Current Liquidity

[masterOfDisaster]

NuBot gateways at a rather high buyside offset and rather small sellside offset are well-funded now:

Mon May 30 15:19:07 UTC 2016
status of mOD dual side NuBot at Poloniex:
nud getliquidityinfo B | grep B9gXptkoqAApF3AFrQyhUbhSzvuEudxupt -A 2
        "B9gXptkoqAApF3AFrQyhUbhSzvuEudxupt" : {
            "buy" : 12210.8,
            "sell" : 20161.9209
status of zoro dual side NuBot at Poloniex:
nud getliquidityinfo B | grep BJs4YbtaqCmxeHLiR6zzjnZEotYVFAPfMo -A 2
        "BJs4YbtaqCmxeHLiR6zzjnZEotYVFAPfMo" : {
            "buy" : 11992.54,
            "sell" : 18692.922

This is a lot of money that could get lost by exchange default.
I’m aware of that.
Everyone should be aware of that.
Yet I don’t see an alternative that is sufficiently reliable.

I don’t have numbers at hand regarding the exco.in and bter losses, but the debt at ccedk from the February 2015 losses alone is above 30k.
Compared to those losses, the money at stake is in a similar order of magnitude.
Without it, there’d be no reliable peg support, although it’s on a degraded level.
The demarcation point of $0.95 could be kept so far.

In my opinion the value for the brand image is far superior to the funds at stake.
If NBT were to drop to $0.50 (no one knows whether that would happen, but we know that $0.95 is the limit as long as BTC in zoro’s gateway remain and $0.925 as long as my gateway has BTC left), the effect on the total value of Nu would likely be far above $60k.
The drop to $0.95 already cost hundreds of thousands of USD in corporate value.
The $60k is peanuts compared to it.
Plus they are not lost - they are just at stake!

[masterOfDisaster]

Water level of the gateways at Poloniex

Tue May 31 05:48:51 UTC 2016
status of mOD dual side NuBot at Poloniex:
nud getliquidityinfo B | grep B9gXptkoqAApF3AFrQyhUbhSzvuEudxupt -A 2
        "B9gXptkoqAApF3AFrQyhUbhSzvuEudxupt" : {
            "buy" : 12168.61,
            "sell" : 20161.9209
status of zoro dual side NuBot at Poloniex:
nud getliquidityinfo B | grep BJs4YbtaqCmxeHLiR6zzjnZEotYVFAPfMo -A 2
        "BJs4YbtaqCmxeHLiR6zzjnZEotYVFAPfMo" : {
            "buy" : 10567.2,
            "sell" : 20167.7629

@zoro has traded BTC and received 1,500 NBT. One of the orders at 5% offset was completely traded as it seems.
Selling NBT by NuBots doesn’t happen, although the offset on sell side is small in both @zoro’s and my NuBot settings.

Maybe we have another issue with the price feed.
I’ll have an eye on the Bittrex BTCUSD rate compared to the Poloniex rate.

[Sabreiib]

Would you record your profit? I guess u may self-funded with 5% spread. This is the best chance to experiment your spread theory, without any “obstruction”.

[masterOfDisaster]

I plan on making a calculation for a NAV at the begin of the operation and the end of it - once my gateway gets put on standby again.

I try to prove one of my claims that with a considerable spread, you can compensate at least some, maybe most of the costs that are associated with using Nu funds for gateways.

Btw. - the spread of my operation is roughly 8%, asymmetrically divided in 7.5% buyside and 0.5% sellside.
That’s why I rarely see trades on buyside. I’m the second line of peg defence after @zoro.
A kind of parametric order book, if you want to call it so.

[masterOfDisaster]

Do you all realize how calm the situation is thanks to the gateways at increased spread?
Can you imagine how it’d be without them?
Without the gateways, all you had left to give customers asking for liquidity
was a shrug.

[Cybnate]

Do you all realize how calm the situation is thanks to the gateways at increased spread?

I wouldn’t boast this as a positive. As NuBits holder I’m basically held to ransom, hoping that the peg returns within normal boundaries anytime soon. Best part is that it didn’t go much beyond the 10% spread. BTC price is still rising though, and NuShares sales appear to be inadequate to recover to a normal peg. What is the next step besides hoping BTC turns around?

