Turning It ALL On
In case you were wondering when we'd finally do that
Here is the state of the project as of July 31 2022:
C++: We are isolating known bugs and layering in algorithmic live testing systems in a testnet environment. We had troubles connecting to the correct testnet chain but resolved that in July. We will shortly confirm the elimination of technical debt from all features that are not derivatives. We will over the coming weeks get a more clear idea of remaining unknown bugs in derivatives. We have not merged in yet, work done by the new core dev Sergei, work that covers an insurance fund class, and anti-wash trading filters for mark price liquidation VWAP.
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Layer Wallet: We successfully got an HD wallet refactor and trade channel co-sign done entirely in the .js in June, and early July began a refactor to put the full node syncing operationally in the background, which introduced new bugs, as one does. We’re verifying the fixes now, and have queued up tickets to add polish and information granularity to the trading history and order history interface. There are a handful of other polish points and UI support tweaks for derivatives and dMoney mint/redeem, and then the wallet will be essentially Beta ready. Additional features like hardware wallet support are backlogged. We have multisig support but without partially signed transactions, which are pending a port and merge/test of a Litecoin 0.20 version, our current base version is Litecoin 0.16.3.
Layer Explorer: long ago we got a dummy site running but without consistent testnet activity to populate it. Once we bang the gong on Layer Wallet we’ll re-host this, make some tweeks, possibly do some data-base work to give it more long-term records, probably a few more metrics.
We’ll be publishing our QA sheet on TradeLayer’s Twitter account as we proceed down the list.
We can move directly towards launching with Node Reward, on Litecoin, with support for spot trading, the only bottleneck is the queue of Layer Wallet tasks.
Once we know more about the tech debt remaining with derivatives clearing, and isolating the known bugs to the point of extermination, we’ll proceed to activate derivatives on mainnet.
That’s GOAL 2
To get the party started, people will be able to freely compete with our Layer Wallet release or our litecoind client via RPC scripts, to farm Node Reward in the early months, where it will be rich. The Node Reward will quickly dwindle to a trickle after 3-4 months have passed, but will remain a perpetual faucet for new users to get a small amount of ALL.
The spot trading in that ALL after 1000 LTC of cumulative volume, will begin to vest the vesting tokens held by investors and team members.
To test a simple version of the insurance fund, the founder will donate 10,000 vesting tokens initially, followed by several 100k, 15-25% of the total supply, but that will wait until the more sophisticated, automated market making version of the iFund, and be done gradually. GOAL 3
Before GOAL 3 is achieved, we will mint an initial block of 100-1000 synthetic LTC and enter secured loans with market makers so they can borrow it, backed by LTC in multisig escrow, and then trade with it. That’s GOAL 4, chronology notwithstanding.
As incremental users download Layer Wallet and fund it with LTC to trade in for sLTC, the market makers will be able to go to the Dex and sell ALL/LTC swaps while simultaneously hitting offers on the ALL/LTC spot market, creating new sLTC. 1000 sLTC worth of longs means about 60k USD, if there are not 60k-ish USD worth of bids out there then perhaps the long swap position is losing. A 1000 ALL long becomes 2000 after a 50% drop, 4000 after a 75% drop, and 8000 after an 82.5% drop, that’s inverse quoting. Therefore this initial foray into synthetic LTC minting should be backed with a large reserve of freshly vested ALL, at least 1% of supply.
What about peg instability? The #1 question, rightfully on everyone’s minds, this bear market.
There will be a % of the sLTC supply that is backed by cold repo loans, there will be a growing % of the supply that comes to market from investors and team members selling (remember all ALLs sold spot can be used by a market maker, or anyone really, to create new sLTC). The more of that loose ALL is out there, the more temptation people may have to cut losses and exacerbate some selling. Lower mark prices eventually liquidates the long ALL/LTC swap holders who make this system possible. Possibly sLTC holders get zapped for some socialization, if the move is disorderly. Or possibly such moves, if and when they occur, are orderly enough that the insurance fund earns extra fee revenue (beyond the 0.5 bps per side from trading) in the form of a liquidation fee.
As people try to exit, they sell for some bps of loss to the market maker, sLTC for raw LTC, the market maker is now long more sLTC than they have repo insurance for, so they redeem it, sell the spot ALL and try to get someone to sell them swaps to cover their short ALL/LTC position. Anti-wash trade filters severely curb abuse of this reflexivity, keeping it proportionate to the supply a trader holds. More expensive fees and high rebates in the on-chain orderbook matching level of liquidity has the effect of making it very costly and risky to attempt price manipulation. As everyone tries to redeem 100% of their sLTC for organic LTC, the market makers end up tapping the multisig trustees to repay their sLTC and they take their LTC reserve back.
It sounds like getting lots of LTC waiting in the wings to provide a spot bid for ALL is the crux of the stability of this whole system, and the fickleness of that liquidity is the achilles heel. Well now that we’ve got those details out in front, let’s go trade with leverage to limit our liquidity risk in this early stage - not too much leverage though! - and baffle with wonderment as our scalping and basis trading adds up to very small fees.
We will be paying bug bounties to Beta testers so please, feel free to download Layer Wallet and start syncing a Litecoin node now.
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