BitUSD finally has some volume, inspired by success of Nu

[mhps]

Clued by the success of Nu Bitshares community developed a bitUSD/BTC bot and ran on BTER. BitUSD finally has some liquidity, seeing "The bitUSD/BTC volume up from 2 BTC to 70 BTC".

The bot is operated by “a trusted community member” of BitShares, similar to how Nubots are run by voted custodians who are deemed reliable, who “won’t mess up”, except that the current BitUSD bot operator was not voted.

The operator is funded by a BitShares member who criticizes (and here) Nu for having to rely on cutodians. He literally didn’t put his money (5k BitUSD) where his mouth is. Or maybe bitUSD isn’t counted as money ?

[JordanLee]

Imitation is the most sincere form of flattery.

[toast]

I want to point out that these are run for-profit by individuals. My criticism of custodians still stands. We will never encourage any “trusted” members to run MM bots at a loss for the purpose of maintaining the peg. Indeed I have actively campaigned against having delegates use their pay to fund MM bots, instead always encouraging people to use their own funds with their own strategies, the point being a natural peg with correct market incentives will attract market makers naturally.

What we learned from Nu was the marketing impact of high volumes on external exchanges. This I will give you credit for - it’s why I opened up my bot, because my personal profits from lack of competition didn’t make up for the missed marketing opportunity.

[mhps]

encouraging people to use their own funds with their own strategies, the point being a natural peg with correct market incentives will attract market makers naturally

Nu is a collection of people using their own funds with strategies they agree to (via a uncorruptable voting mechanism) to provide superb performance and usability of a pegged product to the user. Apparently many people in the BitShares community like having MM bot. Next you will see bots colliding and will have to coordinate. You will move more close to how Nu operates. We are all just different part of the same spectrum.

[cryptog]

seeing “The bitUSD/BTC volume up from 2 BTC to 70 BTC”.

Any proof for those 70BTC?

[Hyena]

This is a very good way to explain it. Does game theory approve it? Is it in the long term more profitable for everyone to coordinate their buy and sell orders than not doing it? For example, if there was a reliable mechanism of voting, all bitcoin traders could agree on what the price should be prior to any trading. Thanks to decentralized voting we might be on the verge of a new market making paradigm.

[toast]

I don’t think that’s a desirable endgame at all. If bots collide, one guy is a winner and one guys is a loser because they had different strategies and only one is right about the relative price movements. If you placed an order and it fills, you shouldn’t care it if got filled by a different MM. If you’re unhappy with the result then the order wasn’t placed in your best interest to begin with.

Market makers should be competing, not cooperating.

Custodians work for Nu and their job is to maintain the peg with market makers. BTS market makers work for themselves, it is the delegates who work for BTS and their job is only to provide price information for market participants. The market engine provides the natural incentives for everyone to independently trade towards the peg as best as they can.

Put another way, custodians are the only reason 1 nubit is $1 this early in the game. bitUSD was tracking $1 before there were any market makers, you just had to manually get out at the feed on the internal market which led to low liquidity.

[toast]

Here’s another analogy.

Nu is a DAC that sells corporate bonds and hires market makers to fix a USD price for those bonds. Its income comes from the sale of bonds and it uses the proceeds to make an ecosystem for those bonds so that it can sell even more bonds later.

BTS is a DAC that provides CFDs and makes its income from exchange fees (among other profitable but less relevant services which I won’t discuss here). Outside actors realize they can make a profit on bitUSD spread (just like people will happily buy your traditional CFD position for a 1% discount) and so they compete to provide the tightest spread they can without losing money.

[cryptog]

Nu is a DAC that sells corporate bonds and hires market makers to fix a USD price for those bonds. Its income comes from the sale of bonds and it uses the proceeds to make an ecosystem for those bonds so that it can sell even more bonds later.

it matches my understanding.

[mhps]

If bots collide, one guy is a winner and one guys is a loser because they had different strategies and only one is right about the relative price movements.

Thing is half of the guys are losers. In fact since better experienced, financed, and “equipted” bot operators have a bigger chance to win, the result is almost certain that 20% people win and 80% lose. This translate into risks to bot operations and most would-be operator will not participate. Free competing bots will not bring deep liquidity efficiently.

In fact the un-cooperative MM bots scenario is just ordinary trading, except the traders are now bots. This kind of trading has been going on with BitUSD since day one. I think most people would agree that, after you have shown with an example, it can’t compete with one MM bot, by a long shot.

[toast]

In fact the un-cooperative MM bots scenario is just ordinary trading, except the traders are now bots.

