Fedimints add a multi-signature aspect to federated custody. Liquid is a sole federation member (Blockstream) that can rug you, leaving little to no recourse. Fedimints would require, depending on your chosen federation's set up, multiple key holders in the multi-signature model to collude to rug all users (including the other key holders), resulting in reputational damage, public ridicule and in some cases physical harm.

The best analogy in fiat world I can think of is the choice between a bank and a credit union. Banks have shareholders outside the institution that influence decisions made within the bank procedures. Credit unions are a bit more personal. You normally need to know someone in the CU to become a member and then the reputation of the credit union is based on how they serve the members, not some arbitrary shareholders (the members ARE the shareholders). It comes down to a social contract, where those who will choose to use fedimints will choose mints where they either know one or multiple of the federation key holders, or they live close enough to them where they can go exact revenge if a rug pull occurs (as NVK likes to call this: Proof of Punch).

The benefit to most who trade-off this collaborative custody model will be privacy, via UTXO obfuscation (once the sats go in the mint, they can be pooled and sent out with little to no fee to the user of the mint). In this scenario, you do not have to trust a single mixing coordinator, since most ecash tokens will be interchangeable between mints.

I am by no means a fedimint expert, but like most things in bitcoin, tradeoffs are in the eye of the coin-holder.

Seems like a nice scaling solution that provides different custody methods/tradeoffs while improving lightning ux. Eric Yates was on tftc recently, he was talking how he see's the lightning/fedi/cashu space playing out, i'd definitely recommend the listen.

Fedimint is kind of like Liquid without the blockchain. Liquid custodies the pegged-in bitcoin using a miltisig quorum of functionaries. The functionaries also take turns building blocks and validating the blocks that other functionaries build. The blockchain is public so anyone in the world could be surveilling your liquid transactions. You can use confidential transactions to conceal the amount and assets of your transactions but the transaction graph is always publicly visible. I don't understand this feature at all because the transaction graph is more important to your privacy than the amounts. If you have some Liquid tokens and the network goes down or turns malicious you get rugged.

Fedimint has a multisig quorum of guardians. They control the bitcoin deposited at the mint and collaborate to validate each ecash transaction. But there is no blockchain, which means there is no public historical record of transactions. There is also currently no way for an outsider to audit the supply of issued ecash (the guardians audit it with every transaction). This sounds bad but there are upsides to the trade-off. Ecash has far superior privacy properties compared to Liquid. When you send ecash to another user the Fedimint guardians (and everyone else in the world, for that matter) are totally blind to the identities of the parties that are transacting. They only know the amounts involved. If you have some ecash and the fedimint goes down or turns malicious you get rugged.

There are a lot of other differences but hopefully this answers your question.

I would say it's not fundamentally different from liquid except that:

If all or a quorum of federation members disappeared, yes, you would be rugged. If you already have sats onchain or a lightning node, I don't think there's much benefit (beyond possibly some anonymity when spending.) If an onchain tx is looking really expensive for you, and you just need to be able to send and receive to a hot wallet cheaply and somewhat privately, this may start to look appealing. Well, more appealing than a traditional custodial wallet certainly.

You're right, its exactly the same as any other exchange issuing a shitcoin IOU for Bitcoin...

an exchange would be infinitely more secure though because the bigger ones use actual multisig setups and have various stakeholders. You have to trust a Fedimint has the guardians it claims to.

I also don't think Fedimints can even say they're offering multisig security until FROST signatures are available. Guardians can only rat on each other, which just as in fiat land they are disincentivized to do.

Internal mint transactions are more private than the alternative of just an SQL database, but that encourages even larger custodians which paradoxically hurt privacy on the overall network.

SQL is better privacy and scaling tech because it encourages family-level custodianship.

SQL doesn't have tons of VC capital from financial institutions though, psyop'ing Bitcoiners into normalizing ECash Dollars in our stacks.

It isn't.

The simplest explanation I can think of is that an ecash mint is pretty much Wallet of Satoshi, with the difference that the mint doesn't know that you exist and can't keep your transaction history.

Add fedimint's federated approach and then it's WoS with privacy + it's several people holding the keys and having to coordinate to rug pull you.

It's a custodial design. The risk of rug pull is still there. But it's still much better than the custodial services we have today because it provides a tremendous improvement on privacy (plus other little details I won't go into here because it requires a long and boring explanation).

Valid question. I hope I can learn more from the responses too.

FWIW, yes, IMO, it is a separate self-custodial network where users hold their own ecash notes. Though one with price mechanics that closely follow Bitcoin's due to a certain confidence of whether or not you believe you're able to swap back into the bitcoin network at a later time for a certain price.

