Attract voluntary liquidity providers with NuBot

dysconnect 2015-10-14 08:40:21 UTC #1

Browsing altcoin threads again this “Rubycoin” struck me that we could be doing better:

https://bitcointalk.org/index.php?topic=1163834.0

Basically they have a POS coin and an automated trading software TraderDaddy (which just automates order-placing on exchanges, no blockchain trickery). It seems there is an artificial restriction that you need to keep some Rubycoins in order to use the trading software, apparantly enforced by a mechanism that I can’t find references to.

There seem to be some number of people who are willing to buy/hold Rubycoin just for using TraderDaddy, and Rubycoin’s marketcap has risen higher than NSR; there might be some pump and dump going on but it is alarming.

The incentive system is quite weird, but they outright say TraderDaddy allows users to be liquidity providers and pocket profits that come from trading spreads. Long story short, they make people pay to provide liquidity, while we pay people to do that.

Here I’d like to discuss what it takes for people to voluntarily adopt NuBot and in a meaningful way to NuBits and give us some free liquidity.

One thing that comes to mind is marketing NBT as a way to do cross-exchange and multi-coin arbitrage. NBT is the closest thing to USD on many exchanges and it is more mobile between exchanges than USD.

This kind of setup has something that very naturally replicates Rubycoin’s model - you basically need NBT to take advantage of arbitrage opportunities. As our reputation as a stablecoin grows, I think it is a good step to take.

masterOfDisaster 2015-10-14 09:26:21 UTC #2

That only works if you can make money with providing liquidity.
It requires a wide spread to achieve that.

It seems there’s not very much support for the idea of pegging NBT only tight to USD and let the market do the peg to BTC by arbitrage.
I realize that the BTC/NBT peg is important once BCE is available.
But I’m not sure whether this is the peg Nu needs to sustain for NBT (US-NBT).

But I like the most of the title of the topic.
I intend to attract liquidity providers with NuBot.
I don’t intend to attract voluntary ones; they will need to make money.
As long as Nu is supporting a tight peg to BTC there is no money to be made with a wider spread.

I think this might the right direction, though:
allow a wider spread for BTC/NBT and reduce the compensation for providing liquidity.
That way the peg is still tighter than without Nu’s support, but wide enough to make liquidity providing cheap.

There’s another chance for Nu’s liquidity situation.
Let’s hope for turbulent BTC times to test it - the parametric order book is available!
Maybe it already allows making a little money (or losing only little money) with providing liquidity.

dysconnect 2015-10-14 09:54:10 UTC #3

Well, “voluntary” just means we don’t have to pay them. I guess we still need to buy liquidity to some extent but people can be setting up PPC/NBT, LTC/NBT pairs by themselves, and BTC/NBT where we don’t do it officially.

Nagalim 2015-10-14 10:07:42 UTC #4

I’ve been seriously considering pegging NBT/PPC with like a 10% spread just for fun. I’d have to use btc-e price feeds on the CCEDK pair. The issue with that is that btc-e price feeds tend to be skewed because $1 on btc-e != $1 on other exchanges.

masterOfDisaster 2015-10-14 10:32:43 UTC #5

Then do it with 15% spread to compensate the skew
Or would that still be too low?

Nagalim 2015-10-14 10:37:28 UTC #6

No, you’re right that the shift shouldn’t be more than a percent or two. I was hoping to add in a ‘shift’ parameter for manual fine tuning. I could theoretically automate it by comparing the btc-e btc price feed to the bitfinex btc price feed.

mhps 2015-10-14 11:39:19 UTC #7

I support it. Nu ndeds an exit strategy of shareholder paid NBT/BTC pegging.

desrever 2015-10-14 14:14:51 UTC #8

I am familiar with rubycoin, TraderDaddy and marketmakers . [quote=“dysconnect, post:1, topic:2891”]
Long story short, they make people pay to provide liquidity, while we pay people to do that.
[/quote]

I have also happen to have a simple answer for you

Rubycoin liquidity-providers and our price-fixing marketmaking are completely different businesses.

Their liquidity providers are just there to provide some liquidity and follow the market price (or in this specific case, pump it) .

Our liquidity providers have two distinct functions instead : providing liquidity (obviously) and price fixing. Our liquidity provision is a market maker in the sense that we “decide” the price : 1$ . There is no such rule embedded in liquidity provision of traderdaddy. They follow the price, we make the price. And making the price (market) is the expensive side of the business, not providing liquidity.

