[Concept] NBT entry and exit gateways

[masterOfDisaster]

##Intro
Nu currently has trouble bringing sufficient liquidity to the sell side.
@Nagalim drafted a motion to come to the aid of this situation. Posting there made me think about ways to mitigate these situations.

TL;DR make custodians operate NuBots. Track the broadcast liquidity. If the NuBot runs dry, fund them. Nu trusts the custodians with NBT and receives the proceeds on T4. Big amounts of NBT can be injected into the market this way in a short time.

##Forecast
Nu will (hopefully) soon be in a better situation. After the compensation model for providing liquidity has transitioned to fixed cost, putting funds on a side with low volume is compensated better than putting funds on a side with sufficient volume. A low (T1) sell side with fixed cost compensation creates more demand for NBT than a fixed rate compensation model.
Admittedly I don’t know how to sell the NBT without custodians or FLOT/FSRT being involved…

##Current situation
Buying NBT from FSRT (and hopefully soon from the FLOT provides no financial incentives - at least none I could identify - but poses a volatility risk:
if liquidity providers trade owned BTC for NBT (with FSRT, off-exchange) to put them on sell side, it takes some time until they have their BTC back by trading them at an exchange for the NBT. This might lead to a gain or a loss, but in general poses a volatility risk to them. They don’t have an incentive to do that. If they wanted to speculate on BTC price they could do that without dealing with FSRT.
At least that’s my interpretation why the FSRT doesn’t sell tens of thousands of NBT for BTC in the current situation.

##Possible solution
A possible solution looks at first glance similar to what Nu wanted to get rid of:
a model that includes custodians dealing with funds owned by Nu.

Some might feel reminded of liquidity operations Nu initially had with @KTm and @jmiller operating bots on the exchanges and offering buy and sell side liquidity.
The big difference is that now custodians would only be used to inject NBT into the market and put the proceeds in the hands of Nu. Funds would be only for a short period of time out of Nu’s control and on an exchange.

The liquidity operations on T1-3 remain untouched: Nu incentivizes liquidity providers by compensating them for their effort and risk providing buy and sell side funds.
This idea only deals with emergencies that require action of the FLOT/FSRT.

Possible implementation

This still requires a lead time, but once it is installed, it can be used continually.
Sell side custodians are elected by a grant and have each an NBT address that can be used to broadcast liquidity information. Only 1 NBT gets granted to these addresses.
They operate NuBot on an exchange (e.g. Poloniex) . NuBot is configured to maintain only sell side. If need be the FLOT/FSRT can trust the custodians with NBT which get sold at the exchange and pile up as BTC. The BTC proceeds are sent to T4 buy side.
As soon as everything is prepared (grant did pass, NuBot is configured and running), NBT can be put onto T1 in a very short time. Withdrawal limits might cause some delay for getting the BTC sent from the exchange to the T4 address, but provide an almost unlimited gateway to inject NBT into the market.
As long as NBT or BTC are at the exchange, there’s of course the exchange default risk. This risk is one that Nu needs to face in this solution; both NBT and BTC are property of Nu. In difference to the operation of @KTm and @jmiller this is no ongoing risk.

The process can even be automated to some degree: if the custodian’s exchange NBT deposit address is known, the community (or ALix?) can track the liquidity that is being broadcast by the NuBot. If there’s need to have NBT on sell side, the FLOT/FSRT can deposit NBT at the exchange address and NuBot puts them automatically into the sell wall. This allows using the gateway with little delay.
The FLOT/FSRT should make sure that the custodian’s NBT deposit address didn’t change and that the custodian has still access to the exchange account and is responsive to messages,because the BTC need to be sent to T4 soon.

To provide an incentive for the custodians to keep the exchange information up-to-date, stay in contact with FLOT and not to steal the funds, they could provide Nu with a collateral, which could be managed by FLOT.
Once BCE is ready that will make things much easier, but it’s still possible to manage it now.
Because of lost opportunities associated with the deposited collateral (and to compensate for the efforts of maintaining NuBot, etc.) these custodians should receive a compensation.

Even without deposited collateral it might be cheaper for Nu to face a risk trusting custodians with funds and a temporary exchange default risk than to risk the soundness of the peg.
The more custodians who operate NuBots, the better the risk would be spread. Picking well-known community members is recommended.

