Discussion: Creation of the first liquidity group pool by KTm or Jamie

NuBits
#1

In Jordan’s recent draft motion to end LPC operations of KTm and Jamie, he again brought attention to the Nu network’s critical need for additional Liquidity Provider Custodians (LPCs). If the motion is passed, all shareholder-funded liquidity managed by @KTm and @jmiller will come to an end.

As myself and @Creon have pointed out, all existing LPCs should seriously be considering offering group funds. The potential exists to earn above-average returns relative to the personal NBT risked, simply for administering a pool. The ideal state of liquidity pool management would be an automated system similar to mining pools, but I see no reason why manual liquidity pools should not be created in the meantime.

I would like to suggest that either @KTm or @jmiller (or both) create their own private LPC funds that will activate immediately upon the elimination of shareholder support. Perhaps they could have a name like mutual funds do. I’ll call the hypothetical fund the “First Nu Pool” (FNP).

KTm or Jamie would solicit liquidity funds from community users in exchange for a group management fee. I expect there are many others like myself who would be eager to provide a couple thousand NBT in liquidity to claim the current high fee rewards, but are unwilling or unable to properly operate NuBot. To preserve the fund manager’s time, a minimum threshold for user participation (perhaps 100, 500, or 1000 NBT) would be required to eliminate administrative overhead. For each 30-day period of operation, new participants in the pool could be solicited for the following grant period.

Sample Timeline:

Feb 15 - 22: Solicitation for FNP by KTm or Jamie through BitMessage. 10 users sign up.
Feb 22 - 28: Finalization of custodial grant proposal
Mar 1 - 7: Voting and successful passage of Period 1 grant.
Mar 8 - Apr 8: First month of FNP operations. At conclusion of operations, all 10 users plus the manager divide up the fee.

  • Mar 8 - Mar 31: New users message FNP manager to join for following period. 15 additional users decide to join.
  • Apr 1 - 8: Voting and successful passage of Period 2 grant.
    Apr 9 - May 9: Second month of FNP operations. At conclusion of operations, all 25 users plus the manager divide up the fee.

Sample Financials:
Group Liquidity Provided: 55,000 NBT (5,000 NBT from 10 users, and 5,000 NBT from manager)
User Fees: 5,500 NBT. 550 NBT per user and manager.
FNP Management fee: 1,000 NBT solely to manager.
TOTAL Fees: 6,500 NBT

The advantages to this approach are considerable. @KTm or @jmiller would earn a much higher percentage fee than what they have been earning so far, for marginally more administration work. Ordinary community members would be able to access the reward fees available for providing liquidity. The Nu network will be stronger as a result. All that is required is additional manual work by the FNP manager to keep track of who has contributed to the fund. Perhaps a custodial grant request could be made in the future to automate and anonymize participation.

@KTm and @jmiller I am particularly interested to hear your thoughts. Any other LPC is free to use this concept as well.

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#2

If they agree on this idea, then I will probably withdraw my custodial grant proposal and will participate in this concept. My proposal stagnated anyway so there doesn’t seem to be much interest in a single small liquidity provider. With 55,000 NBT we collectively could handle a large volume exchange.

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#3

I hope that whoever decides to do this (and I believe it is inevitable that at least one community member will try it, given the potential profitability) will choose to support Bittrex when it adds NuBits to its exchange. That will happen when the source code is released.

#4

i like it very much!
i will surelly participate in this pool

#5

I also have interest in participating as a pool user (not group administrator).

#6

I am interested in participating in this Fund Nu Pool.

#7

I would be interested in participating into a pool or managing a small pool. I really like this concept. I think it is a brilliant idea.

#8

I like the sound of this…

#9

How do we move to make this a reality?

#10

Well first we need to know what @KTm or @jmiller have to say about the idea. If one of them agrees, then I think we can proceed rather quickly: After posting a bitmessage address people who are interested to participate should sign up within the next week. If enough NBT were collected to make a proposal, the participants send their funds to the pool operator and the pool operator writes the custodial grant proposal with the collected funds.

I don’t see why shareholders should even be bothered with all this information. In the end it will be a normal proposal by @KTm or @jmiller, not by anyone else … its not the shareholders problem if the participants will get their money back or not, so they also don’t care how the funding was obtained and how the fee will be distributed.

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#11

Will the liquidity pool be a simple singlekey hotwallet?

