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.
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.
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…
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.
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.
I’m not a trader, so this isn’t really my area, but what Pennybreaker said in that thread seemed to make sense to me. Rather than expecting people to hedge with these futures contracts themselves, couldn’t we automate it so that liquidity providers don’t even need to worry about it? They would break even as Pennybreaker suggested, but they would still collect the full interest from the pool. Nobody seems to be doing this though, maybe because it seems too complicated. Here is what Pennybreaker said about making it easier by automating it…
Would this be possible to do so that liquidity providers are no longer exposed to volatility? Maybe it could be made optional for those who still wanted to take the risk.
How long do you see Nu’s liquidity being dependent on NBT/BTC over the coming months and years?
In other words, what is your view on the part of liquidity provided by NBT/BTC over the total liquidity (cryptos pairs and FIAT pairs)
Right now, liquidity depends on bitcoin FIAT exchanges that price BTC against the dollar, which enables Nu to price NBT against the dollar, but do you expect that we would see NBT FIAT exchanges (Ex: Coinbase sells NuBits) soon or not?
Perfect, I just wanted to make sure we were talking about the same thing. Terminology can be ambiguous, we should find better vocabulary : Bot operators should “hedge” as in protect themselves from BTC drops , because traders uses NuBits as a “hedge” to exit Bitcoin when they fear drops.
Is this what futures market integration means on the NuBot roadmap? Still not clear on that. Just wondering whether something like this was already planned.
