2464 sats \ 38 comments \ @RedRadish688 15 Jun bitcoin

Fedimint vs Liquid

I have been recently thinking about Fedimint and Liquid and I have been noticing, that even though they use completely different technologies, they are comparable in their properties. This has been my understanding so far:

Trust Model Both use a federated trust model, where a number of entities coordinate to create tokens and post transactions. In both technologies the issued tokens behave like IOUs in the traditional baking system and there are the typical risks of a rug pull if the federation misbehaves. Furthermore there is the risk of inflating the token supply, with different methods to combat this through auditing in both technologies.

Privacy Liquid obfuscates the transaction amounts, but the movements from address to address are still traceable. On Fedimint there is no connection between the person receiving the token and the person spending the token. Therefore Fedimint seems stronger from a privacy perspective.

Throughput Liquid uses a blockchain, where due to the federated model the block time is very short. Fedimint stores information in a database and actions have to be signed by a certain number of federation members. Due to this coordination effort required by Fedimint members, I assume its overall throughput is comparable to that of Liquid.

Transaction Fees Fedimint is entered directly through a regular lightning transaction, while liquid requires an additional swap service, like Boltz and therefore additional fees. Once inside the system, liquid charges a small fee for each transaction while in Fedimint it might be free or also cost a small amount depending on the mint. This is also something that will evolve over time as adoption of the technologies grow.

Other tokens Liquid supports other tokens like stablecoins and I am not sure if Fedimint also supports this function. However, since stablecoins and other tokens are generally looked down upon here, I don't think this point warrants further exploration.

So in total it seems to me like Fedimint is currently the superior of the two technologies due to its superior privacy and comparable characteristics in other areas. Do you agree with this conclusion? Or are there any other important things, that I am missing?

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100 sats \ 0 replies \ @lightcoin 16 Jun

I assume its overall throughput is comparable to that of Liquid.

While it really depends on the hardware that the fedimint is running on, all else being equal I would consider the throughput of a fedimint to be higher than Liquid. There are no blocks in the fedimint context, transactions can confirm ~ instantly, and they can be confirmed as fast as the mint's hardware is able to swap notes with transaction recipients, which I imagine can be very fast. So fedimints are faster to sync your wallet balance (because no blocks to download) and they can do transactions at the speed of bare metal computing (extremely fast) overall should result in a theoretically higher throughput than Liquid.

So in total it seems to me like Fedimint is currently the superior of the two technologies due to its superior privacy and comparable characteristics in other areas. Do you agree with this conclusion? Or are there any other important things, that I am missing?

Liquid uses the strong federations model, claiming to use tamper-proof HSMs to protect the private keys that secure the federated multisig bridge. It is unlikely that your average mint operator will implement such high security measures, if only due to the high technical and cost barrier to doing so. So that is something to consider. I also agree with k00b that auditability is an important consideration.

100 sats \ 1 reply \ @TheBTCManual 16 Jun

Fedi also has an additional trust consideration in the LN bridge, if you're in a mint you can only interact with people in that mint, if you're paying another mint or LN you need that LN bridge runner/node

0 sats \ 0 replies \ @RedRadish688 OP 16 Jun

I see that as part of the trust model of pegging in / out of the corresponding system, which you have for both liquid and fedimint.

20 sats \ 2 replies \ @Bell_curve 15 Jun

The two are not mutually exclusive. I plan to use both

21 sats \ 1 reply \ @RedRadish688 OP 16 Jun

Do you see them both serving the same use case or are there specific cases where you would prefer one over the other?

0 sats \ 0 replies \ @Bell_curve 17 Jun

I trust liquid more with larger amounts

321 sats \ 4 replies \ @john_doe 15 Jun

My answer is more as a user than a strict comparison as you do, so the perspective will be a bit different and less precise.

Liquid I think has different goals. On Liquid you can trade Microstrategy stocks for example, so there are goals to make it a platform for traders. There is USD and EUR, and I think JPY too (not 100% sure). With Liquid since it is supposed to be pegged to Bitcoin there is no time frame for operation, in comparison to Fedimint where a community in essence can end tomorrow if it is decided to do so. Of course if the community is a village or a small town for example, we could assume it is forever.

Whereas with Liquid we can trade stocks, currencies, and save fees on Bitcoin when refunding our lightning channel, on Fedimint I feel like don't aim to be a financial platform for traders for example but rather the goal is more like giving money to friends in a community, and the overall feels like Grab, and maybe WeChat (from what I have heard of it), and everything-app competing for convenience, which was not the case on Bitcoin until then. Lastly regarding Lightning channels, you could say we could also refund our channel from a Fedimint but I don't think this is an intended use-case.

