I am writing about the USD liquidity proposals, specifically those for CCEDK. It’s expensive to get USD to some of these exchanges, so I really understand why people are requesting so much for a fee. It is not sustainable though and it should not be our mission to provide truckloads of flawless liquidity to exchanges with low USD liquidity at a high cost to the network, but I feel that Nu can effectively help achieve more liquidity on exchanges without the high expense and still end up adding support to the peg. One thing I love about bitcoin is it’s ability to move money between exchanges. NuBits is a better way of doing that. I think there may be a solution with botting and keeping an open mind about what is considered holding the peg. I was wondering if I can get some input from the community and those especially interested in automated trading and developing NuBot.
I envision this scenario:
I exchange an amount of my own NSR for the BTC-e USD equivalent, let’s say $1000. The shareholders see value in this proposal and agrees to award 1000 NBT to give my bot some initial sell side liquidity. This would be a longer term proposal than 1 month. Think 3-6 months and then reevaluate if it is worthwhile.
For simplicity sake, opening bot target is a 5% spread, but this will get smaller dynamically as volume picks up. Remember, I asked for an open mind about the peg. We say the BTC-e USD to CCEDK transfer rate is 4% and bot profit is 1%. Obviously all numbers and exchanges are just for example.
This modified version of NuBot places a $1000 NBT buy order at $0.95 and a sell order for 1000 NBT at $1.001. This ~5% spread would be slightly over the current exchange rate to send USD from BTC-e to CCEDK, but it leaves a little room for profit. The reason I’d like to leave small profit included is to decrease the spread on the trading pair and increase USD holdings on CCEDK in the NBT/USD pair. Once we hit a certain threshold of total holdings, say $10,000 and maintain a target spread, we could add exchanges with similar issues to the proposal, distribute the excess USD as dividends, the profit margin can be adjusted lower, or a combination of all. We are undercutting current LPC’s on the sell side of the pair, but with a relatively small amount of NBT and a plan, The walls have always been lopsided on this pair, so I do not think it would be an issue. Other traders will notice the spread and try and take advantage of it. While this is not necessarily good for the benefits of my proposal, it is very good for the health of the NuBits peg.
Bot starting balance: $1000/1000NBT
Today an arbitrage trader saw a hypothetical 5 BTC for $200 sell order on CCEDK BTC/USD with room for over 5% arbitrage to another exchange who was trading at $215. Since CCEDK has relatively low liquidity, these trades do not often get bought. But with a firm 5% spread on NBT/USD to cover the trade, it is very easy to take advantage of this opportunity. He buys NBT/BTC and sells 1000 NBT/USD and buys BTC/USD.
Buy side liquidity is below a threshold for a specified amount of time, so it is time to make a fiat transfer. Perhaps, one day, NuBot handles some of these trades off-exchange with other LPC instances of NuBot, but I balance the bot to 50% buy/sell by trading NBT to BTC with one of the traditional LPC’s and then sell the BTC for USD on BTC-e. Then I wire it to CCEDK with a 4% fee including trade fees leaving a profit of 1%.
Next someone buys 10k NBT/USD. It completely eats away my sell wall, and starts working on the traditional sell side custodian’s sell wall. Whenever somebody buys NBT/USD from our wall, the USD creates a new buy order, instead of adding to the original buy wall. Perhaps it creates the new buy order at $0.98 or $0.99. This will be a larger profit margin for NuBot than buying at $0.95 after fees fiat transfer fees, and adds higher support for the trading pair, which will be sold into by anyone banked somewhere capable of cheap CCEDK withdrawals looking to cash out. Remember our USD liquidity on CCEDK gets targeted by traders banked in areas CCEDK can easily withdraw to.
Traditional LPC NuBot buywall:
My Bot Balance:
At this point, no action is needed on my part. Buyers will keep buying and selling to the traditional walls until there is a need for my walls.
I am interested in any feedback and comments, and thanks for reading this. I hope I explained my idea well. I am sorry if it is long winded. This is not a proposal at this point, but I would like to submit one if other shareholders think it is a good idea and if the NuBot dev team doesn’t see any issues.
Final notes about the peg
In the BTC-e trollbox, newbies always ask why the BTC price was so low on that exchange. The answer is: It is not. BTC-e USD is more valuable than other exchange’s USD because it is so fee heavy to get USD into there. The same thing applies to CCEDK, but there is very little USD liquidity overall on the exchange which accentuates the problem.