Also, we're all currently here using a custodial website where we have no privacy and we're trusting a single party. If you want to see a world where that's improved significantly, fedimint is on the road to that. Nobody is suggesting keeping your life savings on a fedimint, but is it better than stacker news, wos, ftx, or coinbase where they have unilateral control of your funds and can shut you down at any point in time?

To take things to the extreme, if a super majority of bitcoin miners turned off their rigs tomorrow or decided to keep colluding in a 51% attack, it would render bitcoin pretty useless similar to a majority of federation members shutting down. What are you going to do with your sats at that point if they don't get mined? At a certain point, you're already trusting a group of other individual companies comprised of other individual users that are not yourself and you have little control of whether bitcoin continues to function. You're trusting that it does, or at least the incentives line up for it to continue so.

I know it's not exactly the same. The idea that federations don't improve things significantly without introducing a BS pump and dump token pricing mechanism is where privileged bitcoins that spend a significant amount of time and money on this tech fall into. If you don't need a custodian, that's great, though you're still using them and they still improve certain aspects of your bitcoin usage and life. It's an exponential improvement the less technical and less wealthy a person is.

I'd be curious to know what alternative practical solutions you'd have for the many unsolved problems in bitcoin & lightning without similar tradeoffs when you dive into it. Hell, you're working on tech that is technically self-custodial too but functionally not, in order to better the experience of lightning. Do you not see a benefit there too? Do you think everyone have to be 100% self-custodial on chain (no lightning, because apparently it's bad to have a multisig with other parties involved sharing the same UTXO) in order see any benefit to bitcoin? Which is actually impossible to have, so the alternative is to exclude people from using Bitcoin.

Based on what I have read and understood, the main difference is that custody is not only held by one "person", but by several.

TLDR: EVERYTHING HAS TRADEOFFS!

I think the concept of a token is currently viewed as extremely negative due to historic attempted applications of "tokens" when it comes to digital currencies. Tokens tend to equal rugpull because they are representiative of something, in control by a centralised entity.

This is fair I think, and we should all look at it with suspicion and scrutinise it, but not let it mislead us from a potential, fairly good solution to scaling sats - Not stating you are, just stating.

Personally, I'm extremely suspicious of anything fedimint ecash. It seems backwards when we have a decentralised layer 1 that just works, it just has "high" fees and "high" confirmation times - Two things anyone would think we could find a perfectly plausible solution to whilst retaining the Layer 1's amazing properties.

Alas, years later, we have Nostr apps, Alby and even SN introducting and normalising fully-custodial solutions. Anyone not looking to give up custody, needs technical-know-how and infrastructrue to run their own LN nodes. I run my own LN Node and will for the foreseeable future. I will likely always choose the self-hostable self-custody option.

But I've come to realise most people won't. And I think that comes with a lot of risk. And so, the gears have shift from "How do we fix this pretty much entirely?" to "How do we improve this just enough to mitigate risk and balance custody?".

I'm starting to be of the mind that a federated network mostly run by community, accessible to be run by the community (LET ME RUN MY OWN, in essence, just like we do with Bitcoin nodes to help enforce honesty on others inc. miners), BASED ON the online/offline statuses of self-custody wallets actually strikes a fairly good balance. Risk solely increases based on offline time. As long as the self-custody wallets presented by apps have the option to withdraw directly to the timechain, somehow, someway.

How transparent can fedimints be? As that in my opinion will ultimately be what holds them back if they can’t provide the correct level to users.

Proof of reserves / liabilities at a user level would need to be baked into the system so it can monitor any kind of inflation/theft.

Lyn Alden, Obi Nwosu, and Eric Yakes all explained it pretty well in podcasts I've listened to recently

Fedimints don't have tokens ecash is not a token, it's not another blockchain it's more like a redeemable voucher that gives you sats. So there is no token, there is a redeemable note, that you can use offchain and send to anyone via message if you want. Liquid has its own token that works like any other blockchain token, you pay fees etc. then you can swap back to bitcoin. Yes if the Fedi goes out your cash is probably gone, with liquid maybe the biggest risk might be one day regulators may order freezing the peg outs or enforce KYC to Fedi it's the same but anyone can run one so it's harder to regulate. Fedi and ecash you are always working with bitcoin lightning, you don't need swaps. So Fedi it's a better user experience. Fedi also offers more things, they hold bitcoin onchain, you got lightning, a lightning address, ecash and I think nostr integration, this are the best advantages. It's a whole package that integrates seemless with bitcoin.