[masterOfDisaster]

I wouldn’t boast this as a positive.

Then I suggest you join FLOT and operate gateways that you try to keep balanced or even funded on each side at a closer spread.
It’s indeed positive as we do the best we can considering the circumstances.
The peg didn’t fail completely. It’s just on degraded quality.

As NuBits holder I’m basically held to ransom, hoping that the peg returns within normal boundaries anytime soon.

You can sell at an uplift of 5% now.

Best part is that it didn’t go much beyond the 10% spread.

We are in fact within a 5.5% spread, because the offset is 5% on buyside and 0.5% on sellside.
Do you have a suggestion to improve the liquidity situation without risking the peg we still keep?
Keeping the peg was only on that level was only possible, because we increased the buyside offset.

To revive the liquidity provision it would make sense to close the spread with ALP, by letting them start liquidity provision at a buyside offset of say 3% and letting them tighten the offset until the trade volume is on the level you want to have while still being able to support both sides.
Jumping in at 0.5% offset is not the best idea. Testing the waters, reducing the offset in steps would be a way to recover.

[cryptog]

One of the orders at 5% offset was completely traded as it seems.

Some people are ready to buy even at large spreads…[quote=“masterOfDisaster, post:1788, topic:1239”]
Btw. - the spread of my operation is roughly 8%, asymmetrically divided in 7.5% buyside and 0.5% sellside.
[/quote]

I guess u may self-funded with 5% spread.

I am very curious to know empirically about the minimum spread that makes gateways self-funding possible, meaning that we would not need to use the funds of Nu at gateways while at the same time pay the operators fees.

In other words, what spreads can counterbalance purely the cost (risk of exchange default)?

[Sabreiib]

In other words, what spreads can counterbalance purely the cost (risk of exchange default)?

The cost also depends on pair volatility, on same exchange, the NBT/USD liquidity cost is lower than NBT/BTC.

[cryptog]

I am talking about nbt/btc.

[masterOfDisaster]

I am very curious to know empirically about the minimum spread that makes gateways self-funding possible,

This spread will depend on a lot of factors like exchange default risk, BTC volatility, etc.
Market awareness is necessary to adjust the spread properly.
At the moment we do that based on guesses and experience - quite well, if you ask me.

Under normal circumstances you won’t have trades at a spread, which can compensate the costs, because ALP cuts you off your trades.
This is only working during emergencies, or if you allow a big spread for ALP.
Most won’t find that desirable. I think it should be discussed nevertheless.

The bigger the spread, the more gain from trades, but the less number of trades you make.
Each market condition will have a sweet spot, which maximizes the revenue per time frame by having a maximum of
tradevolume * revenue per trade.
Finding that optimum is the challenge.

[mhps]

Best part is that it didn’t go much beyond the 10% spread.

You can still buy USD at CCEDK with 1% spread after fee. In fact I just see $4,300 USD available. You might have to withdraw USD (for example to buy BTC elsewhere), but at least the spread is low.

Don’t you wish we had deep liquidity on NBT/USD if only for risk mitigation purposes in situations like now? We used to have like $7,000 on each side until the target and reward were slashed. NBT/USD liquidity is foundamental in Nu’s system.

[masterOfDisaster]

This puts the situation in a nutshell.
All trouble we currently have to face originates from a synthetic peg.

[crypto_coiner]

NBT/USD liquidity is foundamental in Nu’s system.

I d love to have this in a BCex

[masterOfDisaster]

Water level of the Poloniex gateways:

Tue May 31 12:12:36 UTC 2016
status of mOD dual side NuBot at Poloniex:
nud getliquidityinfo B | grep B9gXptkoqAApF3AFrQyhUbhSzvuEudxupt -A 2
        "B9gXptkoqAApF3AFrQyhUbhSzvuEudxupt" : {
            "buy" : 12289.49,
            "sell" : 20161.9209
status of zoro dual side NuBot at Poloniex:
nud getliquidityinfo B | grep BJs4YbtaqCmxeHLiR6zzjnZEotYVFAPfMo -A 2
        "BJs4YbtaqCmxeHLiR6zzjnZEotYVFAPfMo" : {
            "buy" : 9623.81,
            "sell" : 21278.2562

[mhps]

When to lower the spread? Is there a formula?

