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Re: Connectors and market makers (left-over question from the workshop)

From: Evan Schwartz <evan@ripple.com>
Date: Wed, 2 Mar 2016 11:54:24 -0500
Message-ID: <CAONA2jW8A0tgxWXQLPG0vpOBeDRyavb-P4vHm98BLcpcLK+xhQ@mail.gmail.com>
To: stéphane canon <stephane.canon@scarlet.be>
Cc: Interledger Community Group <public-interledger@w3.org>
In order to facilitate payments between two ledgers, the connector needs an
account on one ledger that it can receive money into and an account on
another that it can pay out from.

If the connector represents a currency exchange it could be set up such
that it has two pooled accounts, one on each ledger, that represent the
total balances of all of the market makers or traders trading on the
exchange. When a payment goes through, the balance in the exchange's
account on the first ledger will increase, its balance on the second ledger
will decrease, and some number of orders on the exchange will be consumed
and the market makers' balances with the exchange will be updated
accordingly. The rates offered by this type of connector would likely
represent the top of the order book.

Alternatively, a connector could be operated by a single market maker,
bank, or institution. In this case the quotes it gives would be determined
purely by that institution and it would be the one providing the liquidity.
Nevertheless, the operator of the connector would still need to hold an
account on each ledger in order to receive money on one and pay out on the

The role of the notary is actually quite different. The notary does not
receive any money and is not in the flow of the transaction in that way.
The notaries are just there in atomic mode to serve as witnesses to enforce
a timeout dictating how long the recipient has to sign and submit the
receipt. The reason for this is that if there are different timeouts on the
transfers on each ledger, the full payment will not be completely atomic.
However, connectors won't want their funds to be tied up indefinitely. So
instead of having the timeout enforced on each ledger, atomic mode uses a
notary or group of notaries that come to consensus about whether the
receipt has been received in time. This way, each of the ledgers can
actually process the transfers at distinct times, but you can be sure that
they will all either execute the transfers or all of them will roll them
back, because all of the ledgers will base that on the decision of the

On Wed, Mar 2, 2016 at 11:36 AM, stéphane canon <stephane.canon@scarlet.be>

> "Connectors provide liquidity to send payments between different ledgers."
> Is a connector really providing liquidity? Up to know, I was seeing the
> connector as a notary: receiving and releasing money. He would need
> liquidity if there is a currency exchange and then he would be a market
> maker.
> > Le 1 mars 2016 à 19:42, Evan Schwartz <evan@ripple.com> a écrit :
> >
> > Connectors provide liquidity to send payments between different ledgers.

Evan Schwartz | Software Architect | Ripple
[image: ripple.com] <http://ripple.com>
Received on Wednesday, 2 March 2016 16:55:15 UTC

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