Our success to date has primarily come from the provision of liquidity with low spreads. I’m confident it is the right to decision to provide more liquidity at lower spreads if possible, not less liquidity at higher spreads as some are advocating. Later in the evolution of Nu, there will be many other reasons for people to buy NuBits, but right now liquidity provision is the most important reason. It would be foolish to abandon serving the market that has made a success without establishing an alternative market position.
It is true we need to prevent losses as we provide liquidity, but I outlined clearly how to do this a month ago in my “Evolution of liquidity operations” draft motion. I’ve asked desrever and woolly sammoth, who will be responsible for implementing the changes, to finalize the motion. We just need to move forward with that rather abandoning our market.
I have proposed instantaneous balancing in my “Evolution of liquidity operations” draft motion. The delayed balancing you are referring to is only the first step in a series of iterations.
I think the bear market in Peercoin and Bitcoin is causing people’s emotions to overpower their reason. Lately, prices have moved against custodians holding Peercoin and BTC. But it goes both ways, which people are losing sight of.
With oil below $55 it is clear liquidity and demand for assets/commodities not directly supported by central banks (as stocks and government bonds are) is near a cycle low. Keep a cool head.
This is great investment advice, but unfortunately the custodians do not get to decide how much BTC and PPC they’re holding in bull markets.
As you see happening in the Bter BTC market (which reached key support today), traders are buying up the majority of available BTC in anticipation of reversal. This leaves the custodian with less to profit from on the way up than they took loss with on the way down. Until NuBits expands to a wider range of uses, the custodian will always be on the losing side of the trend, no matter the direction.
This is a bigger problem for PPC than it is for BTC, because BTC is more commonly used for things other than speculation and will thus cause more random liquidity wall fluctuation, where PPC liquidity wall fluctuation will be more likely to predictably follow the trends.
But say 1NBT=1PPC at one instant.
The custodian on NBT/PPC offers 1NBT for 1PPC. In other words you can buy 1NBT with 1PPC.
The custodian gives away 1NBT and gets in exchange 1PPC.
At the next instant, 1NBT=2PPC.
The custodian would have to give away 2PPC in order to get back the 1NBT he just sold.
However he got only 1PPC at the previous instant. So he is losing money.
This, I think illustrates the loss of money on the custodian’s side when PPC/USD is going down.
However as pointed out by JL below,
[quote=“JordanLee, post:41, topic:702”]
But it goes both ways, which people are losing sight of.
on the buy side of NBT/PPC, buyers of NBT would have to give away 2PPCs to get 1NBT from the custodian.
So the custodian loses 1PPC on the sell side but wins 1PPC on the buy side so overall, over [t, t+1] he loses nothing.
In that case, we should not discard NBT/PPC just because PPC/USD is going down, right?
Custodians should not be in the business of speculation. Every NBT “lost” to falling prices on assets that are held in buy walls needs to be thought of as a permanant shortfall (until proven otherwise) and affects the ratio of backed to unbacked assets supporting the Nu network.
There is no guarentee that any asset will rise in value.
Not quite. The theory that everything will average out over the longterm, as prices go up and down, relies on the incorrect assumption that all traders have no idea what they’re doing and all buying and selling is completely random. Imagine this extreme example:
PPC = $2
Custodian holds 1000 NBT and 0 PPC. Custodian value = $1000 USD.
PPC sellers buy all of the 1000 NBT, leaving our custodian with 0 NBT and 500 PPC.
PPC declines to $1. Custodian value = 500 NBT.
PPC goes up to $1.10 and traders decide it’s a good time to buy, so they buy all 500 PPC.
Custodian holds 550 NBT and 0 PPC.
PPC goes back to $2. Now we’re back to where we started but the custodian has lost 450 NBT.
This is an extreme example of what we see happening in both the Bitcoin and Peercoin NBT markets. My point was that Bitcoin buying and selling will be slightly more random than Peercoin since Bitcoin is used for a lot more things than Peercoin. Bitcoin is also a much larger market that we really must be involved in to move forward.
I’m saying all of this to make my case for why I believe we need Bitcoin but not Peercoin, despite losing from both markets. I have no doubt that @woolly_sammoth and @desrever could engineer NuBot to fit whatever liquidity operations require, but I would honestly rather see us putting our time and efforts towards merchant adoption because THIS is what will ultimately cause NuBits to be used for something other than speculation hedging. I want to buy stuff on Newegg with my NuBits that I bought from Coinbase.com. I want to trade my NuBits for NuShares on ShapeShift. I want to play online poker with my NuBits. I want my margin account on OKCoin to be backed with NuBits. These are the directions we need to be headed in and focused on innovating solutions for.
@pennybreaker Tks a lot for your insights. In a downtrend market for PPC and BTC in terms of their USD value, it seems that being a custodian for either NBT/PPC or NBT/BTC will lose money. So this has to be really rewarded in terms of either NBT or NSR.
However, I feel that rather than PPC and BTC, at the end of the day the pair that counts is NBT/USD.
This pair is pivotal for the merchant adoption you are talking about.
For that reason, I am wondering why almost nobody deposits USD into ccedk for example.
If there is a need for that, (and I certainly think there is), I am gonna propose a custodian grant.
We don’t need permission or cooperation outside our group to offer liquidity, while merchant adoption is not under our control in any direct sense. I believe deep liquidity is critical to the success of NuBits. With liquidity, stability and a trusted brand will come adoption, and adoption brings merchants.
I would like to second that. Deep liquidity is the first step to be considered as a stong contender as the currency of choice when transferring money in future, well ofcourse buying and selling as well involving the merchants, but they will only accept if they can see there is a strong liquidity behind.
Jordan Lee if you read this please do check my replies on bitmessage, I know your busy, so i apreciate the time you take for this,. thanks.
I just checked. NBT/BTC has plenty of sell-side liquidity, but it appears trading in the last couple of hours cleared ~210 BTC off the buy side when someone or a group of sellers sold back close to 75k NBT.
I would like to re-examine this problem in light of Jordan’s Finalized evolution of liquidity operations proposal, which proposes to provide deep liquidity across many major exchanges. If the proposal is implemented, the scenario with PPC can well happen in the NBT/BTC market in a proportionally bigger scale.
In a major market crash, sellers could be collectively dumping several 10k btc in a short period. Daily volume on BTC-E alone had been 70-150k btc, so having 10k exiting volume on one excahnge is very possible. If Nu operates NBT/BTC bots with deep liquidity, I think we could see our reserve shrink by a significant amount quickly. Bitcoin had gone up to $30 before crashing down to a few dollars and stay there over over several years, then to $260 back to $60. Now bitcoin price is coming down from $1000 to who knows where.
To run some numbers to get a feel of the problem, suppose a total of 50k btc exits, from several exchanges, via NBT/BTC, in a market crash that went from $320/BTC to $170, with an average selling price of 270 NBT per BTC. In the end the bots lost $5M worth of reserve (because they sold 50k x $270 worth of NBT and in the end have 50k x $170 worth of BTC in hand). This could put Nu from deep liquidity to deep in debt overnight. Due to its inherent problems, bitcoin price could well go down to below $100 forever. It could be very hard to recover to previous price level.
On the other hand only operating NBT/USD bots will insulate Nu from such market crash because anyone want to sell BTC for NBT has to buy NBT from someone who has paid $1/NBT to the bots.
I do recognize the value of providing BTC/NBT liquidity by Nu bots. Maybe the best way is capping the liquidity of BTC/NBT to limit the exposure to BTC price that Nu reserve would face?