Introducing Liquidity Bounties
Community-based market making programs
Blog » Ask Me Anything: ZCoin
We hosted a very informative AMA with Zcoin community last week. Reuben Yap, Project Steward of Zcoin and Michael Feng, co-founder and CEO of hummingbot, answered a bunch of questions from both Hummingbot and Zcoin communities. For those who missed it out, we selected some questions and answers that might interest you, and put together this blog below.
Basically Zcoin is a privacy coin. We use our own privacy protocol called Sigma and We are also the creators of Lelantus (lelantus.io).
The benefits of our privacy protocol is that we have the power of zero knowledge proofs without fancy cryptography and no trusted setup, which is a problem with zkSNARKs in Zcash.
We also were the first guys to deploy a wide scale blockchain election for the Thai democrat party with over 127,000 people voting directly on our blockchain!
We've been around since 2016, so we're not a new project and we are listed on major exchanges like binance, bittrex and Huobi. If you want to dive deeper into our tech and how it compares to the competitors, click here.
There's no relationship between Zcoin and ZCash. We actually launched a bit earlier. Originally the protocol that we used was called Zerocoin which was a predecessor of Zerocash but retained some advantages over Zerocash.
The Zerocoin and Zerocash paper shared authors which are part of the Zcash team but we implemented it and improved the Zerocoin protocol. We have now transitioned out to something else called Sigma, which basically does the same thing as Zerocoin but without trusted setup. Also it is much more scalable with proof sizes at 1.5 KB vs. 25 KB with Zerocoin.
This was from a paper by Jens Groth and Markulf Kohlweiss. We were the first to bring it to fruition, and have used their paper as the basis of Lelantus, our next privacy protocol, which has gained a lot of academic interest even from Monero and Beam.
We don't have a business model. We are primarily a community project that wants to develop important technology.
Nowadays with the move to digital cash, we are sacrificing our privacy and putting us at the whim of governments and institutions, we are effectively allowing them to have full control over our money.This has happened before already in many countries that have financial issues where people are locked out of their funds or frozen for no reason. Businesses don't want people to know how much they pay their employees or suppliers, or how much funds they have either.
Zcoin has only engaged market makers once and it was a bit lacklustre. We paid a huge amount for it and all they did was replicate order books from one exchange to another, and we had to provide the inventory of tokens they used for it.
There were other market makers that seemed rather shady to say the least saying they can support 'gradual price appreciation' or support releases of news. They also asked for huge inventories. Not all market makers are bad but some were asking like 100 btc of bitcoin and 100 btc of Zcoin and we will charge you a fee on top of that. If we lose your money...well too bad but trust us, we won’t! If we make money, we get a cut too! You will see coins ranked 350 still having daily volumes of 70 BTC a day on Binance, how realistic is this? And you will notice that it is primarily coins that have huge team allocations that have tokens to do this.
We have been working with other market makers on a trial basis. That has been more positive but it's not cheap.
I actually heard about Hummingbot over a sushi dinner with Kristy Leigh Minehan of ProgPOW fame. I was lamenting the issue with market makers and she's like "hey have you checked out Hummingbot?"
Back then I think hummingbot was a lot more raw but it's so impressive to see how far it has come. It has become a lot more stable, and there are more exchanges and strategies supported.
We've actually used it quite a bit in the past few months, and it has generated excellent volume. But as a small team with limited resources, we can't monitor it 24/7 nor do we have massive amounts of liquidity to push into it. So just in a few weeks of running it we were able to hit Binance VIP1 level with about 2 BTC of inventory. So that's pretty cool.
We think it's more transparent and efficient to engage our community to run Hummingbot and with people with more expertise than us. But it goes to show that even amateurs can run Hummingbot successfully.
We first ran pure market making and cross-exchange market making. As we didn't have monitoring all the time, we kept it cross (market making), which generated less volume but some profit.
We didn't really try the more advanced features but pure and cross-exchange market making were relatively straightforward. We were running it on Binance, Huobi and Bittrex.
