Lithium is a protocol that harnesses the DMI mechanism to gather accurate information from data source in order to discover prices for illiquid assets.
Several new blockchain projects are developed each day, which means that are tons of early stage projects that have no pricing information available, making it very difficult to accurately determine the price of a token for a project that has not been officially launched or revealed to the public. Moreover, the pricing info for private companies is not accessible.
The Lithium project aims to determine an accurate price for these new projects. While the price of an illiquid asset may not be predicted accurately, the framework of the Lithium protocol ensures that price predictions are almost perfect.
The project is backed by entrepreneurs who have vast experience in blockchain technology. The CEO of Lithium Finance is Adrian Lai, whose vision is to develop a protocol that uses Determinant-based Mutual Information (DMI) to reveal vital pricing information without gaining access to the real truth.
The co-founder of the company is Steve Derezinski, a blockchain developer and entrepreneur.
Collectively, the company has raised a sum of $5 million in seed funding. The funding was led by Hashed, a venture capital firm. Several other big names in the crypto ecosystem also joined hands in raising the seed funds. OKEx Ventures, Huobi Ventures, Genesis Block Ventures and LongHash Ventures all contributed to the funding round.
What is Lithium?
Lithium is a protocol that harnesses the DMI mechanism to gather accurate information from data sources. The goal is to discover prices for illiquid assets. To achieve this, multiple participants are questioned to find a dominant truth. The questions are multiple-choice questions and are subjective.
One of the major constraints of DeFi protocols is the lack of pricing of real-world illiquid assets. Off-chain collateral requires informed pricing in order to execute corporate actions such as investments, liquidations, mergers, and acquisitions. At the same time, it is impossible to tokenize assets we can’t price.
Creating a network of accurate and incentivized pricing experts for these off-chain assets is the critical missing link in enabling explosive growth for DeFi’s market capitalization. The DeFi space currently holds a significant worth of $77 billion in the crypto world. However, the issue of pricing for illiquid assets still holds back a lot of investors from joining the DeFi ecosystem. Lithium aims at solving this problem.
Lithium Protocol Design
The Protocol’s design ensures that the pricing provided by Lithium is accurate and not manipulated. Also, the design supports an incentive mechanism. This spurs Wisdom nodes to contribute to the system. Finally, the privacy of users who provide key information is protected by the protocol. The key features of the protocol’s design are highlighted below.
Dominate Truthful Peer-prediction
Advancements in peer-prediction techniques now make it possible for individuals to provide answers and facts without clearly stating the ground truth. Initially, aggregating multiple users’ information or answers may have required a final or specific answer to get to the real truth. That is not the case anymore.
Questions can be answered in binary fashion with the aid of Wisdom nodes. Thus, to determine the price of a stock that is illiquid or the score of a match, nodes capitalize on mutually exclusive results.
For example, rather than specifically questioning data providers on the price of an asset, the question could be refined. Participants could be asked if the asset is higher than $10 or lower than $10. Additionally, in the multiple-choice sections, ranges like $10-$20, $21-$30, $31-$40 could be used to extract information from providers while they do not reveal the specific answers. After all common answers have been computed, irrelevant or wrong answers will be detected and filtered.
Proof of Wisdom Staking
One may wonder what will happen if the majority of the individuals participating in the stake decide to cheat or provide wrong information. A situation like this can be avoided by Proof of Wisdom staking.
The Proof of Wisdom staking is a framework to help curb malicious acts. The Lithium protocol rewards users who provide accurate information at the end of the process and penalizes users who cheat or casually provide wrong information. Since users’ assets are staked to participate, users will likely provide accurate information to get rewarded.
Additionally, the more a user participates in the data collection process while providing relevant information, the user gets rewarded not just with tokens from the pool but also with a higher status or reputation in the ecosystem. A higher reputation translates to higher rewards.
Users who default on the other hand will be ripped off their staked tokens. The tokens obtained from defaulters will be used to incentivize reliable participants.
Wisdom Node Reputation
One of the major features of blockchain transactions is transparency. Since transactions are on-chain, the performance of each participant is available and transparent for all to see. Additionally, the records cannot be tampered with. When participants state their answer or provide their reputation, it will be clear for all to see on the protocol.
Specific Rewarding Process
The answers to questions will be aggregated in a matrix form when the time for the answering process is over. The solution will be calculated using the DMI mechanism. The image below shows how correct information will be segregated from erroneous information.
Correlated answers will receive the highest rewards. Uncorrelated or incorrect answers will be stripped off their stake and have a demoted reputation. Neutral answers will be given a smaller reward from the pool.
Experts who are knowledgeable on the pricing of private companies will be benefactors of the Lithium stake and earn framework. These could be brokers or investors who are familiar with the private market activities of the company in question.
On the other hand, crypto projects, investment banks and private equity firms require accurate pricing information to make crucial business decisions. These players also provide feedback to Lithium on the accuracy of the information obtained from the protocol. Thus, fishing out wrong data will not be an issue on the protocol.
Data submitted during the exercise are private to everyone at that point and only the protocol can read the data provided. The protocol will then aggregate results of the exercise by means of an MPC technique. This helps to preserve the privacy of data.
Additionally, private data of users who provide answers during the exercise are not revealed. Users remain anonymous.
Lithium Token (LITH)
The native token for the Lithium protocol is LITH. It is a utility token and that will serve as a reward token for users of the protocol who provide relevant and accurate information. Brokers and investors will need to stake LITH in the pools to answer questions on the platform. Users who turn to the Lithium protocol to ask questions regarding an illiquid asset will also need to stake the LITH token before their calls can be executed. Bonuses and extra rewards given to users will also be distributed as LITH.
With the growth of decentralized finance (DeFi), the need for accurate information on pricing will no doubt steadily increase. Lithium is here to fill that need by extracting information from relevant sources or providers who would have originally refrained from disclosing vital information about a private company or project. While doing this, Lithium does not infringe into the absolute privacy of individuals or companies. Thus, the project will definitely solve a major pain point in the blockchain ecosystem while contributing to the growth of decentralized finance.