Quote from: JoelKatz on May 27, 2013, 09:14:16 PM

Quote from: timeofmind on May 27, 2013, 09:03:55 PM

Quote from: JoelKatz on May 27, 2013, 09:00:00 PM

You can provide liquidity between gateways yourself if market makers don't do it for you.

Wouldn't this require people to honor each other's IOUs? This would require a credit-link between individuals would it not?

It wouldn't require individuals to do anything. The gateway operator would either hold or accept balances from one or more other gateways, depending on which half of the imbalance he had to fix.

In my example of a gateway that's primarily aimed at merchants, the gateway operator could simply set up an account that offered to accept, say, Bitstamp USD balances in exchange for balances from his gateway. This would allow his customers' customers to buy from his customers using Bitstamp balances. Bitstamp would then become part of his cash in pathway -- he'd redeem those balances with Bitstamp directly.

If you imagine a "cash over the counter" gateway, the gateway operator could use Bitstamp as his cash out pathway. He would hold a balance at Bitstamp and offer to exchange his own balances for Bitstamp balances. This would ensure his customers could easily pay people who want to accept Bitstamp balances. He would take some of the money he took over the counter, send it to Bitstamp, and thereby acquire the balances he would trade for his own to keep his balances liquid.

Eventually, market makers would probably do this for him. But he may find his business model unusable in the absence of sufficient liquidity and he may at least need to do it himself to bootstrap.

Yes. So it requires a gateway to honor the IOUs of another gateway, thank you. Got it.