We need merchants adoption…
It’s very expensive for Nu to provide traders with this feature. I hope NBT get used for payments soon as only being a hedging instrument will bleed Nu out over time.
The problems are not completely gone, but have been traded for lesser problems. No Nu funds are at stake of exchanges defaulting, but funds of people providing liquidity are at stake.
They need to be compensated for exchange default risk as well as the volatility risk (as long as non NBT/USD pairs are directly supported by Nu).
One might say that Nu pays a kind of insurance against exchange defaults by not providing liquidity directly and paying people to provide liquidity instead.
Supporting non-NBT/USD needs to be phased out rather sooner than later in my opinion.
People who want to hedge BTC volatility with NBT need to make use of BTC/USD. That saves liquidity providers from the BTC volatility risk and is a little less convenient for traders.
But it can save Nu a lot of money and keep the liquidity on a more reliable level.
What would Nu do if TLLP liquidity providers decided to stop because of the risk?
How could the peg be kept?
Solely by NuLagoon (which is by design less responsive to people’s desire to stop liquidity providing)?
After the recent Bitcoin volatility events it might be the case that the pool compensation needs to be increased (or at least not be degraded) to keep the level of liquidity at the required level. We’ll see…
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It seems that @JordanLee prioritizes the hedging instrument…Why?
Increasing the spread would help them increase their compensations.
BCExchange will not help on that regard unfortunately btw.
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Good point.
Regarding hotwallet:
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Because he realizes that in order for Nu to become a real force, we need to replace Bitcoin as the intermediary currency used in crypto trading. Providing vast amounts of liquidity is his strategy for achieving that role for Nu. Unfortunately, it first requires a lot of development to NuBot in the form of parametric order books and then order book mirroring. Providing liquidity for B&C Exchange pairs will be the first step in that process and I assume it will only expand from there. Establishing Nu in this role will give us the credibility needed to promote use for payments online and in the real world. Without this strategy, all we can do is hope that people will use our NBT/USD pairs and I have a feeling we’ll come away disappointed with the results of that strategy. Again, I’ll repost Jordan’s own words on this (Notice the bolded part). Nothing seems to have changed in his actions since then…
mhps had responded to me with this…
As he said, exchange hacks have been countered with decentralized liquidity and B&C. However volatility risk is still a prominent issue. I wish @JordanLee would give an updated response to his liquidity strategy and how we will eventually protect ourselves and liquidity providers against volatility risk.
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Why not testing the waters with only supporting NBT/USD on popular exchanges or even those who before limiting it to NBT/USD had frequently used NBT/BTC pairs?
BCE will most likely never support USD (I wonder how it should…). Providing NBT liquidity with a parametric order book will keep the (BTC etc.) liquidity risk low in the corresponding NBT trading pairs.
The peg needs to be kept in the NBT/USD pair - on centralized exchanges which will be fiat gateways for Nu.
As far as I remember NBT is pegged to the USD and not the BTC value equivalent of 1 USD.
Putting all efforts solely in NBT/USD would make as little sense as not testing NBT/USD waters 
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I believe in ‘high rate - low target’ for crypto pools and ‘low rate - high target’ for fiat pools. Unfortunately, I have not been getting good results from this setup on bter. My btc pool has much higher participation than my cny pool despite being at target all the time. In fact, I’m almost totally convinced I need to drop the target and raise the rate on the cny pool.
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Hey, just give me some time…I’m moving stuff to the CNY/NBT pair…
I second fully the 3 quotes above from @masterOfDisaster
The original commercial manifesto (video) of NuBits was for NBT to be a synthetic dollar, that people could use to pay for goods and services, not for traders to hedge their crypto bets
I dont understand this.
How is it compatible with https://www.youtube.com/watch?v=D_imtRPCKCg
Tks for reminding me of the exact statement made by Jordan Lee.
I think I understand now better his vision.
It appears that right now it is not possible to create a decentralized crypto-currrency (pegged) by using exchanges that deal with FIAT because those exchanges are by nature centralized. They can shut down the NBT/USD pair at any time if they want to. Of course spreading the pair over different FIAT exchanges would decentralize a bit the operations but we have seen back in Feb this year that even non FIAT exchanges could be hacked at the same time, leaving NuBits with no place to be traded suddenly and therefore endangering its life.
Maybe in the future, someone would be able to come up with a decentralized exchange that can deal with FIAT pairs directly but to me it sounds oxymoronic and right now it is certainly not possible.
However the creation of a decentralized exchange that deals with non FIAT pairs seems feasible and this is what BCExchange aims at.
The problem with BCExchange is that it cannot deal with FIAT pairs.
Therefore liquidity providers are subject to bitcoin’s volatility.
But is this really an issue?
After further thoughts, I would say that the answer is no.
Besides increasing the spread (this has to be tried but it seems that the chance that it would become the major way to compensate for dealing with volatility is rather low), It seems that one possible major direction would be to increase the liquidity provision rewards if providers think that the current pool monthly interests are insufficient for dealing with bitcoin’s volatility.
This could be counterbalanced by 2 elements, from a Nu’s P&L perspective.
- Since exchange default is non existent at BCExchange, Nu could still increase the rewards to deal with volatility while at the same time offering lower fees than current centralized exchanges
- Assuming that demand for NuBits will grow steadily and significantly over the coming months and years, Nu would be able to have significant revenues, that are higher than its expenses (that include liquidity provision costs) by an order of magnitude.
Overall, my point is that assuming that there is a strong demand for NuBits, rewarding generously liquidity provision would not be a problem. Therefore, Nu could for a while (maybe a long time) only have a NuBits liquidity provided mostly over non FIAT pairs.
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I think some type of automated hedging built into NuBot would help with the volatility risk too. Not sure if that’s possible though. Maybe @desrever would know. People aren’t hedging because they see it as complicated. If it were made easier or even automated, then that would really help us out I think.
This has been touched upon in the past but it looks too cumbersome.
I see this listed in the NuBot Development Roadmap. Wasn’t this what they were talking about before here?
• 0.5.1 :
◦Futures markets integration
Interesting. I have not noticed it until now. Not sure if it deals with something similar as what is talked about here. I was talking about this post.
But in the roadmap, what I think is going to contribute directly to the reduction of bitcoin’s volatility exposure is
-
Parametric liquidity distribution models (configurable)
-
Market-aware liquidity distribution models ( adaptive )
because those features would limit the amount of NuBits that traders would have access to for protecting themselves from volatility, in my understanding.
Ok perhaps I’m missing something, but why could BCE not integrate fiat pairs…
If we can develop the USD ecurrency integration:
There should be a way to hook this into BCE for those who are willing to be market makers for fiat.
I know all of this is nebulous code right now. But it should be possible? Not immediately, but eventually…
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There must be a way to store fiat currency in multisig addresses so signers can control the release of the fund, in order for BCE to work.
The signers, like in any escrow, has to keep the fiat fund before releasing, not just the payment token (e.g. Perfect Money e-Voucher numbers), to prevent double spending.
I guess using APIs of fiat e-wallets (e.g. Perfect Money ) it could be done.
Interesting thougts.
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B&C Exchange could be used to trade with funds held off supported blockchains, such as bank wires or cash. It would just utilize the escrow features mentioned in the design paper that are expected to be developed after the initial functional release.
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What do you mean by “automated hedging” ?
Yes, the link you provided is correctly pointed
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