Blockstream, a cryptocurrency startup focused on the research and development of sidechains, has released their first product, simply known as Liquid. As its name suggests, it aims to increase the liquidity in situations where massive amounts of volume need to be moved quickly with little friction, such as in Bitcoin exchanges.
“Liquid will improve capital efficiency and market liquidity by facilitating rapid and secure transfers between accounts held at any participating exchange or brokerage,” the company stated in a blog post.
Liquid aims to do this by reducing what they call ISL, or Interchange Settlement Lag. ISL is the delay payment processors, exchanges, and any other Bitcoin-handling entity experience when moving Bitcoin between accounts in different locations. Until now, ISL was usually combatted by maintaining multiple balances across the market, but this increased capital requirements as well as counterparty risk.
By acting as a separate vehicle for moving the high amount of volume typically associated with remittance usage case scenario, Liquid reduces ISL and capital requirements, as well as counterparty risk.
“… Liquid reduces ISL by allowing for rapid transfers between accounts held by the varied participants in a separate, high-volume and low-fee cryptographic system that preserves many of the security benefits of the Bitcoin network. This, in addition to increasing the security of funds normally subject to explicit counterparty risk, fosters conditions that increase market liquidity and reduce capital requirements for on-blockchain business models.”
Liquid works by creating a layer that extends over the blockchain, commonly referred to as a sidechain. To maintain transparency and security, Liquid has also implemented an “auditable, cryptographically-strong commercial privacy component.”
“… Liquid leverages the reliability and security of the Bitcoin network without trusting a centralized third party. This new construction establishes a security profile inherently superior to existing methods of rapid transfer and settlement, and is directly applicable to other problems within existing financial institutions.”
Having made partnerships with Bitfinex, BTCC, Kraken, Unocoin, and Xapo, all companies that can reap major benefits from having ISL reduced, Liquid is also in talks with another dozen major institutional traders and licensed exchanges. The product is set to launch early next year, with a whitepaper to be released before then.