FAQs: How Does Lithium Work?
We will never tire of answering your burning questions about our platform. In our previous blog post, we addressed the tokenomics of LITH and how it is used as an economic incentive to power our platform and generate accurate illiquid asset price estimates. In this blogpost, we’ll answer how Lithium works to ensure the price estimates are genuine and transparent.
How does Lithium work? How do you implement it? How exactly do you come up with output pricing?
Lithium Finance is implemented through our protocol design premised on the following methods: (a) economics and reputation tokens, (b) pricing mechanism featuring two-way price inputs with reputation weighting, and (c) reward mechanism that incentivizes accurate estimation deduced upon the nascent market sentiment.To respond to a Pricing Quest as posted by a Price Seeker, participating Price Experts will submit pricing estimates and stake refundable LITH to signal their confidence. High reputation Price Experts may also optionally stake their RP Token (Reputation Token) so that they will be able to increase their Staking Limits, and in turn, stake more LITH.After the submission stage, the pricing mechanism aggregates submissions into an hypothetical order book as weighted by the staked RP Token for clearing and to produce the indicative output Consensus Estimate.
Why do I need to input both the bid and ask price estimates?
Nobel Prize Laureates Prof. Daniel Kahneman and Prof. Richard Thaler pointed out that people assign different values to buying and selling, especially for assets that are held for use or not regularly traded.The Lithium protocol assists Price Experts to consider pricing thoroughly by requiring estimates in a two-way bid and ask pricing format. Price Experts are required to quote price estimates they believe the market is prepared to buy or sell a particular asset at a specific time.This two way price estimates model also enables a clearing mechanism and enhances protocol integrity.
Are Lithium’s price estimates reliable?
We are very confident in our collective intelligence model because a large number of market participants are involved to attest to and ensure its integrity. We receive constant feedback from our community and enhance our protocol accordingly. The protocol itself is equipped with financial incentives to prompt Price Experts into providing accurate and genuine price estimates. Price Experts are also held accountable with their reputation tokens, their historical performance can be tracked, both features are open-sourced.
How do your price estimates compare with Machine Learning based predictions?
Machine Learning (ML) based predictions attempt to forecast prices based on predictive models constructed on relationships between independent variables or features against pricing from historical data.Lithium, on the other hand, leverages collective intelligence to harness and incorporate human insights in pricing, where human feedback could be used to help validate and/or retrain ML models. We believe collective intelligence is complementary to and enhances ML in many use cases.
Why do I need to stake LITH? How are rewards allocated?
When participating in Pricing Quests, Price Experts will be rewarded with shares drawn from the reward pools. They are rewarded based on the following factors: (a) accuracy of price estimates and (b) amount of LITH staked by the participating Price Experts. (Note: amount of LITH that a Price Expert may stake is subject to Staking Limits).Boosters will also be rewarded to Price Seekers whose bid and ask price estimates are closest to the respective mean. Stake (and shares in the reward pools) can potentially be boosted by as much as 100x for the most accurate submissions.Learn more on Reward Mechanism.
Why do I need to stake RP Token?
RP Token Staking is not a must. It only applies to those who want to utilize their reputation to increase their influence in the market and the Consensus Estimate.RP Token Staking’s benefits are manifold, as previously mentioned, your pricing estimate will be more influential at the end of the pricing estimate process. You will also be granted higher staking limits to be used to stake more LITH. And as a result, elevate your gains from the shares in the reward pool.
What are Staking Limits?
Staking Limits are controls to limit the maximum amount of LITH and RP Token that Price Experts could stake in a Pricing Quest. They are designed to enhance the security and integrity of Lithium’s protocol.In general, high reputation users will be allowed to stake higher amount of LITH and RP Token. Given their RP Token, opinions of these users will carry more influence in the pricing output. Being able to stake more LITH, high reputation users will also be entitled to larger share in reward pools given the same level of accuracy for their price estimates.
How does Lithium prevent bad actors from participating in our ecosystem?
Our protocol is designed to provide and collect genuine pricing estimates. In order to achieve this, Lithium’s reward mechanism makes it economically impractical for malicious actors to provide false pricing estimates to the ecosystem. As doing so will affect their RP Token and rewards they receive.
What happened to the DMI mechanism? Is Lithium still using the DMI mechanism?
Our mission has always been to harness decentralized collective intelligence for better decision making. As use cases for the protocol evolve, we are continually updating and optimising protocol design to solve the pricing inaccessibility issue of illiquid assets.Having said that, we maintain our view of DMI as a useful tool for appropriate use cases as we expand to further cover asset classes and additional collective intelligence solutions.In the meantime, Lithium continues to explore upgrades and changes to bring more illiquid asset solutions and make it even more inclusive for all market participants.
Will I lose any money or LITH?
All LITH staked on the platform are refundable.Price Experts will be rewarded with shares in the reward pools for participating in the pricing estimate process. Users are only responsible for gas fees but not the process or outcome of any of the price estimates.Please note that reputation or RP Token of Price Experts will be adjusted based on the accuracy of their price estimates submitted to the platform.
Could you give an example of a use case scenario?
Learn more about our use cases and examples of the flow of operation.
About Lithium Finance
Lithium Finance is the first decentralized asset pricing mechanism powered by collective intelligence. We bring market participants together to estimate pricing for illiquid assets on demand.