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> If that's what you meant, then it's coming from the same dubious mental model I complained about above It’s not, because I’m saying something different than

> If that's what you meant, then it's coming from the same dubious mental model I complained about above It’s not, because I’m saying something different than you think I am. > when you enter into a liquidity pool, you are providing liquidity to the entire cryptocurrency's network, not just people who are "on" that DEX (which isn't a coherent concept). Um, what?!? I’m really not sure you understand how this works. What do you think it means to be an LP? > Several protocols look at the entire DEX market to find the best (combination of) price(s). You do not need to be in multiple liquidity pools (which, again, not a coherent concept). No, just no. You keep saying it’s not coherent but I don’t think you understand how it works. You might be in an optimizer that moves your capital around, but a given unit of capital can only be providing liquidity for one LP at a time. > LPs are not something you have to "be in"; Uh, if you’re not in it, then you’re not providing liquidity. This whole conversation is premised on providing $X liquidity to Y market. In a DEX that requires $X, whereas in a CEX, it requires a maximum of $X and in practice a fraction of $X.

SilasX 5y ago
>>LPs are not something you have to "be in"; >Uh, if you’re not in it, then you’re not providing liquidity. Why did you cut off the rest of that sentence, which clarifies that I was referring to traders not having to be in an LP to accept an offer (sorry, "remove liquidity")? People who really have some deep, coherent insight don't have to resort to that. Furthermore, the point was that, even though you provide liquidity "to" a liquidity pool, that liquidity is available to the entire cryptocurrency's market, so "being in" the LP isn't a meaningful concept (with respect to whether you can buy from it -- though you'll still probably cut this off). >I’m saying something different than you think I am. The great thing about a discussion forum is that you can point to specifically where someone misinterpreted what you said and correct it. If you're just going to assert that someone totally misinterpreted you, but never clarify what you claim that deep insight was, then I'm not sure what you think you're adding to the conversation. >Um, what?!? I’m really not sure you understand how this works. What do you think it means to be an LP? It means that a) you have locked up tokens in the pool, and b) you receive a fraction of the fees when someone trades with it. You're still working from the (incorrect) mental model that thinks a DeFi LP is some walled off garden. This is in error. The LP is available to trade with everyone using that cryptocurrency's blockchain. So it's not very meaningful to speak of traders who can't trade with you because they're not "in" "your" LP. Once your liquidity is in any LP, everyone can access it. You do not need to provide it to more than one pool, as your premise requires.
- qeternity 5y ago
  Alright, last attempt. I never said anything about other traders being in the same liquidity pool or whatever you think I said. Let me spell it out. Let’s say I want to be a market maker on Binance, in both BTC/USD and ETH/USD. Let’s say that I have a strategy where I can provide $5m in liquidity to each of those markets (i.e. $5m of orders for other traders to aggress) for a total of $10m of liquidity. But because most of the time those orders are just resting unexecuted, it turns out I actually only need $1m in capital to run my market making algos. In the DEX example, if I want to provide $5m liquidity to a BTC/USDT LP and $5m to an ETH/USDT LP, I need $10m to do this. So to run my $10m liquidity provider on a CEX I only need $1m whereas in order for an AMM to provide $10m in liquidity, it needs $10m in capital.
  - SilasX 5y ago
    That ... isn't your last attempt, actually. It's your first; you haven't said anything like this before, even though it would have been the natural thing to bring up in any of your three previous replies. Why you didn't, I can't tell. Now that I see what you're saying, it still doesn't prove what you think it does. If you can remember back to the original point, the question was whether DEXes can be manipulated to the point of forcing margin calls. I was skeptical, since we have seen localized flash crashes on CEXes (when you insist are not possible because of super-easy inter-CEX arbitrage) that forced liquidations, while we have not seen that on DEXes [1]. I further expressed skepticism since any manipulation would have to be via "stupidly" overpaying in one direction on one LP, which would just draw traders -- from the entire market -- in to exploit the price difference, and correct it. You kept appealing to the MM capital-inefficiency issue, but that isn't relevant because my point was that the counteracting force is from liquidity consumers, not providers -- the traders that accept the LPs' (formulaic) offers, and profit from the attempts to artificially push the price one direction across the entire market. Your latest reply feels like a further confusion, because (AFAICT) you're effectively saying, "Don't worry, CEXes are more manipulation-resistant because I can falsely represent myself as being able to trade in $10m when I only have $1m". If anything, that would mean they're more vulnerable to false signals about price support/resistance: If you can't actually put in $10m, you weren't really providing $1m of liquidity, and DEXes simply make this transparent. [1] though arcticbull mentions a case where the value could be propped up for a similar kind of attack: https://news.ycombinator.com/item?id=28798110 https://news.ycombinator.com/item?id=28798110