The idea can be turned upside down and be used to remove NBT from the market.
It could make sense to have both sell side and buy side custodians operational at the same time; the FLOT would only fund the side which is in need of liquidity while NuBots on both sides are available. Having a “dual side” gateway would pose no additional risk to Nu as only one side would be funded at a time.

##Last words
Withdrawal limits on Poloniex (and other exchanges) might limit the ability to withdraw funds to a Nu address, but there’s no deposit limit. The peg can be supported without limit.
I’m talking of Poloniex, because it just has the highest demand for NBT at the moment and it doesn’t serve Nu’s purpose to ignore that and look at the overall liquidity. Poloniex is one of Nu’s officially supported exchanges (supported by paid liquidity operations!). The peg must be kept there. Arbitrage is no option here!

[zoro]

I like it as an idea. Perhaps it could be made with the current model of ALP in poloniex.
Meaning,
NBT can be deposited in trusted LPs’ Poloniex addresses in chunks (500 or 1000 NBT) each time
and the earned BTC should be sent to FSRT BTC addresses. (daily limits could be an issue here)
I would like to help in that way (if FSRT considered me as trusted)

[Nagalim]

@masterOfDisaster is very right that my motion is fundamentally different from the centralized T1 services a year ago because I do not intend on keeping a large spread. My intent is to get nbt into the hands of long term nbt custodians. Here, the ‘switching problem’ is actually to our benefit.

[desrever]

To make sure I understand this correctly, let me try to make a TL;DR and rephrase it : please tell me if I am wrong.

• For emergency purpose, we could elect gateway sellside custodians with 1NBT grant, have them running a sell-side bot with a given price-offset and have them publish their deposit NBT address here

• Then, FLOT/FSRT can deposit certain quantities of NBT from their reserves into the gateway-custodians accounts. This can be done weekly in small quantities and will help reduce default risk.

• The gateway custodian is obliged to periodically withdraw proceeds from sales of NBT into FLOTs pockets.

Makes an awful lot of sense to me, provided that we use it in emergency cases only.

[masterOfDisaster]

You hit the nail on the head!

The only thing I’d be uncomfortable with is publishing the exchange deposit address of Poloniex. It seems that this address can’t be changed by the user.
I won’t publish it and don’t allow publishing it either.
This reduces transparency from the currently not very tranparent process of bringing NBT to market.
But as it’s related to my exchange account, I reserve the right to make this rule

I already prepared a NuBot running on Poloniex and provided @FSRT with the deposit address of my Poloniex account, though.

I highly recommend to use this only in extreme emergenices, because it’s not tested.

I asked @FSRT to test with a small amount above 2 NBT, but that hasn’t happened as far as I know.
From my experience with running NuBot on hitBTC I know that funds which are sent to the exchange are recognized by NuBot as soon as the BTC price moves and the orders get shifted.

I charge no fee for this emergency entry gateway, but offer no guarantee for anything - neither the availability of NuBot nor malfunctions of NuBot nor outages of my internet access nor the funds on the exchange.
I promise to send all (remaining) NBT and traded BTC to Nu (FSRT, FLOT) on a regular basis or burn the NBT. I won’t take any of the funds or trade them. If I configured NuBot properly, NuBot will only sell NBT, but create no buy orders.

I’d welcome putting this on a sound basis with custodial grants and all like I explained above.
The grants allow broadcasting liquidity information which can be used to track the status.
And electing this type of custodians would formally allow this plan.
If there’s demand for such a service, I’m going to draft a custodial grant.

I feel the current situation is quite turbulent and quick action is required.
My offer with NuBot on Poloniex is only a quick and dirty attempt to have a last line of defense.
@FSRT should really test it with 3 or 4 NBT. I currently have no access to a wallet from which I could send NBT to my deposit address to try myself.
But as soon as I have notice from @FSRT I can check my Poloniex account!

