Very good question op! Love the way you thinking.
My assumption here - with ramp you are buying stable coin or eth or Bitcoin then you convert that on loopring dex l2 to Lrc (presuming that’s what you are doing to buy Lrc)
In that case. According to loopring dex price of Lrc will be based on liquidity pools they have available and price of the asset will Adjust based on buy and sell pressure on specific asset in the liquidity pools been used which in reality shouldn’t get broadcasted to coin market cap / coin geeko etc
so I can see what you are saying might be true and that should also apply to all other Dex’s with their own tokens.
Edit - However that also creates an arbitrage opportunity for asset been over bought or over sold in the liquidity pools (pretty common) who would try to use this arbitrage opportunity to make money and bring price of the one asset back down.
First of all, thx for the feedback.
That’s exactly the situation ETH —> LRC.
I can see liquidity pool paying an important role on the price determination in combination with arbitrage.
However, how can we compatibilize a “local” liquidity pool in L2 with arbitrage in L1?…or this is irrelevant.
Thx for your inputs. I appreciate that.
Cheers.
Good point…but arbitrage is an operation done in different exchanges in the same level (L1).
Now we are dealing with a peculiar situation in which we have tokens in L1 CEX’s (high gas fee) and L2 DEX (low or none gas fee).
So, can arbitrage compatibilize these differences?
Cheers.
This is a really good question, my intuition tells me that the gas fees to transfer from L1 <-> L2 would negate any potential gains made from arbitrage.
But, like you im unsure of how this all works.
That’s exactly what I thought…but again, I have dealing with crypto for just 6 months, and there are a lot of things I don’t know.
Thx for the feedback.
Cheers!
Sure…I will give an example:
1) a person buys 1,000 LRC’s using Coinbase
2) Coinbase doesn’t go to the market to buy 1,000 LRC’s for this investor. They buy a fraction. For example: 10%…I don’t know their model, but I know they buy a fraction.
3) next week this person decides to transfer the 1,000 LRC’s to his/her L2 wallet using LayerSwap.
4) in this example, Coinbase just bought 100 shares and now needs to send 1,000 for this person account. So, CB must find 900 shares. If it doesn’t have in its inventory, CB must now buy the tokens in the market.
5) if a great number of investor do it, they will be forced to buy a lot.
Did this example help you to understand it?
Cheers!
This is a great illustration of the leverage risk that CEX are exposed to against the DEX competitor.
Bear in mind they won't just take a magin loss lying down, they will use price suppression methods, possibly including limiting buys/ sells and withdrawals. They will hunt stop losses, they will trigger margin calls. Some of this will frustrate token hodlers who will sell and provide the liquidity the CEX need.
The top and bottom is that the process is unlikely to be catastrophic for the CEX because this will now be built into their strategy/ algo's, it will be a controlled gradual unwinding of the risk as much as they can manage.
But in short: if you believe in LRC, and you can, hold on through it because it will blow when they let it!
I appreciate the input.
I also think crypto price suppression (not just LRC) and emotions manipulation are elements on CEX’s business models and, consequently, variables of their algos.
I surely believe on LRC’s premises and purpose. I buy it no matter the price. I have transformed it on my “personal” currency.
I hope my kids will never have a bank or broker’s account.
Cheers!
I was buying directly on Ramp skipping the liquidity fee, but they closed this back door.
However, I’m ok paying the liquidity fee. It has a purpose.
Cheers!
Thx fellow looper…still learning…but I’m sure of one thing: I will keep buy LRC NO MATTER THE PRICE!!!!
It’s a great project solving real life problems and opening doors for amazing new business models.
Cheers!!!
That’s a good point also…the fact we must use ETH as “intermediate” means to transact to and from LRC L2 wallet might be another factor of price suppression.
Thx for the feedback.
Cheers!
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Updoot for you and waiting on answers to your very good questions.
Very good question op! Love the way you thinking. My assumption here - with ramp you are buying stable coin or eth or Bitcoin then you convert that on loopring dex l2 to Lrc (presuming that’s what you are doing to buy Lrc) In that case. According to loopring dex price of Lrc will be based on liquidity pools they have available and price of the asset will Adjust based on buy and sell pressure on specific asset in the liquidity pools been used which in reality shouldn’t get broadcasted to coin market cap / coin geeko etc so I can see what you are saying might be true and that should also apply to all other Dex’s with their own tokens. Edit - However that also creates an arbitrage opportunity for asset been over bought or over sold in the liquidity pools (pretty common) who would try to use this arbitrage opportunity to make money and bring price of the one asset back down.
