The protocol aims to bring accurate pricing data for illiquid, non-public assets to DeFi.
Lithium Finance completed a $5 million seed round led by Pantera Capital and venture capital firm Hashed to fund the creation of a collective-intelligence pricing oracle for publicly unavailable assets.
Alameda Research, Huobi Ventures Blockchain Fund and OKEx’s Blockdream Ventures also participated in the round, as did NGC Ventures, LongHash Ventures and Genesis Block Ventures, according to a press release on Tuesday.
The funding will enable Lithium’s team to bring forward their research to blockchain applications and create the oracle. It will also go toward the launch of the protocol’s subsequent mainnet in beta and help develop the project’s ecosystem.
Lithium Finance is based on a Determinant-based Mutual Information (DMI) mechanism, in which participants are asked subjective multiple-choice questions to find a dominant truth. The answer provides price discovery for illiquid assets.
In the case of Lithium, the mechanism is fuelled by reward and punishment of participants through staking the protocol’s native Lithium tokens (LITH). Staking ensures users who provide irrelevant and malicious answers are punished, while users who are able to generate insights are rewarded with LITH tokens. Through the collection of multiple users’ opinions a “wisdom of the crowd” price, based on each user’s reputational stake, is produced.
“DMI allow us to query individuals to provide answers without access to the ground truth — an external answer with finality — i.e. stock price once IPO, or final score of a match,” Adrian Lai, CEO of Lithium incubator Liquefy Labs, told CoinDesk via Telegram. “Lithium is different from [oracle provider] Chainlink in that Lithium will establish the pricing (where Chainlink just extracts from different sources) and Lithium focuses on illiquid asset pricing.”
By trying to bring highly accurate pricing of illiquid, non-public assets, from pre-IPO stocks and private equity to decentralized finance (DeFi), the protocol attempts to leverage “collective decentralized intelligence,” Lithium Co-Founder Steve Derezinski said. The initiative is targeted toward existing DeFi protocols, traders and investment analysts.
“One of the most powerful elements of DeFi is that it enables greater price transparency in markets,” said Franklin Bi, director of portfolio development at Pantera Capital. “We’re excited to see Lithium Finance apply cutting-edge research in crowdsourced intelligence and incentives to private, illiquid markets.”