42 sats \ 3 replies \ @RedRadish688 OP 16 Jun

Fair enough, I was looking so far at both from the perspective of being able to make faster bitcoin transactions. If trading other tokens is the goal, then I definitely see how liquid is more suitable for this.

21 sats \ 2 replies \ @john_doe 17 Jun

If you look at it only in terms of transaction speed, then the comparison doesn't hold anymore I believe. Fedimint is definitely the one to use, not Liquid. I think also the ability to do offline transactions through ecash on Fedimint is definitely amazing, like bolt cards. Well this is half true since the vendor has to have internet but the buyer can buy offline instantly. In my case I am still very at attached to the self-sovereign aspect so I prefer Lightning but Fedimint is faster. By the way I don't know if you know but you can try by yourself the Fedi app with federations available on Mutiny.

21 sats \ 1 reply \ @Bell_curve 17 Jun

I use federation on mutiny

21 sats \ 0 replies \ @john_doe 17 Jun

Quite nice, isn't it? I think the Fedi app is better, at least at the moment: https://www.fedi.xyz/builders The integration with Bitrefill is really nice.

333 sats \ 19 replies \ @k00b 15 Jun

Or are there any other important things, that I am missing?

Transparency. The upside to Liquid using a blockchain is that you can see most of what's going on. I don't know much about Liquid, but I believe this prevents them from inflating L-BTC or doing some kind of fractional reserve. Ecash mints have no such audit-ability.

History. Liquid is less prone to overhyped claims because whatever is claimed should already be possible or have happened. Given how new fedimints are we mostly have to extrapolate what fedimints can do from the features. Liquid's federation is also more worthy of trust given they have a longer history of being trustworthy.

Do you agree with this conclusion?

I agree that fedimints make different tradeoffs, some of which are beneficial, but whether that amounts to something superior remains to be seen.

If you had to store $1000 in one or the other for the next two years, which would you choose? As is, I think most people would answer Liquid, and because Liquid's properties favor a storage use case slightly more (transparency and what not), that might always be true. I imagine some Fedimints will gain a lot of trust over time, but without public guardians who stand to lose something if they cheat, I'm not sure I'd trust a fedimint to store my money more than I would Wallet of Satoshi or an exchange. Ultimately, I think fedimint's use case, as it is today, favors a kind temporary private money storage - which we desperately need to make up for lightning's current shortcomings.

121 sats \ 0 replies \ @RedRadish688 OP 16 Jun

Thank you for sharing your thoughts.

Transparency. The upside to Liquid using a blockchain is that you can see most of what's going on. I don't know much about Liquid, but I believe this prevents them from inflating L-BTC or doing some kind of fractional reserve. Ecash mints have no such audit-ability.

Yes, the auditability of the money supply is an important factor and liquid currently has an edge here. I have heard dr calle mention different ideas on how to implement something like this on an ecash protocol and the currently most promising would involve something along the lines of periodically moving the funds of the federation to a new address, so that it became apparent if something is missing.

History. Liquid is less prone to overhyped claims because whatever is claimed should already be possible or have happened.

I agree with you here, Liquid definitely has the Lindy effect on its side, while all Fedimint assumptions so far are mostly theoretical / experimental.

I imagine some Fedimints will gain a lot of trust over time, but without public guardians who stand to lose something if they cheat, I'm not sure I'd trust a fedimint to store my money more than I would Wallet of Satoshi or an exchange.

My knowledge is also still limited here, but is that always a given that the guardians of a Fedimint are private? I assumed that it depends on the choices of each mint and therefore imagined that we would also see Fedimint federations of similar size / reputation as the one behind liquid. However I see how a fedimint of this size would also come with severe privacy restrictions (e.g. requiring kyc accounts) due to regulatory constraints.

52 sats \ 16 replies \ @TonyGiorgio 15 Jun

Do you believe liquid is trustworthy just because of their Blockchain? You mention fedimint with public members would be more trustworthy yet liquid's functionary members are not public.

31 sats \ 4 replies \ @john_doe 17 Jun

On this page: https://liquid.net/ If you click "Member Details", federation members are all listed, and there is the picture of each member on the board (among which the board deciding of membership changes in the federation): https://liquid.net/governance

So I think we can fairly say the federation members are public.

