Here is a quote from the original whitepaper:
What Jamie Miller and Kiara Tamm are doing differs from what is described above in a number of important ways. Most importantly, they are not using their own funds, but shareholder funds. This simple fact introduces tremendous counterparty risk and is a source of centralization. It is a serious deviation from my design with potentially disastrous consequences. With data feeds now in beta, decentralized LPCs presenting zero counterparty risk remains the only major feature described in the whitepaper which has not been implemented. This feature is by no means of peripheral importance. In fact, I believe Nu will not succeed unless it is implemented. Time that we spend waiting to implement it is time that we put the network at considerable risk of failure, including catastrophic and total failure.
The software needed to implement this is already distributed. What is missing are LPCs presenting proposals and shareholders willing to approve their proposals.
The situation is comparable to a healthy person who reasons they will not purchase medical insurance to save money (in our metaphorical scenario there is no government provided health care). After all, they have better things to spend their money on that improves their quality of life now. Being healthy, not having medical insurance is not a problem, until suddenly it is a very big problem because they develop cancer. Similarly, it is clear to me that shareholders are choosing an option that is cheaper in most circumstances, but is vastly more expensive in certain failure modes.
Consider what would happen if KTm lost control of the aproximately one million NuBits in her possession and they were brought to the open market suddenly for sale. At a minimum, very high interests rates would need to be offered to stimulate enough demand for NuBits. At worst, the young system would be unable to stimulate sufficient demand in the wake of such a scandal. With a plummeting market cap, currency burning may not be effective enough and the peg may be permanently lost. However, the liquidity KTm provides is very cheap compared to the proper alternative.
Now consider what occurs if @muchogusto or someone with a similar proposal providing liquidity lost control of the funds they were using. In order to have NuBits in the first place, @muchogusto must buy them, so it would only represent the reversal of that initial purchase, not a brand new liability like with KTm. So even if those lost NuBits were immediately sold (and there would be much less incentive to so than with KTm), the sudden sale of 25,000 stolen NuBits carries no risk to the system. The loss is borne by @muchogusto, not the network or shareholders.
The network had begun a transition to offering decentralized, counterparty risk free liquidity but in recent days it has become clear that the network is actually turning back toward increased reliance on KTm and Jamie. KTm and Jamie understand that their role is supposed to be transitional, and they are hesitating to expand their operations beyond Bter and CCEDK to provide shareholders incentive to do the right thing. So in fact what is occurring is that the network is failing to expand liquidity provision to newer exchanges while increasing reliance on centralized liquidity that brings risk of systemic failure. It is important this development not escape the attention of shareholders, because shareholders are certainly in a position to change the course of events.
So, as a shareholder, if you find yourself saying that a specific decentralized and counterparty risk free liquidity proposal such as the one proposed by @muchogusto is too expensive, it certainly is more expensive than the liquidity being offered by KTm, just as not buying medical insurance is cheaper than buying it. My advice would be that if you think it is too expensive, present a competing proposal that is less expensive. If you are unable or unwilling to do so, you cannot demonstrate that it is too expensive.
It was my expectation that liquidity provision would be comparable in some ways to Bitcoin mining. It is a relatively simple way (all that you need to do is run some software and deposit some funds on an exchange) that people involved in the project can use modest skills to support the network while being rewarded financially for their contribution. It is a bit more complicated than Bitcoin mining, in that shareholder approval must be gained to receive compensation. In an era of data feeds, that should not be a formidable barrier. It has occurred to me that it might be possible to automate the rewards for decentralized liquidity provision by basically giving a reward to a liquidity provider in each block, where each NuBit worth of liquidity being provided represents a chance to receive the block reward for liquidity provision. Even if such a scheme were implemented, shareholders would still need to make a decision to pay for liquidity provision, which they are not doing right now.
When Nu first began liquidity providers received no transaction fee discounts on exchanges. We felt lucky just to get support on exchanges at all. Now, the profitability of having NuBits on your exchange (with liquidity support) is undeniable, and we have begun to move toward zero transaction fees for liquidity providers. But when the market was immature, we had to pay a higher price for liquidity. Shareholders face a similar dynamic with decentralized counterparty risk free liquidity provision. That market is extremely immature, and the only path to lower prices is the creation of a market for those services. This market will provide innovation for hedging, ways to reduce exchange default risk, etc, but if there is no market than those innovations will not occur. Therefore, it is of paramount importance that shareholders pay whatever price is necessary to establish a market in decentralized liquidity provision. If they do so I’m certain innovation and competition will bring pricing down. If they don’t, the Nu network will continue to be exposed to centralization, counterparty risk and serious lack of scalability in its liquidity operations.