In rough terms we try to balance liquidity when one side is 40% of the other. That makes sense for sell side, because a lot of people selling does mark a decrease in demand, and could break the peg downwards. In that case (demand decreases) liquidity providers are not enough and T4 end up paying for that.
But what about buy side? To fulfill an imaginary demand? A lot of people could be putting together millions in buy side orders just bellow 1 USD because they realize that buying NBT for less than that is always a wining trade. Does that mean that demand have increased? No, it just meant more people are aware of a profit opportunity, but they will immediately sell the NBT at more than 1 USD (probably at another exchange walls) to make their profit.
So we are considering arbitrage orders as real demand, and what we do about it?
We put NBT in circulation. This is not a problem as long as T4 get at least what they are worth, but what happens if not? Well we just lose 1%+fees of that amount when we have to rebuy all those undemanded NBT at the sell wall.
Even if the money arrives at T4 at more than 1 USD per NBT sold, we eventually spend part of that in a buyback, and when those undemanded NBT come back at some point in time, it ultimately empties T4 and forces us to do a NSR auction. Not desirable.
Some may argue that this argument would also apply to sell side, but sell side are real part of NBT in circulation, thus is size is ultimately limited to the undemanded NBT.
What I propose is consider sell side as a indicator of demand X averaged over a period of time, and apply the 40% rule to that amount for buy side.
Right now we have:
- X would be 51621, threshold for NBT buyback would be (51621/60)*40 = 34414.
- Sell side is not to be touched unless is less than 40% of buy side and a certain low threshold is reached that we agreed beforehand, lets say 30000 NBT (Which would be the NBT introduction threshold).
This avoids introducing more NBT than demanded when “virtual” demand is too high, and allows having a bigger buy side ready to cover demand peaks.
I have drafted some simulations.
What do shareholders think?