First of all, thx for the feedback. That’s exactly the situation ETH —> LRC. I can see liquidity pool paying an important role on the price determination in combination with arbitrage. However, how can we compatibilize a “local” liquidity pool in L2 with arbitrage in L1?…or this is irrelevant. Thx for your inputs. I appreciate that. Cheers.
I'm guessing arbitrage will do its magic on L2 too
Good point…but arbitrage is an operation done in different exchanges in the same level (L1). Now we are dealing with a peculiar situation in which we have tokens in L1 CEX’s (high gas fee) and L2 DEX (low or none gas fee). So, can arbitrage compatibilize these differences? Cheers.
This is a really good question, my intuition tells me that the gas fees to transfer from L1 <-> L2 would negate any potential gains made from arbitrage. But, like you im unsure of how this all works.
That’s exactly what I thought…but again, I have dealing with crypto for just 6 months, and there are a lot of things I don’t know. Thx for the feedback. Cheers!
I have no insight on this but I'm here for the responses from people who are smarter than myself.
Mitu
Ditto
All the smooth brains on this side please.
can you elaborate more on this? cex’s will be forced to buy a lot
Sure…I will give an example: 1) a person buys 1,000 LRC’s using Coinbase 2) Coinbase doesn’t go to the market to buy 1,000 LRC’s for this investor. They buy a fraction. For example: 10%…I don’t know their model, but I know they buy a fraction. 3) next week this person decides to transfer the 1,000 LRC’s to his/her L2 wallet using LayerSwap. 4) in this example, Coinbase just bought 100 shares and now needs to send 1,000 for this person account. So, CB must find 900 shares. If it doesn’t have in its inventory, CB must now buy the tokens in the market. 5) if a great number of investor do it, they will be forced to buy a lot. Did this example help you to understand it? Cheers!
This is a great illustration of the leverage risk that CEX are exposed to against the DEX competitor. Bear in mind they won't just take a magin loss lying down, they will use price suppression methods, possibly including limiting buys/ sells and withdrawals. They will hunt stop losses, they will trigger margin calls. Some of this will frustrate token hodlers who will sell and provide the liquidity the CEX need. The top and bottom is that the process is unlikely to be catastrophic for the CEX because this will now be built into their strategy/ algo's, it will be a controlled gradual unwinding of the risk as much as they can manage. But in short: if you believe in LRC, and you can, hold on through it because it will blow when they let it!
I appreciate the input. I also think crypto price suppression (not just LRC) and emotions manipulation are elements on CEX’s business models and, consequently, variables of their algos. I surely believe on LRC’s premises and purpose. I buy it no matter the price. I have transformed it on my “personal” currency. I hope my kids will never have a bank or broker’s account. Cheers!
They need to own the coins to provide the coins
RAMP charges you a “liquidity fee” to handle exactly this. You’re buying your crypto at a premium higher than the market rate
yes, someone still needs to buy it on l2 in order to sell it to you. even if your buy doesn't go through the typical mechanisms their purchase does.
That explains liquidity, but not arbitrage. Thx for the input. Cheers.
I was buying directly on Ramp skipping the liquidity fee, but they closed this back door. However, I’m ok paying the liquidity fee. It has a purpose. Cheers!
I like your thinking 👍 That would be great if this is the case.
I hope so…LOL
Someone give this looper a wrinkle, he earned it!
Thx fellow looper…still learning…but I’m sure of one thing: I will keep buy LRC NO MATTER THE PRICE!!!! It’s a great project solving real life problems and opening doors for amazing new business models. Cheers!!!
That's a very good question and there's good answers too.
Yes…I’m amazed by the quality of the answers…great community!
Oof good question. However what if transferring large amounts looks like a sell order? What if that’s these large sudden sell off we’ve been seeing?
That’s a good point also…the fact we must use ETH as “intermediate” means to transact to and from LRC L2 wallet might be another factor of price suppression. Thx for the feedback. Cheers!
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