewards, arbitrage costs (we don't know the fees for trading yet do we?) and the cost of having FLR locked out of circulation, but I find the system very curious indeed. 

[You will both be glad to know that I have been writing arbitrage software recently and applied to the xrp grants project to turn it into an open source market making tool for cross ledger/exchange trading. In the unlikely event that it is funded, you can both contribute your knowledge to the rules needed for providing liquidity and earning from xrp/flr/others].

Two things to get the pump primed: 1) Flare has said that agents will still earn FTSO rewards on their FLR on the collateral pools (although we have yet to see the mechanism by which this will work). 2) Flare Networks, who gets a big chunk of the original distribution, has said it's going to be an agent.

You're right the incentive to put up all that collateral still has to be there. I think Flare's F-assets is intended to be a playground for arbitrage - their goal is to make it profitable enough to justify locking up all that collateral.

I can't put numbers to it. Initially there's going to be a rush to mint F-assets just from the enthusiasts who will charge in right away. That will fuel more demand from the very agents who minted the first batch of F-assets as they try to buy more to pay it back to the collateral pool (essentially burning it). It's going to create an ongoing cycle and settle in on a sustainable price. Maybe minting fees will be high, 5%-ish like in the example. That will mean slow growth, but that's that's ok.

Either the design will create an ongoing cycle that perpetuates itself, or, like you're concerned about, it's going to be like the lawnmower that just won't start no matter how many times you pull it.

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31 minutes ago, jbjnr said:

Well, I wrote

Because I'd like to know the same thing.

Personally, I'd love to see something like airline flight insurance done on smart contracts,

  • Pay a premium of P when booking your flight to cover delays/cancellations 
  • if your flight is delayed by N hours, receive payment proportional to N x P
  • If your flight is cancelled, receive a larger payment proportional to P
  • Oracle is data feed from flight info systems globallly. there are companies who provide reliable data streams for this kind of thing.  

I would use this every time I (used to before the pandemic) fly. AXA the big insurance firm actually tried this and cancelled it https://finance.yahoo.com/news/axa-drops-ethereum-based-flight-160027248.html but it seems like it would be an absolute winner to me and I am amazed that a massive insurance company couldn't make it work. (I'd happily work on something like that to make it viable on flare if it was ethereum that was the problem)

Stuff like this that would actually bring value into a blockchain would be great, but I do not know of many examples of real world usage. For me ODL is a killer app, but xrpl is fine for that, FX swaps might benefit from flare to hedge your ODL traffic.  

Flare Finance has Flare Mutual. I don't know how generic they are (are they just focused on common stuff like health, home, auto, etc.). It's possible that you could put in a proposal to add a pool for anything that can be statistically analyzed to figure out the rates.

By building a data feed right into the core of the network, Flare has created a system where distributed smart contacts have access to distributed data feeds. Hypothetically you'll be able to trustlessly do anything that can be quantified and processed logically. We'll see. If there's one thing I've learned from crypto, it's that the real world often greatly limits the potential.

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