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

[zoro]

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.

[tomjoad]

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.

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.

[jmiller]

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

[cryptog]

Tks Jamie for sharing your view.

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

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

[creon]

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.

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.

Modify NuBot to allow the pool operators to create their own spread.

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.

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

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.

[jmiller]

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.

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

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.

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.

[creon]

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?

[cryptog]

Peershares fork

Why this particular fork would have any particular monetary value?

[creon]

Because you are getting paid in form of interest rates just for owning them.

[peerchemist]

I dont follow you @creon

[creon]

OK I’ll try to clarify. @jmiller’s main concern with providing a liquidity pool is that the pool operator needs to handle other people’s funds. @benjyz also mentioned several good reasons somewhere why we don’t want an exchange to be a custodian because they have trading advantages.

So the idea was to make each liquidity operation a decentralized organization. You can buy and sell shares of the organization and get dividends for holding them. Every BTC obtained from selling shares will be used to support NBT liquidity and in exchange the buyer of the share gets a part of the fees in form of dividends.

Shares are sold by the organization at a fixed price defined at the start of the operation and also bought back by the organization at a price of L/S where L is the current sum of Tier 1 and Tier 2 liquidity and S in the share supply (so if the custodian makes revenues or losses through the operation, then those will be given back to the shareholders).

This way the bot operator legally doesn’t use other people’s money, just like a developer of a premined litecoin clone really owned the money after dumping the premine. The only remaining problem is that shareholders have to trust the bot operator to behave as promised.

That’s the point where I saw a trusted exchange as a possible solution, who is in control of the share market (but NOT the NBT liquidity markets) and who can avoid that the bot operator wipes out the account wallet.

[peerchemist]

@creon, I think people will find this approach too complicated and this solution will hit heavy resistance.

I think we need multisig among pool operator and one more trusted user. Another solution would be to have multisig among pool operator and exchange or professional escrow. But this would require exchange to stop being master of universe and accept another authority that co-holds their funds - which will trouble them I imagine. Downside of this approach is that pool operator need to authorize TX that will pull funds from tier 1 on exchange.

This is complicated to implement I guess, and needs some more polishing but I think I am on the right track. What do you say?

edit:
“Their funds” - are our funds that are leased to them so they can earn fees.

[creon]

What do you say?

With the share concept I was trying to solve this very understandable concern:

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.

So regardless if there is one pool operator with all funds or several pool operators with multi-sig, there is always a service provider and a customer and the service provider manages the funds of the customers. So while your solution solves that the bot operator can not run away with the money, it doesn’t solve the responsibility problem for those funds.

The share concept avoids this - in fact the only funds that need to be provided by the pool operator are the dividends (i.e. the grant). And while the implementation involves some effort, the final solution will be just as easy to use as a regular altcoin from a contributor’s perspective (ok, exporting the keys will be required).

[mhps]

So the idea was to make each liquidity operation a decentralized organization.

This is excellent. The idea of third-party professional bot runner was floating around in the early days of Nu and was not mentioned again because the LPCs then worked. Now we know the “old” LPC setup was not sutainable, I think we should re-examine the idea again. I am on a slow link so I will try to find links for previous dicussions later.

Running a separate peershares system is not a trivial task at the moment (although in principle it could be easy to setup). When/if peercoin side-chain comes out running a separate chain is supposedly much more light-weight. But regardless of the implementation, I think to make money-making pegging bots that answer to their shareholders is a correct direction.

[crypto_coiner]

I think to make money-making pegging bots that answer to their shareholders is a correct direction.

I am intrigued

[benjyz]

Market makers either are unprofitable or they are profitable. The first scenario is unsustainable. Hence, MM’s / LPC’s have to make profit. However on a risk-adjusted basis (constant assured profit and uncertain profit are very different things), and also with some restrictions. One might compare it to a sales-agreements of a care dealer or franchise corporations or similar arrangements, where earnings are capped and rights are granted restrictively.

This separation of concerns is not uncommon - in traditional markets MM’s act as service providers and are granted special privileges from the exchange. So this distinction of critical market functions is known to be important. It’s for similar reasons that the accounts of companies are signed by auditors, not just by managers of a company. Clearly these exchange markets are in their infancy. One could for example look at how some exchange markets developed and learn from that. Exchanges themselves often developed out of association of individual dealers.

[jmiller]

I’d like to poll this thread with a few questions for my brainstorming purposes. Please reply if you would seriously consider participating in a liquidity pool.

1. What percentage of your contribution would you require to be paid as a fee?
2. Would it be possible to make at least 50% of your contribution in BTC?
3. What initial duration of time would you be interested in contributing for (30, 60, 90 days)?

[creon]

I think a new thread would be appropriate for this.

Anyway, although I have a custodial grant proposal running, it didn’t increase much over the last weeks, so maybe this small liquidity would be more suitable for this pool idea. And even if the grant passes, then I will most likely be available after the 30 day term of the operation (well, “most likely” is unfortunately statistically not correct right now thanks to the hackers):

What percentage of your contribution would you require to be paid as a fee?

5%

Would it be possible to make at least 50% of your contribution in BTC?

Yes

What initial duration of time would you be interested in contributing for (30, 60, 90 days)?

30 days since it is a first-timer. Afterwards I can imagine to lock up money for 60 days or longer.

[peerchemist]

1. Dynamic, depending on volume/profit (leave this to situation on market)
2. Yes.
3. This should be part of contract between pool and investor. Why not make it dynamic where investor can choose 30/60/90 days - each with it’s own benefits.
   Pool does not have to run for specific period of time. It can run continuously while investors take shifts and new ones come.

[willy]

1. 5-7
2. Maybe.
3. 30 days first … if it works out longer