[masterOfDisaster]

I have no clever answer for doing that on the gateways, but my gut says:
not before we started selling (significant amounts of) NBT - if ever.
After all the gateway are currently not meant as being regular support of liquidity provision (although I made a proposal for doing that).
They are emergency solutions.

As soon as trading starts to go in both directions (BTC dropping or fluctuating), ALP will pick up activity and offer funds at a tight spread.

If that doesn’t happen automatically (BTC rather stable or rising even more), we should try to revive it with ALP operated at an increased spread, that gets tightened until trading picks up.

[mhps]

Maybe we should work toward a coherent market-aware spread strategy for all types of T1 walls.

liquidity aware examples:

spread increases as wall decreases follow a inverse propportion function: if the wall decreases to 1/3 of starting amount, the spread increases to 3 times of starting spread

spread = constant / wall_height

spread increases as wall decreases follow a exponential function: if the wall decreases to 1/2 of starting amount, the spread increases to 2 times the current value

spread = constant * 2 ^ (wall_height / starting_height)

Volatility aware spread

spread = constant * RMS(last N samples)

[masterOfDisaster]

Creating market awareness is important to allow economic operation of liquidity provision.
It’s good to start working on a mathematical model.

I know already that market awareness will provoke opposition, but I’m damn sure that liquidity provision doesn’t work reliably without it (we see it at the moment):

• you either run out of funds trying to support liquidity provision with high volume at a tight spread not caring about environmental parameters
• or you run out of liquidity provision at all

What we can derive from the current emergency situation and the gateways at a high buyside offset is:

• even at 5% offset trades happen
• quite some trades happen with orders that aren’t provided by the gateways - this could be
• regular traders
• ALP funds

In fact there’s a kind of market awareness, albeit not as a formula, that made the offset of the gateways that big:
the BTC bull market created an immense demand for BTC. The supply of BTC in Nu reserve is limited and so the price had to increase.
As long as there’s no sign of the bull market being over, there’s no reason to reduce the offset. Doing it would just empty the reserves, leaving totally no peg support left.
The fate of the peg would be in the hands of traders.
That doesn’t sound much like a pegged currency.

A buyside peg to $0.95 is better than no peg!
The sellside is pegged to $1.005 btw.

If the spread would be adjusted by formulas like those proposed by @mhps, the trade volume would suffer from it.
We see less trade volume at Poloniex now for several reasons.
One is that BTC is less volatile and not surging (or nosediving) at the moment. Another one is the offset.
With market awareness, spreads would increase (and decrease) as a function of traded volume, volatility or other parameters.
Seeing less trade volume doesn’t sound attractive.
Having a much more reliable and even cheaper liquidity provision is the benefit of it.

With properly adjusted market aware parameters, there would be no need for gateways (I’d like to keep them as backup - just in case…).
But that means, that depending on the situation, even ALP need to operate far outside 1% spread.
And why not?

If you can’t guarantee a small spread for as long as you wish (forever?), it’s better to increase the spread, if that helps you sustaining liquidity provision at all.

[masterOfDisaster]

###2016-05-31 - peg according to CMC

Poloniex NuBot gateway status

Tue May 31 17:47:51 UTC 2016
status of mOD dual side NuBot at Poloniex:
nud getliquidityinfo B | grep B9gXptkoqAApF3AFrQyhUbhSzvuEudxupt -A 2
        "B9gXptkoqAApF3AFrQyhUbhSzvuEudxupt" : {
            "buy" : 11992.13,
            "sell" : 20161.9209
status of zoro dual side NuBot at Poloniex:
nud getliquidityinfo B | grep BJs4YbtaqCmxeHLiR6zzjnZEotYVFAPfMo -A 2
        "BJs4YbtaqCmxeHLiR6zzjnZEotYVFAPfMo" : {
            "buy" : 9376.08,
            "sell" : 21278.2562

Liquidity according to ALiX