Stating that you trust exchange AAA and BBB up to a given max shouldn't imply that you accept to put all your eggs in the same basket by having all your balance from a given issuer rolled to another trusted issuer for the benefit of the network.
Set your trust limits to how much you want to hold at each. If I have 10 bitcoin and trust A for 3 and B for 9 then any split like 1+9, 5+5, or 3+7 is okay but not 0+10 or 2+8.
That's what I am doing now, but this approach has a lot of shortcomings:
- You pay a fee each time you need to adjust up and down the trust lines.
- Constant trust line adjustments to workaround automatic liquidity providing is going to add unnecessary stress to the network, and cloter the ledger.
- It's tedious to have to expand your trust line by exactly the amount you wish to accept explicitely in a transaction, and to reduce it again once you spent the balance.
- There is (AFAIK) no way to guarantee you are not going to be forerun when you expand a trust limit because the trust limit increase and the fund transfer that it allows are not done in an atomic transaction. If you increase your trust limit with Weex of exactly 3 USD so as to withdraw the 3 USD you have in your Weex wallet, by the time you turn around and withdraw, it is possible that your trust line will already be full due to automatic liquidity providing.
- As you mentionned in another post, converting between issuers of the same IOU can costs fees on certain paths. So if your balance was fiddled with while you were not paying attention, you may end up being the one who has to pay to fix the mess even though you didn't earn a dime for providing liquidity to the network.
- Average users already struggle to wrap their head around basic transactions in Ripple: don't expect they will understand the consequences of letting some open margins in their trust lines. Many people are going to get burnt with junk debt accumulating silently in the wallet.
Making same currency IOUs fungible by automatic liquidity providing with binary (yes/no) trust setting would translate to something very strange in the real world debt market: it's like if all rating agencies only had A and F grades, and you could end up with a lot of spain debt in your portfolio after buying mostly germany government bonds, and just a bit of spain bonds.
I really think this system is dangerous, and I am considering setting two accounts so that I can hold deterministic balances of the same IOU issued by different issuers without having to worry to adjust my trust lines all the time to prevent the network to fiddle with my stuff.
The client should allow to set a fee for acting as a liquidity provider, and should prompt users about the fee when such a conversion is required.
You will be able to set the fee and fees are shown to the sender already (as a total). See the wiki for how you can tell the system (when it's implemented, Ripple is in Beta now and advanced features are not all implemented yet) that you prefer one over the other at at what rate.
You *will*, but that's not the case yet, and setting the fee will likely be an advanced feature most people won't know about, let alone understand. Letting the default be *free* liquidity providing is like shuffling third party risk on unsuspecting users. Not very ethical. If that feature is maintained as is, be assured that everyone aware of the issue will keep their balances in AAA+ grade issuers, let the average joe hold the junk, and make a short foray into junk territory only when this allows them to size a good opportunity.
Liquidity provider should be an opt-in feature
The developers have been warning people to understand what it means to trust more than one entity with the same code. Once quality settings are available you can just set the fee to downgrade your balance to an extreamly high value. If you think that should be inifity (off) then you really should be setting the trust line on the gateway you don't like below your current balance or to zero instead (because you'd be saying that there is no amount of fee that would make you swap which must mean you don't trust them).
Most people in this forum, although they belong to a pretty geeky democraphics, can't even understand what Ripple really is in spite of there having half a dozen thread a day explaining the details. Do you really expect the average user out there on the Internet to understand the risk of being a liquidity provider, and take the necessary non-trivial steps to assess the counter-party risk of all his trustees, and offset the risk by setting an appropriate fee?