However it looks like the block-signers subset is not identified. And I didn't find this info on mempool.space either, whereas for Bitcoin we know which pool created a block. And since the federation members are dynamic and can apparently leave at any time, the web page could be outdated at the moment we speak. I don't know how often the page is updated.

142 sats \ 3 replies \ @TonyGiorgio 17 Jun

There is a difference between liquid members and liquid functionary members. It's intentionally confusing. The public list is are just partners allowed to peg out.

The people running the network are nowhere on there to be seen and they're the "guardians" in liquid's case.

121 sats \ 0 replies \ @john_doe 17 Jun

I just checked again and I think what you call guardian is what on the Liquid network is called block-signers, like the miners on Bitcoin. And the watchmen are those who are responsible for managing bitcoins on a multisig. I don't think there is confusion about this.

However indeed the list of block-signers and watchmen, although I assume is in the list of functionaries looks like hidden. I will ask on their community group.

31 sats \ 0 replies \ @john_doe 17 Jun

The reason why apparently is to avoid cases like Tornado cash or Samurai wallet. Which I can understand.

0 sats \ 0 replies \ @Bell_curve 17 Jun

no the list is not public, the functionary operators of the federation can decide for themselves whether to be public about it, for example Nym is a public operator.

watchmen and block signers are currently the same 15 set

https://blog.liquid.net/press-releases/nym-joins-the-liquid-federation-ahead-of-bitcoin-halving/

21 sats \ 10 replies \ @k00b 16 Jun

I don’t use Liquid. These are all relative statements not absolute ones like “liquid is trustworthy.” The more black a black box is, the less I trust claims about what is going on inside of it.

I didn’t realize they weren’t public (which is consistent with “I don’t know much about liquid”), but presumably Blockstream knows all the members? So they are known to someone, and while it doesn’t make them trustworthy, it does make it theoretically possible to hold functionary members accountable for bad things if Blockstream wishes to hold them accountable, right?

I’d be more interested in your thoughts on these tradeoffs than mine. Is fedimint better than Liquid in every possible way?

121 sats \ 9 replies \ @TonyGiorgio 16 Jun

I didn’t realize they weren’t public

This is very commonly the case when I ask the question. People assume it's public and that it's more trustworthy as a result, even if they have no idea who it is themselves (because it's not actually public). Only last week did one just get announced as a functionary member (Nym), other than that, they're unknown to the public.

In fedimint's case, you can see the bitcoin locked to the multisig and you can see the outstanding ecash issued. Fedimint can be ran by anyone, so the trust assumptions can go from none to very great (depending on who is the federation in relation to the user, it could be family), and that's better than Liquid unless you're related to adam back. It also has an open gateway structure and everyone is allowed to withdraw out, which is better than Liquid which only partners can withdraw from the federation.

So yes, I believe fedimint is better than liquid in every possible way.

21 sats \ 0 replies \ @Bell_curve 17 Jun

Have you used Liquid?

Why do you hate Adam Back?

Fedimint is better in every possible way because I am unbiased

21 sats \ 7 replies \ @john_doe 17 Jun

If the Fedimint is run in solo mode you could be rug pulled as well. In the case of Liquid there are quite a few ways to peg out. Through Boltz, BTSE, Sideswap and others. In this case to me Liquid feels less risky. By using Fedi I didn't see anyway to verify by myself how many guardians there are (it could be a limitation of the application they provide and/or my misconception as well).

52 sats \ 2 replies \ @RedRadish688 OP 17 Jun

In the case of Liquid there are quite a few ways to peg out. Through Boltz, BTSE, Sideswap and others. In this case to me Liquid feels less risky.

How does the presence of multliple swap services reduce the risk of Liquid? In the threats I can imagine for Liquid, e.g. them freezing your assets or liquid getting hacked and L-BTC losing its value, you would also not be able to redeem your bitcoin through these services.

31 sats \ 1 reply \ @john_doe 18 Jun

Because it is required that two third of them all decide together to freeze our assets. So the risk is diluted. I assume that by "them" you refer to the watchmen who manage the keys for Bitcoin in the multisig. Personally I would be more worried about assets such as USDt "frozen" than about L-BTC.

21 sats \ 0 replies \ @RedRadish688 OP 18 Jun

Because it is required that two third of them all decide together to freeze our assets. So the risk is diluted. I assume that by "them" you refer to the watchmen who manage the keys for Bitcoin in the multisig.

I think we are talking about different things here. What I was saying is, that if two thirds of the federation members decide to freeze your L-BTC, additional swap services will not help you, because in any case you would not be able to send your frozen L-BTC to the swap service.

