Perhaps I'm not understanding, but if IOUs are created, what entity is on the hook for making the IOU whole? If an IOU cannot be made whole, what parties will feel it? Further, how is liquidity created and maintained? Is liquidity maintained through the IOU mechanism?
Asking genuinely for my understanding. I really like where Steemit is going with ICO and token creation, but I can't wrap my head around the DEX.
Have you tried bitshares DEX? It shouldn't be too different. Basically, it's an exchange on the blockchain. Will all those tokens flying around, you need a way to exchange those tokens back to STEEM.
The IOU will have to be a promise from a third party. Let's say paypal wanted to have a USD IOU on the blockchain, the PAYPAL.USD token would be as valuable as the trust people have in PAYPAL to fulfill their promise.
That's helpful, thank you. And no, I haven't tried BitShares, but I have traded on WAVES's DEX. It was very quick but I didn't really understand how I got the tokens I traded for so quickly (the WAVES UI/UX is not that intuitive to me so it's more my limitation than the tech).
So from my understanding, there is still a party that is responsible for payment. Liquidity is provided for through a third party. So similar to a centralized exchange, you are still exposed to balance sheet risk in IOU. I think I need to research this more because I had envisioned that a true DEX you wouldn't have balance sheet risk at all. Again, maybe I'm not understanding correctly, but I appreciate you trying to help me.
The solution that bitshares came with was their pegged asset such as BitUSD and others to avoid those risks. But there is no perfect system. IOUs are much less volatile (tether) than their countpart that are decentralized (BitUSD, BitCNY, etc.)
Yes, yes, agreed.