I've been thinking about the simplest form of reputation I could add to the blockchain. My first idea was to provide reputation based on users to provide liquidity to Steem. The problem with this is that Steem has no decentralized interoperability with other chains. You can't give reputation for liquidity provided on Binance because then you'd need access to all the information they keep secret (anything that can't be accessed through the API) like emails, driver's licenses, and social security numbers.

In this case what would be required is a link from a Binance account to its associated Steem account. (Plus all the orders each account makes on the STEEM/BTC liquidity market. )

From there, reputation could be given to users who post at specific intervals. I'm trying to brainstorm what kind of algorithm one would use for providing liquidity. Essentially, the bot wants liquidity to look a certain way. In the case of providing rep at intervals liquidity would look like a step-ladder in both buy/sell directions.

Why intervals?

Providing rep at intervals means anyone who wants to front run or undercut (proving they don't want to provide liquidity as much) won't get credit for posting a sell order at 0.0999999. This is an undercut. People at the 0.1 level get the reputation for providing the real liquidity.

DEXchanges (Atomic Swaps) are going to be key going forward for every chain.

https://cryptoiq.co/atomic-swaps-between-bitcoin-and-monero-could-be-possible-in-the-near-future/

Atomic swaps between the Bitcoin (BTC) and Monero (XMR) blockchains could be possible in the near future, perhaps even sometime during 2020, according to blockchain developer Joel Gugger.

Apparently the only thing preventing atomic swaps between Bitcoin (BTC) and Monero (XMR) from being launched at this time is the developers do not have an easy way of implementing zero-knowledge proofs, which are required for this technology.

_{I saw Monero have a nice green day very recently when everything else was flat.}
_{This event might be getting priced in now as well with everything else.}

In any case, we don't have DEXes and we don't have atomic swaps, or do we?

Like ERC-20 tokens to Ethereum, SteemEngine tokens and SMTs are grandfathered into the Steem ecosystem. Atomic swaps between all of these assets is a given (it is their fundamental definition).

Therefore, we can add a reputation system for providing liquidity to tokens inside the Steem ecosystem, and we can do it in a way that is difficult to game. Reputations like this could be the foundations of more complex/specialized ones built on top of them.

When to give rep?

Liquidity exists to allow people to enter/exit the market, right?
Therefore, reputation would be awarded whenever liquidity gets purchased/sold.
Right?

Wash Trading

Unfortunately, that doesn't work at all because anyone can set up fake trades between accounts. This already happens to fool sites like Coinmarketcap into showing their podunk exchange as having the highest volume, liquidity, and whatever else. Oops.

Solution?

Therefore, the only way to give reputation for providing liquidity, is the time that the liquidity stays available >> combined with the algorithm's (bot's) determined usefulness of said liquidity. If you are adding sell liquidity to SteemLeo at 1:1, that's not very useful. However, 0.2 might be a level that the bot wants more of at the time.

What are the rules of the bot?

Ah that's pretty interesting, because ideally it would be a DAO (probably with it's own separate coin). We have to decide a lot of things and come to consensus as a network for the rep to be valuable. What levels of liquidity are wanted? At what intervals? How fast/slow does the bot move the perceived value of the market up/down? How does the bot respond to flash crashes and pumps? There are a lot of spectrums here that can be voted on with stake. Steem makes it easy to do so.

The bot

The bot would essentially be a customizable arbiter for reducing price volatility across the entire network. The more valuable the reputation is that the bot tracks, the more popular the service will become and every network that uses the arbiter would have the advantage of much higher liquid funds available, in conjunction with measures in place to deal with flash-crashes and massive pumps. Essentially they would be avoided entirely by giving rep for users that place those deep orders at certain levels.

Oh look, another project I'm not working on. Neat.

Posted via Steemleo

This is a good idea but needs refinement.

Every rep system can be gamed in an anonymous system with sybil attacks so long as providers can remain anonymous. The thing here is to strip anonymity in such a way that it grants no hiding power.

Therefore the most straight forward system would be one where it is hard to earn and easy to lose.

Take for example a trader who's providing liquidity on one or two specific markets, but consistently provides deep liquidity and doesn't front run, put in ghost orders or pull orders very often. This person is a specialist and should gain rep by number of days and % of liquidity he/she is providing. The more liquidity you provide the better your rep.

But what if they were playing a long con? Well this actually becomes solvable by capping the max rep to some value and disproportionately impacting it for bad behavior. First screw up is a 99% hit to reputation. You're back to square one and this doesn't go away ever. It has to be earned back and the only way you earn it is by providing deep liquidity for long periods of time. I'm not talking minutes or hours here. I'm talking weeks.
Say every week you provide liquidity you get 1 point for every % of a given market you've made. Cap that at 100 and let all noobs start at 1.

An even better system might be like the system in certain MMORPGs for leveling up. Every level increase requires some power law accumulation of points. For example level 1 is the starting point. Gain level two with two days of making liquidity of at least 1% on a market. From there you need 2x as much to gain another level, i.e. 4 days then 8 then 16, 32, 64, 128, 256, 512 etc. These would translate into low numbers like 1,2,3,4,5,6 in order to make it really painful and expensive to game the system.

Reputation For Liquidity