SilasX 5y ago

>>LPs are not something you have to "be in"; >Uh, if you’re not in it, then you’re not providing liquidity. Why did you cut off the rest of that sentence, which clarifies that I was referring to traders not having to be in an LP to accept an offer (sorry, "remove liquidity")? People who really have some deep, coherent insight don't have to resort to that. Furthermore, the point was that, even though you provide liquidity "to" a liquidity pool, that liquidity is available to the entire cryptocurrency's market, so "being in" the LP isn't a meaningful concept (with respect to whether you can buy from it -- though you'll still probably cut this off). >I’m saying something different than you think I am. The great thing about a discussion forum is that you can point to specifically where someone misinterpreted what you said and correct it. If you're just going to assert that someone totally misinterpreted you, but never clarify what you claim that deep insight was, then I'm not sure what you think you're adding to the conversation. >Um, what?!? I’m really not sure you understand how this works. What do you think it means to be an LP? It means that a) you have locked up tokens in the pool, and b) you receive a fraction of the fees when someone trades with it. You're still working from the (incorrect) mental model that thinks a DeFi LP is some walled off garden. This is in error. The LP is available to trade with everyone using that cryptocurrency's blockchain. So it's not very meaningful to speak of traders who can't trade with you because they're not "in" "your" LP. Once your liquidity is in any LP, everyone can access it. You do not need to provide it to more than one pool, as your premise requires.

qeternity 5y ago
Alright, last attempt. I never said anything about other traders being in the same liquidity pool or whatever you think I said. Let me spell it out. Let’s say I want to be a market maker on Binance, in both BTC/USD and ETH/USD. Let’s say that I have a strategy where I can provide $5m in liquidity to each of those markets (i.e. $5m of orders for other traders to aggress) for a total of $10m of liquidity. But because most of the time those orders are just resting unexecuted, it turns out I actually only need $1m in capital to run my market making algos. In the DEX example, if I want to provide $5m liquidity to a BTC/USDT LP and $5m to an ETH/USDT LP, I need $10m to do this. So to run my $10m liquidity provider on a CEX I only need $1m whereas in order for an AMM to provide $10m in liquidity, it needs $10m in capital.
- SilasX 5y ago
  That ... isn't your last attempt, actually. It's your first; you haven't said anything like this before, even though it would have been the natural thing to bring up in any of your three previous replies. Why you didn't, I can't tell. Now that I see what you're saying, it still doesn't prove what you think it does. If you can remember back to the original point, the question was whether DEXes can be manipulated to the point of forcing margin calls. I was skeptical, since we have seen localized flash crashes on CEXes (when you insist are not possible because of super-easy inter-CEX arbitrage) that forced liquidations, while we have not seen that on DEXes [1]. I further expressed skepticism since any manipulation would have to be via "stupidly" overpaying in one direction on one LP, which would just draw traders -- from the entire market -- in to exploit the price difference, and correct it. You kept appealing to the MM capital-inefficiency issue, but that isn't relevant because my point was that the counteracting force is from liquidity consumers, not providers -- the traders that accept the LPs' (formulaic) offers, and profit from the attempts to artificially push the price one direction across the entire market. Your latest reply feels like a further confusion, because (AFAICT) you're effectively saying, "Don't worry, CEXes are more manipulation-resistant because I can falsely represent myself as being able to trade in $10m when I only have $1m". If anything, that would mean they're more vulnerable to false signals about price support/resistance: If you can't actually put in $10m, you weren't really providing $1m of liquidity, and DEXes simply make this transparent. [1] though arcticbull mentions a case where the value could be propped up for a similar kind of attack: https://news.ycombinator.com/item?id=28798110 https://news.ycombinator.com/item?id=28798110