Lithium Finance is an oracle that attempts to value assets in which the open market has been unable to price.
When I hear the word oracle, I think about the lady in The Matrix movie who can see the future and has the answer to every question.
Then the mega corporation ORACLE founded by Larry Ellison comes to mind.
But in the crypto world, oracles is a term used to refer to something that plays a critical role for various protocols and networks to function.
It’s no exaggeration to say that many protocols would fall apart if there wasn’t an oracle that plugs into them. Even so an oracle that is not credible can do as much, if not more, damage.
To put it into plain English, an oracle in cryptospeak refers to a data feed that provides timely information for systems to function properly. This data is usually dynamic, live and can change by the minute.
For example, SushiSwap uses the data feed from Chainlink to pull information for some trading pairs. And Chainlink, if you don’t know, is the undisputed king of blockchain oracles at the present time.
In some way, we can see oracles as service providers who aggregate and provide timely information which can be in turn pulled from a public board. They don’t create that data, but rather reference it.
For example, the price of Apple shares can be found on NASDAQ. But how do you automatically pull that data into your trading software you are working? By using an oracle.
It seems very straight forward when an oracle can draw data from a reliable source. But what happens when they is no reliable data to draw upon. The price of Apple shares is determined by the open market. So it can be rightly said that the price of it on NASDAQ is what the public values the stock. This is a piece of information with consensus agreement.
What if a stock has yet to go public, and therefore has no market price?
While this might sound confusing or even ridiculous to many, there is actually a very big market that can make very good use of these information.
How do you price the unpriced? Lithium Finance has conceptualized an approach which they believe is the solution to that.
The oracle system that Lithium Finance is building centers around wisdom nodes that are basically run by people with various types of expertise. When a price request is submitted to the system, these specialist nodes consisting of experts would quote the price of the unpriceable and a somewhat consensus or aggregation is tabulated.
The LITH token is central to powering the ecosystem. With LITH being used as rewards, bounties, staking requirements to setup wisdom nodes, etc.
It also appears that the level of expertise a node provider is judged by the community. So even a public figure can be exposed as a fraud when judged by the community. Depending on how the inner workings of this “social” system works, it can be very prone to manipulation.
Key factors to success
While there is definitely a demand for such services, the question remains of whether people seeking these answers would be willing to pay for them.
For example, a lot of people get intrigued with their astrology reading… but would never pay a single sent for an astrologer to read them. Saying that, some people are more than willing to pay a fortune for personal readings, and getting advice based on these readings.
It wouldn’t be wrong to say that this is a niche market that Lithium is operating in. But the consensus model is more mainstream tuned. We shall see in the near future whether this is pure brilliance or trying to fit square pegs into round holes.
Quantifying the intangible is no mean feat. And there is bound to be many critics of the methodology used.
Professionals whose decisions can be greatly aided by such information might find the service priceless. For example, a real estate investor needing to a property’s price to make in informed buy/sell decision.
Other than private company value and real estate, some of the other stuff or illiquid asset industries which can find the Lithium Finance network invaluable include antiques, artwork, non-fungible tokens (NFT), collectors items, etc. Be mindful that the market for collectors items is HUGE. Like the gaming industry, a lot of people don’t realize how big it is until they get involved in it.
There are other unquantifiable factors at work in such industries that the team must iron out in order for the company to grow.
For example, experts in certain fields seldom (if ever) agree with each other. Everyone thinks that their competitors are idiots. Just go to a copywriting or SEO forum for instance and see copywriters (or SEOs) find anything that is not written by them, or by people associated with them, is crap. Which is why the consensus mechanism can be the make-or-break factor here.
How robust the system is can also be a critical factor. Unique items such as art can sometimes be available for sale during a very small window of opportunity as deals can often occur privately. Will a prospective buyer get the expert price opinion fast enough to close a transaction like this? This can be heavily dependent on the commitment levels of wisdom node operators. And this brings human factors into play which no amount of coding has control over.
For example, I remember a time when I had the opportunity to snag a nice top-level domain but delayed my response because the opportunity came out of the blue when chatting with the domain owner. The service that Lithium Finance would provide might have been priceless at that time. But the window of opportunity closed when I called the owner 30 minutes later as he had changed his mind about selling. Would the LITH ecosystem be able to provide timely and credible information that could play a material role in such instances?
I also find it of concern that the founder and team members listed on the website have backgrounds in payments and software development. No mention of valuations and involvement in related industries such as collectibles.
So for this project to be successful, the role of investors and advisors would play a critical role in entering markets effectively.
Fortunately, Lithium Finance is not short in this respect. The project has attracted A-list venture capitalists such as Pantera, Alameda Research, and Hashed just to name a few. Their valuable inputs and networks will be essential for the project to progress.
What price can LITH reach?
Even though Chainlink operates in a different market, having people reference it as a benchmark is unavoidable as it is the market leader for oracles on the blockchain.
Interestingly, the total amount of LITH tokens is ten times that of LINK. So LITH will never hit the price of LINK unless Lithium market cap is 10 times that of Chainlink. Very unlikely as that number would make LITH the third biggest token in the industry behind only Bitcoin and Ethreum.
If we assume that LITH can one day attain the market cap of what LINK is today, the price of LITH can reach $2. Even at one-tenth that number, it is still about 15x the current price. Not too shabby.
But that is a very long journey with numerous roadbumps. The testnet for example is scheduled for release in Q2 2022. That is a turtle’s pace in the crypto world, especially when we consider that LITH token got listed for trading on Kucoin in Q3 2021. Well at least retail has a chance to grab an early bag before the train leaves the station.
On the onset, there’s very little chance that LITH can attain the market cap heights of LINK. But we must also be mindful that this industry they are targeting is HUGE.
I have little doubt that they would be able to deliver a working product. The question is whether a working product is good enough to serve the needs of the customers who are willing to pay for such services.
I hope they explode onto the market with widescale adoption by some miraculous way once mainnet comes. This is not impossible especially with the viral nature of the collectibles industry. There could very well be a hungry market just waiting for something like this to enter the stage.
With all that said, Lithium finance is poised to either become a bonafide unicorn or an epic case study of “what it could have been”.