Decentralized liquidity without counterparty risk not yet implemented

@JordanLee , I tend to think that shareholders are more willing to vote for LPC proposals asking for NSR than for NBT because they are reluctant to printing out new NBTs without some stronger confidence in the ability of the LPC to create economic value for Nu.
It is easier for shareholders to give away NSR.
I encountered the same issue in my own proposal here, at least at the beginning.
I asked for NBT but so far (before me) all proposals offering liquidity with the custodian’s own cash asked for NSR.
I guess if it is an issue, the burning mechanism should solve that, in that custodians would be able to ask for NSR in a decentralized way without waiting for your bonus proposals, which requires time from your side.

In any case, can you clarify your stance on the pros and the cons of offering NSR or NBT as a reward for LPC work?
In other words, which one do you think is best for what kind of provider?

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Jordan, I appreciate your Nu system design very much, and this is the only scheme which is close to Hayek model out of 500 alt coins! But as you said above, Nu has counterparty and centralized flaw now, my suggestion is quite radical:

  1. Since our NSR cap. is 10 times of NBT, Nu system has enough “fund” to issue and adsorb NBT, we don’t need to pay high price to anyone. Just let NSR holder borrow NBT with their NSR pledged, we vote ledge ratio to expend or shrink NBT circulation. NSR holders(LPC) get extra NSR (newly generated) just like they mint to contribute network security.

  2. Decentralize LPC in this pledge way, our goal is to have 1000 LPCs.

  3. 100% reserve of LPC is possible in this way. And FIAT/NBT pairs.


How would you reliably measure the number of NuBits worth of liquidity? As far as I understood it the custodians have to provide this information, and therefore they would have an incentive to cheat on these numbers in order to increase their expected reward.

However, IF there is a method to proof liquidity on blockchain level, then we could define a set of exchanges where we want to have a certain amount of liquidity via motion. Afterwards we let custodians without further permission provide as much liquidity as they want on any of those exchanges. The only thing custodians would need to do is to write their requested reward per NBT / day liquidity on the blockchain. The blockchain then automatically pays the custodians with the best offer and only as many custodians as needed to satisfy the liquidity specified in the original motion.

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Being a LPC must be profitable business. I think custodians are mainly two types: those who believe in fiat and those who believe in crypto coins. If we exclude exchange default risk, it is easy with the first. They just have to provide liquidity on NBT/USD pair. But being a dual side LPC which operate on NBT/XXX crypto pair is a very high risk and is a bottleneck in current Nu (NuBot) design.

Perhaps these ideas would help:

I want to help Nu project to succeed and provide 100 BTC or even more liquidity on NBT/BTC pair but as a strong crypto believer I want to have at least the same amount of BTC in the end of my operation.
How to proceed?


Why not selling the rewards (NBT or NSR) for BTC?

You can a use future markets to transform the risk into a calculable cost. Jordan described it here:

So in the end its mostly the risk that the exchange gets hacked and of course the missing opportunity that should be the basis for the reward calculation.

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There was a thread started here a few days ago (that I can’t easily locate) that discussed the idea of using pools for liquidity provision. I think this is a great business idea that is likely to be profitable and very helpful to the network. While it means you have a pool operator centralizing the control of funds (which isn’t as ideal as each liquidity provider controlling their own funds) it is a huge iterative improvement over what Jamie and KTm are doing. It doesn’t use shareholder funds that present systemic risk, and presumably a number of these pools would develop, providing some degree of decentralization. It is a way that very small players can provide liquidity and earn a return on their NuBits, all without having to run NuBot or face the hassle of hedging the BTC used.

Some basic software is needed to facilitate deposits, withdrawals and accounting. It is likely that off the shelf exchange software could be used. It is also possible for an existing exchange such as Bitspark, Bter, Excoin, or CCEDK to offer pooled liquidity provision. In the interest of fairness, this could be done in a cross exchange manner, so that liquidity providers don’t have the advantage of seeing the contents of exchange accounts. For instance, Bitspark could use its deposit, withdrawal and accounting infrastructure to run a liquidity pool on Excoin.

One way a pool could get paid for liquidity provision is rather than agreeing to provide a specific quantity of liquidity as has been done in the past, simply ask that the pool be paid a certain percent for each NuBit of liquidity brought per unit of time: 0.25% for each 24 hour period liquidity is provided, for example. Shareholders approve a contract for a 90 day or 120 day period, and then every two weeks or every month a custodial grant is passed to pay for liquidity actually provided in accordance with the contract.

I would love to see liquidity pools developed. Please let me know if I can assist you in doing so. It is a priority for me.

The passage of LPC proposals such as those offered by @muchogusto and @cryptog will indicate to entrepreneurs that there is a profitable market for liquidity and that it is a market worth competing in.


You must be alluding to that: We need much more liquidity providers....Let us think of strategies

I feel the future of Nu depends on that.


I am glad you like this idea. In my opinion this functionality should be included in NuBot. NuBot could just memorize inputs (in BTC) and make withdrawals based on insterest rate. Also this should be faster and less error prone than human (custodian).

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I like the idea of separating the liquidity provider from the bot operator and I think this can be accomplished only by using the blockchain.
For every incoming transaction, the full amount + a interest gets repaid to the sending address once a certain number of blocks has passed. The interest rate scales (exponentially) from the full amount to zero around a funding target. Therefore everyone can independently calculate the current interest from the blockchain.