Personally I would be more worried about assets such as USDt "frozen" than about L-BTC.

With USDt you mean USD-Tether, right? The threshold to asset freezes is certainly higher for a federation like liquid than for tether, but on the other hand if I look at how fast most companies tend to proactively comply when shit hits the fan, I don't think its so much higher either.

reply on another page

21 sats \ 0 replies \ @Bell_curve 17 Jun

Good point

21 sats \ 2 replies \ @TonyGiorgio 17 Jun

How do you know liquid isn't actually being ran by just one person?

31 sats \ 0 replies \ @john_doe 18 Jun

I don't know. Maybe by using Wireshark on my Liquid node to vaguely capture traffic and try to vaguely find who might be the block signers if I can capture the right traffic from a peer. That being said if we can minimally agree the information from Coin Telegraph and mempool.space is correct, at least you have proof there was 1 block signer in Japan: https://cointelegraph.com/news/liquid-network-block-production-resumes-following-transaction-processing-issues

At the end of the day for any community there is some trust involved. 1-2 years ago I got rug pulled by Fiatjaf around 80-90 sats in a telegram group. Given that there is at least a good track record for Liquid since 2018 I feel confident we may not be rug pulled. That being said to my friends I recommend them Bitcoin, not Liquid or Fedi.

0 sats \ 0 replies \ @Bell_curve 17 Jun

You mean the entire federation is controlled by one person or colluding?

That seems impossible.

Let’s pretend it’s controlled by one person. So what?

0 sats \ 0 replies \ @Bell_curve 17 Jun

Good analysis @k00b

121 sats \ 1 reply \ @joda 16 Jun

Liquid "can't" rug or inflate the supply, but members are not anonymous and are very susceptible to governments (of course, it isn't really used so governments don't really care right now).

Ecash incentives are for the mint to inflate and rug. Mints are anonymous and the "reputation" can be gamed with Sybil attacks and Nostr. Ecash is not Bitcoin.

Despite the tradeoffs, I think ecash/fedimint have more potential use in real-world applications (mostly back-end, a game platform issuing ecash rewards, or streaming payments).

Liquid is useful as a "real-money" testnet for Bitcoin upgrades-- CTV, OPCAT, etc.

31 sats \ 0 replies \ @RedRadish688 OP 16 Jun

Liquid "can't" rug or inflate the supply, but members are not anonymous and are very susceptible to governments (of course, it isn't really used so governments don't really care right now).

Is it always a given, that Liquid members are public, while Fedimint members private? But yes, I agree both have tradeoffs, public members are susceptible to regulation, private members create incentives for rugs and reputation gaming.

Ecash incentives are for the mint to inflate and rug.

Regarding verifying money supply there is some promising research with eCash, but still experimental.

Ecash is not Bitcoin.

Neither is L-BTC. With Fedimint you have the risk of rugging, with Liquid I think as usage and government attention increases, asset freezes are just a matter of time.

Liquid is useful as a "real-money" testnet for Bitcoin upgrades-- CTV, OPCAT, etc.

Makes sense.

61 sats \ 1 reply \ @SatsMate 15 Jun

I wonder with both Fediment and liquid what willl be the forms of spreading adoption?

I think the biggest thing to getting a tool off is the network effects of that tool/application. Lightning for example was great, but the adoption lagged with many traditional retailers. What kind of efforts could be made to try and enhance individuals adopting Fedimint/Liquid?

21 sats \ 0 replies \ @RedRadish688 OP 16 Jun

I see fedimint having a slight advantage here, because each fedimint wallet is automatically also a lightning wallet, while with liquid you always need an additional swap service.

In addition with fedimint, even if no service starts accepting eCash tokens directly, it can still be useful as a custodial mixer for lightning. Which of course brings also the risk of more regulatory attention.

51 sats \ 0 replies \ @BlokchainB 16 Jun

I like liquid in curious about fedimints I think both will be part of the coming bitcoin network/economy

0 sats \ 1 reply \ @Coinsreporter 16 Jun

So in total it seems to me like Fedimint is currently the superior of the two technologies due to its superior privacy and comparable characteristics in other areas.

Declaring them better only on the basis of privacy doesn't sound a good gesture to me for something that's just sprouted.

21 sats \ 0 replies \ @RedRadish688 OP 16 Jun

My conclusion was based on the combination of being similar in most other properties and fedimint having stronger privacy.

But yes, liquid for the moment has the advantage of having been around longer, so we have to see if fedimint can live up to all its promises.