[desrever]

ok. Maybe signing a raw multisig transaction just for 3 NBT is not even worth the effort. I can send 10 NBT myself if needed just for testing purposes

[masterOfDisaster]

The FSRT has funds on a singlesig address as well if I don’t confuse that with anything else.
Afair the 4 million were sent to a new multisig address with 2 million NBT on it, close to 2 million were burned and a chunk was sent to a singlesig address.
Searching for the post in which @FSRT announced that is a pain on a mobile phone, so please forgive me not doing it

[Nagalim]

Is there any difference between this and what I am proposing at this point? (Other than the compensation)

[Draft] Sell-Side Custodianship

Motion RIPEMD160 hash: tbd =##=##=##=##=##=## Motion hash starts with this line ##=##=##=##=##=##= Reason and Method In times when distribution of T4 funds is at a critical point, reminiscent of the previous operations of @jmiller and @KTm, funds will be given to trusted shareholders to sell on-exchange with little or no collateralization. @Nagalim, as well as any member of FLOT, FSRT, @JordanLee or any future collaboration with extended Nu network powers is encouraged to provide such a ser…

[masterOfDisaster]

Compared with my quick and dirty solution there’s no big difference.
I think ALP bots place funds that are sent to the exchange after the bot was started are placed into orders as well as with the NuBot.

The major difference is the possibility to have a NuBot broadcast liquidity if a custodial grant is part of the operation.
That way each single custodian can be monitored and funds can be refilled by the FLOT in case of emergency.

I imagine a set of sound (and not quick and dirty installed) operations a valuable line of defense.
Operating single side NuBots on each side could be a valuable last line of defense to defend the peg in both directions.

[Nagalim]

Right right I forgot about the custodial grant to submit liquidity.

[zoro]

I guess we don’t have to vote on anything now.
Your cooperation with FSRT was excellent and working just fine
edit: i just raised my daily limit to 25K and i am ready for business

[masterOfDisaster]

I’ve created two instances of NuBot that operate on Poloniex:

• a sell side gateway that can be used to bring NBT to T1
• a buy side gateway that can be used to bring BTC to T1

I thought it would be important to have a buy side gateway as well in case a big part of the tens of thousands of sold NBT were to be removed from the market (= people want to sell them for BTC) in a short period of time.
Both NuBots operate with independent API keys/secrets to let them operate independently.

@JordanLee and @FSRT have been PM’ed.
They know my Poloniex deposit addresses in case NBT or BTC are needed on T1.

I’m going to draft a grant (in fact two) to ask for the NSR holders’ blessing for this idea. This will provide me with NBT addresses for each single side NuBot to broadcast liquidity.
This way the operation of NuBot can be tracked by the broadcast liquidity and a malfunction (funds don’t who up in the getliquiditydetails B output; internet access failure, NuBot down) can be detected as well the liquidity status (refill the funds).
The benefit of this idea is that it requires no manual intervention by me (I’m not available 24x7): as soon as NBT from FSRT or BTC from JordanLee arrive, the liquidity on T1 is automatically increased by NuBot (with next move of walls).

Until I have drafted the grants and they passed, I hope this is understood as a last resort if the peg is about to break and not as a way to scam.

I’m confident that my NuBots will only be used in case of paramount danger for the peg on Poloniex (which is at the moment - whether one likes that or not - the most important officially supported exchange).
Anything else but using this if all else failed would be irresponsible; but better have this last resort than none…

[mhps]

Go through the whole process with experimental money before you ask for vote. problem like this could be a show stopper.

[masterOfDisaster]

Of course is testing absolutely necessary - there are still enough question marks left after testing!
That’s why I asked @FSRT to send a few NBT (just slightly more than 2 NBT, because that’s the lower limit for NuBot to place orders) when I was not able to do that lacking access to my wallets, but wanted to have it tested to make sure it works.
You wouldn’t want to pin your hopes on such a last resort just to see it failing because of insufficient testing!

I had no access to my wallets, but meanwhile transferred NBT and BTC from another exchange to Poloniex to test it myself.
The NuBots work like intended: they put the received funds into orders!

[Draft] Sell-Side Custodianship

Poloniex will shut down accounts if it suspects they are owned by one person and not linked together.

I don’t use multiple exchange accounts, but two sets of API key/secret to allow two independent bots:

• one that can sell NBT
• another that can sell BTC

The latter one seems to be not important now, but it was only little effort to create it and once tens of thousands of NBT are dumped on the buy side, Nu might be glad to have a BTC entry gateway.
Transferring BTC is much slower and my gateway at least has only a minimum delay between receiving funds on the account and putting them into orders.
No manual intervention by me is required to put the funds into orders, only to withdraw the proceeds to Nu owned addresses.
Once again: if it weren’t FSRT or Jordan who are the only ones who can make use of this, I’d put a stern warning in each communication. But I trust FSRT and Jordan to know about the risks of this and I’m sure that they will only use it if the peg can’t be protected otherwise.