TraderDaddy (or other better platforms) can be used to provide liquidity (not fixing the price) on an NSR/NBT pair. That can be a profitable business, but don’t expect the price fixing to be anything near free,volontaire nor profitable.

[Draft discussion] - A market-maker to end NSR illiquidity

dysconnect 2015-10-14 19:01:18 UTC #9

That’s not entirely true. If we have good price-fixing liquidity for NBT/USD and perhaps BTC/USD then other pairs can track the peg up to market conditions with market-makers. There may be higher spreads or thin liquidity, but it’s there and people may find their own use with PPC/NBT.

Market-making in other pairs ultimately expands our influence. The issue is how deep NBT/USD liquidity should be in order to not risk the peg; yet that is something we already need to worry about if NuBits can ever grow big enough, because it is the cost of decentralization. There should be a point where encouraging people to use our software to be market makers would be overall beneficial to NuBits.

For a start one can see if such thing is viable for NBT/NSR or NBT/PPC.

desrever 2015-10-14 19:59:41 UTC #10

for NBT/USD that true for sure (not sure what you meant with BTC/USD) . The problem with that when we had fiat pair, there were not be used much, so we should ask ourself why.

me too

mhps 2015-10-14 23:42:23 UTC #11

The NBT/BTC pair is understood as a marketing/customer-acquization thing. Nu subjects itself to great unmitigated risk to maintain the peg, to mostly serve unthankful speculators. The NBT/USD pair is what Nu promises “$1” conceptually, and it has almost no risk to maintain. However as @Benjamin pointed out

the low volume of NBT/USD is a direct result of (what I see wreckless) NBT/BTC pair.

cryptog 2015-10-15 01:03:35 UTC #12

I agree with you that NBT/USD should be the only pair that counts but in practice it is difficult because most exchanges do not have FIAT pairs.
More over, B&C which is supposed to play a very important role regarding Nu liquidity operations will not have NBT/USD.
So we must find ways to deal with NBT/BTC.

mhps 2015-10-15 01:19:06 UTC #13

Even share holders don’t support NBT/BTC, as long as NBT can be bought in even one exchange the market will make sure that NBT/BTC walls will be formed by profit-seeking risk-taking players.

B&C will take care of the exchange default risk. What it can do with BTC peice risks remains to be seen.

masterOfDisaster 2015-10-15 05:55:16 UTC #14

Without the parametric order book Nu could not afford to keep a tight spread on BCE; the fees for placing and removing orders would increase the costs.
With parametric order book it might be possible to have sufficient liquidity, with some volume at a quite tight spread that can be afforded.
I’m not 100% sure how NuBot moves the walls. From what I can see all parts are removed and placed with new rates when the BTC price moves. If it did only move parts of the wall it would be much cheaper.

dysconnect 2015-10-15 05:56:19 UTC #15

Sorry, I meant BTC/NBT.

desrever 2015-10-15 06:07:42 UTC #16

see -> this , still unanswered .

and

How do you imagine a “partial wall shift” happening exactly?

masterOfDisaster 2015-10-15 07:05:41 UTC #17

I should have called it “liquidity shift”…
It would be much easier to explain that if I had a flipchart and you next to me
The idea is fairly simple.

Let me try to explain it with simple a form of curve shape: linear, steepness flat
Say you have 300 NBT, the price is 0.0039 and the bot places 3 “walls”: 100 at 0.004, 100 at 0.0041, 100 at 0.0042

If the price moves from 0.0039 to a value that triggers action, only one 100 NBT order gets cancelled.
Say the price moves from 0.0039 to 0.00395. The order at 0.004 gets cancelled and placed at 0.0043.
Now the price moves from 0.00395 to 0.0039 again. The order at 0.0043 gets cancelled and placed at 0.004.

This is possible with other order shapes and steepness to some degree if NuBot can make intelligent use of tier 2 funds (to buffer). It needs to allow some deviation form the ideal curves. At a certain point it can’t be corrected but with removing all orders and placing new ones.
And it requires NuBot to track the orders (not only the IDs) to compare the actual shape of the curve with the ideal shape to know when it’s time to cancel all orders and make them new.

There’s no economical incentive for moving only parts of the liquidity at regular exchanges.
There will be an incentive at BCE.

BCE needs liquidity and Nu needs BCE to mitigate exchange default risk.
Both are interested in having a sophisticated NuBot that provides liquidity at little cost.
I see potential for NuBot funding

On compensation for tier2 liquidity provision