I quickly implemented the idea in Python to show you what I mean (not much tested, may have bugs):

Different interest rates for different time spans can easily be implemented by using multiple addresses. I like the solution because it is simple, robust, and externally verifiable at any time. Would love to read everyone’s opinion on that.


I was wondering about this the other day. When issuing currency to be used for projects it makes far better sense to give a stable currency to gaurantee funding until the project is completed. How does issuing nushares ultimately differ from someone selling those shares for nubits in order to store the value?

Right now as a reward you can ask for both assets: NSRs or NBTs.
It is just that it is more complicated to ask for NSRs since it is not yet at protocol level (you need to trust JL to give you the shares once your mission is completed) but the automatic rewarding process is being implemented right now.

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Thanks for the info. As always i am pleased with the game plan going forward and hopefully we will have quick implementation going forward as well.

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When our liquidity operations are 100% conducted by self funded LPCs (or liquidity pools where users provide funds like what @henry is forming), we will be able to say liquidity operations are counterparty risk free, from the perspective of the network.

While what constitutes decentralized liquidity is a matter of degrees, my short term goal is to ensure that no single LPC provides more than 25% of total buy side liquidity, and that there be at least six LPCs providing at least 5,000 NBT in buy support each.

Once liquidity operations become counterparty risk free and decentralized according tho the above definitions, I will unpin this topic. In the meantime, I will periodically articulate our progress toward liquidity operations being counterparty risk free and decentralized.

Here is my present assessment of liquidity operations:

Using the getliquidityinfo RPC with B as the parameter, I can see that currently 21.1% of our liquidity is currently being provided by self funded LPCs where the liquidity operation poses no systemic risk or potential loss to the network.

There are six LPCs currently operating, although two LPCs have trivial funds at work (< 150 NBT). One LPC, @jmiller, provides 47% of all liquidity and more than 90% of all buy side liquidity. Having <5,000 NBT buy side liquidity being provided by all LPCs besides @jmiller is quite hazardous to the peg. @jmiller, @henry and @KTm: will you work together to balance the buy side liquidity among yourselves please?


Some questions:

Are these for NBT/Crypto pairs or also including NBT/USD ? NBT/USD has little exchange rate risk.

The 5000 NBT number seems arbitrary. We have seen that some exchanges don’t have more than a couple of hundred NBT traded everyday on average. Crpto activities in general has ups and downs. There is little need to risk many times liquidity when it is obvious that there isn’t all that much trading. So I think tier 1+2 should be adjusted maybe on a 10-day moving average of buy-side (or buy+sell) liquidity basis or on a10-day MA of daily volume basis (the calculation can be made by the bot).
Or give this speific decision to the LPCs to make and only ask the LPCs to follow general guide lines in the beginning. After a while when this new mode of operation goes well, more specific requirement can be added based on experiences.

Time for another evaluation of our liquidity operations:

Currently, 74.8% of liquidity is being provided by self funded LPCs that present no systemic counterparty risk (this excludes liquidity being reported from KTm, which is shown erroneously right now). This is a huge improvement over last week’s 21.1%. The change is due more to KTm and jmiller reducing liquidity than it is due to an increase in activity from new self funded LPCs (though that was a factor). This means total liquidity is very low at ~69,000 for both walls (once again excluding the erroneous KTm figure). More LPC proposals and shareholder approval of those proposals is needed. I’m hopeful the Nu Lagoon will improve things quickly once the motion paying for their operation is passed. Given that NuBits volume has been in the low 10,000’s recently, this low liquidity is not a serious problem. However, providing more liquidity should positively impact NuBit trade volume.

The buy walls of @henry and @creon are quite unbalanced, in opposite directions. Would the two of you consider balancing your walls together, please?

There are four LPCs providing liquidity, with 45% of all liquidity being provided by a single LPC. Quite a bit of improvement is needed in the area of decentralization.


The only thing that is holding be back doing this is that it would violate my grant proposal. If the liquidity balance generally is considered as something that can be changed later on then I can transform half of my funds into NBT.

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Could you please review this proposal if it fits the criteria of decentralized liquidity. @JordanLee

Can we unpin this please?

Let’s take a look at our progress toward providing decentralized liquidity without counterparty risk (from the point of view of the network).

Using the getliquidityinfo RPC with a B parameter, I can see that there is 98,760 of tier 1 liquidity. 72,672 (73.6%) of this is coming from Jamie Miller and Kiara Tamm, who are using shareholder funds. So, only 26.4% of tier 1 liquidity is free of systemic counterparty risk. That isn’t an improvement in raw numbers.

However, we can see very important progress forming that hasn’t quite manifested in the current numbers. Nu Pool appears on track to dramatically expand its operation to provide 70,000 in liquidity. Liquid Bits and NuPond have just started operations and are providing 3000 and 500 in liquidity respectively. I expect the amount provided by Liquid Bits to rise quickly. NuPond and Liquid Bits are both likely to expand operations in a few weeks. Jamie and KTm will be burning all shareholder funds in a few weeks except what is held hostage at CCEDK and BTER.

There is a reasonable chance that in 30 days we will see liquidity offered using shareholder funds drop to less than 30,000 while counterparty risk free liquidity rises to around 90,000 from our 4 pools. Most of this will be provided by Nu Pool, but in 60 to 90 days hopefully it will become more balanced among our pools.

So, if we continue to nurture the efforts already well underway, we will have liquidity that is both decentralized and free of systemic counterparty risk in 60 to 90 days.