#12

The NuBot requires access to the funds. In a multisig scenario all participants would need to be reachable to sign the transaction if required. This basically requires to run a program 24/7 that replies on the requests by the pool operator, so it won’t be that much simpler than running a NuBot. A multisig address would also only decentralize the control about moving funds from Tier 3 to Tier 2.

The participants always have to trust the pool operator, because its the only person who has access to the operating exchange account. So the Tier 2 liquidity is unobservable to the participants and the pool operator could gamble with those NBT.

#13

I am glad to see this idea lives.

Multisig all the things and dont leave much to fate of exchange. We have learned a few lessons.

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#14

i like it. i think ktm or jamie are occupied with other issues right now. i hope for them to respond to this gread idea some time soon.

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#15

I suspect they have been quite busy recently with all that has happened this week. I’m sure they will respond when they are able to.

#16

The most obvious issue that comes to mind is the inability to guarantee that contributors will get all of their funds back. Sure, it’s possible that the pool could turn a profit one month, but more than likely it will take losses. Because of this, deposits and withdraws would need to be percentage based. Now start adding users to the pool and all of the original users percentages change. I can already imagine responding to 10 emails per day, from angry contributors who don’t understand why their 10% is now only 7.25%. I’m trying to make the point that there would need to be a very strong legal agreement between the manager and contributors that essentially absolves the manager of liability. There are simply too many ways that the funds could be lost.

The right way to do this, as I see it:

  • Pay an attorney to draft an agreement.
  • Build a website that allows users to create accounts, deposit, withdraw, and select the grants that they wish to be a part of.
  • Automate the process of placing all deposited funds into cold wallets until operational use.
  • Run multiple bots on multiple servers to spread out risk.
  • Modify NuBot to allow the pool operators to create their own spread. This is a very important point, in my opinion. If you want to create incentive for would be pool operators, you need to give them the flexibility to earn a little extra off the spread, or at least eliminate their losses. This would ultimately result in a very tight spread because of competition with other pools. The addition of this potential revenue stream would also serve to create greater competition over the cost to shareholders for offering the service.

Would I be willing to build and manage this for 1000 NBT per month? No. Beyond a small handful of contributors, and because it’s their personal money we’re dealing with, I see this becoming a large administrative headache. If I were to leave other obligations behind and concentrate on building something like this, my starting fee would be something in the neighborhood of 5000 to 6000 NBT per month.

I think this idea has a lot of merit and will probably happen, but is pushing initiatives that create additional centralization of liquidity operation what we really want right now?

I say allow a flexible spread and watch the competition for custodianship begin.

Jamie

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#17

Tks Jamie for sharing your view.

Are you talking here about the spread put by individual custodians right now?
Because I was wondering why nobody makes any proposal in which they specify a specific spread…
Can someone specify a spread in NuBot right now?

EDIT: typo

#18

I totally understand your concerns because of this reason. The manager will always have a hard time to proof that the funds were handled correctly, especially if it affects Tier 2 liquidity.

There is a spread parameter in the secondary-peg options. I am currently playing with this on poloniex (without custodial grant). But in my view, the custodians have the mission to provide liquidity at a small spread, its at least what we pay them for. If the larger spread is announced in the proposal (and justified with a corresponding smaller fee) then this is something else of course.

Although I really would like to believe you, I have my doubts that just allowing a flexible spread will significantly increase the number of custodial grant proposals.

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#19

The latest version of NuBot (0.1.5) forces a fixed spread as part of the multi-custodian feature.

Think about it in the context of not having to compete with shareholder liquidity walls. Being an LPC becomes much more attractive when there’s a chance that your wider spread may actually get some order fills.

Grant to provide 50,000 liquidity to Exco.in for 60 days
#20

I had an idea which may sound a little bit complex because it would require some development effort and a cooperating trusted exchange. Anyway here it is:

  • We create a Peershares fork with an own blockchain and lets say 1 million shares that are fully in possession of an trusted exchange.
  • The exchange provides a market for the shares and makes all revenues available to an account which is in control of an external independent bot operator and will be used to support the NBT peg. The bot operator can not withdraw coins from this account.
  • Shares can be sold back up to the current amount of liquidity available. Every 30 days or so interest rates will be payed in form of PPC to the shareholders (we can also use NBT of course).

Advantages:

  • Decentralized funding of bot operation without legal obligations of the bot operator
  • Exchange has no control over trading activity
  • Bot operator cannot run away with the funds

Disadvantages

  • No Tier 3 liquidity
  • Development effort to create the custodian share fork
  • The exchange has more effort and it needs to be trusted

Thoughts?

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