That’s the point. The whole reason bitUSD is great is that it works with just normal market activity, the incentives are naturally there to trade towards the true price. If you don’t think you can trade profitably then don’t trade. I run my bot because I think it will be profitable, if it isn’t I need to change my strategy. Some of the other bitUSD market makers are probably using a spread that is too narrow. Their loss, BTS stakeholders sure as hell won’t be bailing them out.

Nu is the only one out of the “stablecoin” approaches (others being truthcoin’s approach and schellingcoin) that requires the largest market participants to cooperate even in the face of losses and still claims that they’re free from counterparty risk.

[creon]

I run my bot because I think it will be profitable, if it isn’t I need to change my strategy.

That’s probably the reason for the lacking liquidity of bitUSD, right? Everytime I check its not possible to liquidate more than maybe 10 BTC. The incentive to actually build a reasonably narrow margin is only given if there is a short term profit opportunity.

So I would assume that a large price movement of BTC in one direction completely removes any incentive to support the bitUSD price. In Nu, the motivation to keep the price stable is a collective motivation and since the shareholders together agree on the required incentive for the custodian (i.e. the proposed reward), it removes the short term thinking and therefore strengthen the trust in the token as store of value.

[toast]

That’s probably the reason for the lacking liquidity of bitUSD, right? Everytime I check its not possible to liquidate more than maybe 10 BTC. The incentive to actually build a reasonably narrow margin is only given if there is a short term profit opportunity.

To some extent yeah. The incentive is still there but nobody is really capitalizing on it. You have to sit and wait to exit at the feed on internal markets which requires a separate script and to have hedging strategies for both BTC and BTS. People have been gradually growing the walls everywhere, my bot was not the first, it was just the first to do work on external exchanges instead of the internal exchange. Also you’re not counting the internal BTS market which has about $10k bitUSD buy within a few percent right now - I can see how people wouldn’t see how that’s an opportunity to liquidate bitUSD though since it’s so much extra work.

So I would assume that a large price movement of BTC in one direction completely removes any incentive to support the bitUSD price

I don’t follow. The incentive to support the price on external exchanges is that you are guaranteed to be able to exit at the true price on the internal exchange within 30 days. If bitcoin’s price moves significantly in one direction or the other you just have to rebalance via BTS.

[creon]

Also you’re not counting the internal BTS market which has about $10k bitUSD buy within a few percent right now

Yes, you’re right, it looks very stable there (I only looked on bter and tbh only rarely, so I can’t even tell for sure how large the walls are there in average).

If bitcoin’s price moves significantly in one direction or the other you just have to rebalance via BTS.

Why me? Tragedy of commons lets me only set orders that produce personal profit. If I put my own money against a trading order just to avoid having a large delta when I want to exit, then I am just taking the same loss at an earlier stage. So the best I should do as selfish individual is to hope that others maintain the peg and only place orders that will probably generate profit during the time of my market participation.

[toast]

I still don’t follow. You might not want to provide liquidity at any price at all times, and that’s fine. Maybe even everyone doesn’t want to do it for cheap at some particular time. So what?

If there’s a big price move you might not have a balanced order book for some time, like people will charge 2% to get in and only 1% to get out or vice versa. But soon enough (within 30 days) you will have an opportunity to go through BTS internal market + BTS/BTC and not take a loss when rebalancing, meaning the opportunity to charge 2% without competition will go away. (obviously BTC/BTS liquidity matters here but we’re assuming the spread on bitUSD/BTC is wide enough to cover the cost there to begin with otherwise it’s not profitable). If you never see market makers widen their spread (or at least shift the point they’re straddling) in response to market conditions that is alarming and a sign that the people providing liquidity are losing money (or they weren’t doing it as cheap as they could have been earlier).

If you guys implement some of the strategies you see here, you should see the same: Modelling a parametric order book

[creon]

If you never see market makers widen their spread (or at least shift the point they’re straddling) in response to market conditions that is alarming and a sign that the people providing liquidity are losing money

This is the point I was trying to make. So the market makers, acting as individuals for a personal gain, will provide liquidity if and only if they expect not to lose money. I therefore would expect the liquidity to drop heavily, though temporarily, on a drastic price movement. However, these are the moments where people particularly want to have the possibility to exchange their assets. If the decision is made collectively this loss can be taken because of the common incentive to have a stable currency.

[toast]

Ah ok we are on the same page then. I just wanted to make sure you guys realize maintaining a super tight peg at all times is ultimately a net loss to NSR holders. That’s not a bad thing if it’s done mindfully for the purpose of maintaining the perception of a solid peg. Whether or not that is desirable is a separate discussion.