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The Liquidity Baking Mini-Series – For/Against (Part 1 Of 3) – Madfish

In this 3-part mini-series (which will be posted together), Allen Walters looks into the topic of ‘Liquidity Baking’, exploring viewpoints both for and against.

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Nature of Content: All content published on https://xtz.news, whether written, auditory, or visual, is for informational purposes only. Opinions expressed therein are solely those of the individual authors and do not reflect the views of XTZNews or its management.

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  1. What is the value of LB for the Tezos ecosystem? Some wonder if it compensates the 0.3% inflation that comes with LB.

This particular innovation has ushered in full-fledged on-chain liquidity that does not rely on DEXes and their Liquidity Mining programs. 

It’s also a really healthy trend for an ecosystem where 80% of the token supply is owned by users. Such a spread hampers centralized market-making while instant liquidity is restricted by stringent AMM rules and the volume of the liquidity pool. 

  1. Does it actually cause 0.3% inflation on XTZ?

If we take the textbook definition of inflation, i.e. “inflation refers to a general progressive increase in prices of goods and services in an economy” (https://en.wikipedia.org/wiki/Inflation), it doesn’t.

But it does lead to extra issuance. Which in our opinion has little impact on the Tezos protocol.

  1. Why is tzBTC the most suitable token for LB? (If so)

As Winston Churchill once said, “Democracy is the worst form of government, except all the others that have been tried”. Similarly, tzBTC may not be the optimal choice but we don’t currently see a better option.

  1. Are there any other tokens that would be suitable according to you? (Possibly USDtz, kUSD, uUSD)

Not at the moment. But let’s bear in mind that we might not even fully understand the power and significance of LB as a tool yet. 

For example, suppose more bridges with stablecoins suddenly pop up and kDAO or YOU will incentivize some other CFMM pool with some other bridged dollars or native USDc (make it happen!) or both.

In that case, we even might vote for kDAO or YOU LB options to incentivize liquidity growth in the abovementioned CFMM.

  1. When using the escape hatch, what percentage of total rolls are necessary to activate the escape hatch? 

A third of the last 2000 blocks should signal for leaving LB.

  1. Some say there is a technical boundary to use the escape hatch. It would be difficult and only for more advanced bakers. And it would add a certain risk for error and missing blocks.

That’s quite an irresponsible position. If you’re a baker trusted with maintaining the safety of the protocol, you should really possess some tech expertise or better yet have access to a team of professionals. 

  1. What is your opinion on the idea that Nomadic Labs should offer extra choices when a controversial feature like LB is included in a proposal?

Nomadic Labs are there to do their own thing. If the community members are able to inject proposals with alternative tokens, why should Nomadic Labs ((NL) do anything about it?

We do believe that all of us (developers, bakers, and community members) are responsible for holding a public discussion on disabling LB or switching the token. 

“Nomadic Labs” trademark just adds legitimacy to proposals. But there’s also a problematic side to it, as many bakers vote for NL proposals by default without taking time to closely study them and come up with counter-proposals of their own.

  1. Any other thoughts?

Right now monthly Storage Fee burns approximately 1.3% of the monthly Tezos issuance. And this figure is growing. I don’t think that 0.3% will bear a lasting impact on the Tezos monetary policy.

Matvey Sivoraksha

co-founder, MadFish

Disclaimer

Nature of Content: All content published on https://xtz.news, whether written, auditory, or visual, is for informational purposes only. Opinions expressed therein are solely those of the individual authors and do not reflect the views of XTZNews or its management.

Not Financial Advice: No content on this website constitutes investment, financial, legal, or tax advice. Users should not construe any such information as a recommendation to buy, sell, or hold any investment or security or to pursue any particular investment strategy.

Accuracy and Completeness: While XTZNews makes every effort to ensure the accuracy and reliability of information, we do not warrant or guarantee the timeliness, completeness, or accuracy of the information presented. The website may contain errors, omissions, or inaccuracies. We disclaim all warranties, both express and implied, regarding the information, including but not limited to, any warranty of merchantability or fitness for a particular purpose.

Endorsements: References to specific entities, products, services, processes, or other information does not constitute or imply endorsement, sponsorship, or recommendation by XTZNews. Blockchain technology is in a developmental phase, and the engagement with the technology and its associated entities carries inherent risks.

User’s Responsibility: Users are encouraged to conduct their own research and due diligence and to seek the advice of qualified professionals before making any investment or decisions related to content on this site. Engaging with blockchain technology, cryptocurrencies, and associated applications should be undertaken with caution, understanding the inherent risks involved.

Limitation of Liability: Under no circumstances will XTZNews or its affiliates, partners, officers, directors, employees, shareholders, agents, or licensors be liable for any direct, indirect, incidental, special, consequential, or punitive damages, including without limitation, loss of profits, data, use, goodwill, or other intangible losses, resulting from (i) your access to or use of or inability to access or use the site; (ii) any content obtained from the site; or (iii) unauthorized access, use, or alteration of your transmissions or content, whether based on warranty, contract, tort (including negligence), or any other legal theory, whether or not we have been informed of the possibility of such damage, and even if a remedy set forth herein is found to have failed its essential purpose.

Seek Independent Advice: Before undertaking any financial investments, potential investors are advised to seek guidance from independent financial, legal, and tax professionals.

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