A lot of questions from our community are actually on how to run it! Some are a bit daunted by the technical requirements and all the little toggles they need to configure, but I am confident that enough people will figure it out. Some are a bit skeptical as to how it would work compared to a professional market maker while others see it as a great way to incentivize community. I see this as an experiment but I am hopeful.
Playing with Hummingbot was actually a lot of fun so I'm sure those that like to tinker will love it.
Tight spreads, lots of orders on the books, minimal arbitrage between different exchanges and hopefully it will lead to price stability and increased volume. Also I hope to get more believers of Zcoin.
Well, idealistic as it sounds, I believe in the importance of cryptocurrency as money that is independent of control, and to have that, we need privacy. Right now people are becoming more aware of privacy and the importance of it. Soon i think financial privacy, which is a relatively new concept, will be a hot topic. Remember we only recently transitioned to digital cash payments when previously many countries (and some still do) rely on cash, which is private by default.
However, there are other interesting use cases of Zcoin as well. For example, we have our Exodus token platform which allows people to build their own privacy token on top of Zcoin's blockchain, and also allows you to run anonymous but verifiable voting on us using these tokens, which personally I'm very excited about.
I guess although I'm a believer in private money, I hope to show more use cases of privacy technology as a whole that will also increase our legitimacy. There is some limited use and those with a bank account with (I forgot what bank) can use it. There's some limitations to this as only customers of that bank account can use the service where you can spend Zcoin directly at any of the 2-3 million merchants using Promptpay. We're working through some regulatory hurdles to expand this further.
Our founder is working with someone who is interested in building their token on Zcoin platform. It's a big group so that would be interesting if it pans out. I can't share too much details on this unfortunately. It's an intermediary step to adoption. If you can spend Zcoin in everyday life easily, there will come a point that people are more likely to hold some Zcoin too. People need to believe it's money and spendable before they can take the leap. I think that's more realistic than going door to door convincing ppl of the need of crypto and only having people come in once a month or less to pay in crypto like before people want to buy your coin they need to be convinced of its usefulness beyond its 'moon potential' and although it's not an ideal arrangement.
Members of the Hummingbot community can find out more about Zcoin on their telegram: http://t.me/Zcoinproject or Zcoin.io or @Zcoinofficial on Twitter.
Yeah, we did a 3 month pilot with Harmony Protocol recently. There were about 90 individuals who participated, and they did more and more volume each month. For details, you can check out here.
There was definitely a power law distribution in the volume creation and rewards earned. That was why we modified the model after this pilot to try to make it more evenly distributed. We wrote a blog post about our lessons learned.
I think the main challenge is education and adoption. Once people started to do it and got past the learning curve, they kept on doing it.
Sure, the Harmony model was a rebate based on filled order volume, so that meant the users who used tight spreads earned the reward. Users who were a bit wider on the order book rarely got a rebate since only the tightest spreads were being filled.
Liquidity Mining uses a more complex reward system, but we think it's more fair: your reward is based on 1) your order spread, 2) your order's size, and 3) number of other market makers. That means as long you're in the spread range set by Zcoin, you'll earn something.
There is risk in running a market making bot, especially if the market moves a lot, so I think users should try our paper trading mode first in order to get comfortable with the risks first. That said, the price of Harmony dropped 60% during this pilot, and the users were still running the market making bots.
Another feature we have in the bot is called a kill switch, which shuts down the bot after your performance reaches a certain level. You can use that to limit your losses and not have to monitor the bot 24/7.
Our mission is to democratize high frequency trading, which is why we made it open source. We have a large community of users, and I think they would vouch for the quality of the code base. We used to run a successful quant hedge fund, and Hummingbot is basically us open sourcing our stack.
Our pure market making strategy allows for plugins, so you could build a ML-based signal engine and use that to improve your market making strategy. Note that as machine learning engineers ourselves, we think that it's not essential to do well as a market maker. The crypto markets are very inefficient, so simple strategies tend to do well.
Yeah, we often see bots jumping one another. Actually, our bot has that feature too. Every market is different, so it's hard for me to give general advice on avoiding loss. Overall, I recommend studying a market to understand how it behaves, and to make use of paper trading mode to test out your strategy before using real money.
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