A decentralized collective intelligence mechanism for pricing illiquid assets.
Lithium Finance brings market participants together through economic incentives to estimate pricing for illiquid assets on demand.
In the short run, the market is like a voting machine - tallying up which firms are popular and unpopular. But in the long run, the market is like a weighing machine - assessing the substance of a company.Benjamin Graham
Applying Benjamin Graham's words, the Lithium protocol is a voting machine that produces the current, perceived market price of an asset. In the absence of an active, public market, Lithium Finance's mission is to gauge accurate pricing and market sentiment for assets through collective intelligence.
Facilitate liquidity and financial innovation for illiquid assets by providing genuine and decentralized pricing information.
Pricing information for private assets is often unavailable because an active market does not exist. In most cases, pricing data for these assets comes from a small number of infrequent transactions, making it difficult to accurately estimate current prices. In the absence of these data points, market frictions and transaction costs increase for subsequent transactions - resulting in even fewer data points.
In today’s economy, there are lots of asset classes that are illiquid or not readily marketable to a wider audience. In most cases, investors rely on subjective valuation based on intrinsic value analysis and comparable pricing analysis for guidance, which is highly inefficient and costly in most cases. It is worth noting that the intrinsic valuation of an asset is subjective and usually diverges from its current pricing. While comparative analysis can provide some guidance, it is often impossible to have perfect comparisons when it comes to private and illiquid assets. Small sample sizes remain a significant hindrance in finding accurate, efficient pricing, leading to lots of wasted opportunities.
Given these constraints, how do we unlock value from illiquid and private asset pricing in a much more efficient, open and decentralized manner?
Lithium Finance is a decentralized, 1st-party data provider that utilizes crowd wisdom and crypto-economics to source pricing for a wide range of illiquid assets. Lithium Finance brings market participants together by providing compelling crypto-economic incentives that engage and result in a genuine, accurate marketplace for illiquid asset pricing. In essence, individuals will simulate an active market for illiquid assets through our protocol to gauge current market sentiment and produce estimated prices.
Note that the Lithium protocol is not dependent on any fundamental or technical analysis. In an active market, investors purchase an asset when they believe that the fundamental value outweighs the current cost of the asset. Lithium does not attempt to provide valuation - our mission is to provide the best estimate of current pricing through crowd wisdom. From the platform, market participants will provide specific estimates for their subject asset, and this will be compiled and analyzed using our proprietary technology to source the “market-clearing price”.
Participants in Lithium Finance are financially rewarded for accurately providing bid and ask price estimates they anticipate the market will accept when buying and selling an asset. The Lithium Finance Market Clearing Mechanism then aggregates these inputs to produce an estimated market-clearing price.