I don’t feel to well having a responsibility for the funds. My disclaimer clearly states I’m not responsible, but that doesn’t change my own feelings and only is a formal statement of terms.
I don’t want to be held liable if NuBot or my internet connection messes up (e.g. orders don’t get moved, because the internet connection is down or NuBot crashed which leads to a loss for Nu).

I think it’s by now clear for everyone that this gateway in the current state (no broadcast liquidity, not formally allowed by NSR holders) will only be used if all else fails and there’s not much more left to lose for Nu but the peg!
But if this gateway can defend the peg after all else failed, Nu will be very glad!

I’d say my bots are ready.
The grant drafts to operate the NuBots will be next.
I imagine this type of gateways can be an important instrument for the FLOT to adjust liquidity.

I hope that I won’t stay the only one offering such a service.
One important reason is to spread the risk (I could lose or steal the received funds), another to increase the reliability of this kind of last resort.

With this type of gateways Nu can inject as much funds (NBT or BTC) as required into the market - directly!

[masterOfDisaster]

TL;DR
Availability of NBT entry and exit gateway on Poloniex limited in February; additional gateways are required.
/TL;DR

About me

I have been informed that I’ll be on a trip from 2016-02-08 to 2016-02-19.
Other trips might follow.
I will have limited or for some time even no access to the internet.
I will not be available on short notice or able to maintain the gateways, which were spawned from this idea proposed in this thread.

About gateways

As long as they run, they can be used, but I will not be able to withdraw funds on regular basis, restart the NuBots if the orders don’t get automatically placed or fix things if they break.
The logs generated by the NuBots might become an issue, but I try to move the NuBots on a flash drive attached to the RaPi to ensure this will cause no trouble.

I highly recommend to elect (a) new custodian(s) who operate(s) NuBots on Poloniex.
While I doubt the sustainability of this gateway concept for frequent use (just too much risk for Nu), I fear Nu is well advised to have them for emergencies until liquidity provision has been evolved to a degree, that removes the need for frequent use of such gateways.
Even if the peg on other exchanges is intact, customers might peceive it as failure if Nu can’t keep the peg on one of the major exchanges.
For some time Nu needs gateways on Poloniex.

And even if I’m available, having more than just one set of gateways creates redundancy (in case one gateway or a set fails) and simultaneous use reduces the risk for funds to some degree as two people have a higher total withdrawal limit than one person alone and can withdraw faster, reducing the time the funds are on exchange.

About Poloniex

If you create multiple accounts on Poloniex link them! Don’t try to fool them by creating independent accounts. This might get the accounts locked and the funds frozen!

From: https://poloniex.com/linkedAccounts (only available after login):

About Linked Accounts
When you link an account, it inherits the profile and verification level from your Primary Account. Your daily withdrawal limit will be an aggregate of all your accounts.

You can choose any of your accounts as your Primary Account, but you can designate an account as your Primary only once.

Account linking affects only profile information and withdrawal limits. Each account’s balances, open orders, trade histories, settings, and credentials will be unaffected by linking.

Link an Account
To link an account, you must be logged in to your Primary Account. Please Log Out and sign in with your Primary Account.

Operating such a gateway is maybe violating Poloniex’ terms “18. OWNERSHIP OF FUNDS”:

You hereby certify to us that any funds used by you in connection with the Platform are either owned by you or that you are validly authorized to carry out transactions using such funds, and that all transactions initiated with your Account are for your own account and not on behalf of any other person or entity.

While it’s unlikely that this causes trouble, I expect multiple accounts per person to do.
Don’t try to create independent accounts on Poloniex (only linked accounts!), if you are going to be trusted with funds!

About additional gateways

I’ll gladly help setting up gateways and provide config for NuBot as soon as there is a custodial grant on its way to pass.
Use the time!

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Reference
NBT entry gateway on Poloniex provided by @masterOfDisaster
NBT EXIT gateway on Poloniex provided by @masterOfDisaster