[Discussion] Liquidity operations - a paradigm shift

[zoro]

I just have an idea.
What if i make an MLP grant to operate a Nubot with my own limited funds. I can play around with spreads "freely"
in times of extreme volatility and make sure that i rebalance regularly the walls with FLOT and T3. That way i would be also a peg policeman
Now, instead of being afraid of exchange default i can make a contract with shareholders for full recoverage of my funds
from NU if exchange goes south
I think in that way the risks are slpit between MLP and NU. Nu will not worry about a running Nubot operator
and the operator will not worry about the exchange dafault.
What do you say?

[Nagalim]

So you want 2 things from Nu:

1. Payment after end of operation (or periodocally)

2. Insurance on exchange default for a certain NBt amount

I would be comfortable with 2 if it made 1 cheap enough. It’s not like you can collude with the exchange to get it to go bankrupt.

What if withdrawals get halted but your balance remains. Do we still have to pay you the insurance?

[masterOfDisaster]

If your funds are insured by Nu, you can use Nu funds in the first place as that makes accounting easier.
Providing collateral for the Nu funds to make running with the funds unattractive, would be an option, but that has a price, which Nu needs to pay.
It will be hard to measure your efforts and effectiveness.
Operating NuBots passively and letting (a lot of!) others monitor the liquidity situation and deposit funds if need be, seems to be more efficient.
The offset of the NuBots would be dictated by Nu.
Lessons learned are considered to improve the process, offsets, etc.

[Nagalim]

Zoro makes a good point though, there are two risks: volatility and exchange default. Using Nu funds means rebalancing with T4 and Nu absorbs the volatility. Using personal funds means zoro can pick spreads and stuff.

Hell, if you can make 1) be zero cost, then this whole operation is just insuring T2 funds on-exchange. Id be down with that if we can come up with a good mechanism of accountability. How about we will insure up to $10,000 as long as you make sure to report at least $5,000 total on T1 and periodic rebalances.

[zoro]

What if withdrawals get halted but your balance remains. Do we still have to pay you the insurance?

This is tricky! you are referring to cryptsy situation, i guess. Real pain in the …
So, i guess this is not a good idea management-wise and/or cost-wise.
Personally i would prefer to have 10 passive nubots handling 1000 NBT each than have an MLP handling 10000 NBT

Hell, if you can make 1) be zero cost,

I was thinking something about 5%. No way zero cost, we have Mod for that

[masterOfDisaster]

volatility and exchange default. Using Nu funds means rebalancing with T4 and Nu absorbs the volatility.

You forgot the hedging risk.
The volatility risk is the same if the Nu funds are on T1, T2, T3 or T4.
Outsourcing that risk to the LP requires a compensation that Nu has to pay.
I won’t repeat why this is long-term either

• more expensive for Nu than taking the risk or
• not sustainable for the LP

With Nu funds only on T1.2 or T2 the hedging risk can be compensated by the offset.
If the offset is too small to compensate it completely, it needs to be increased (resulting in a reduced peg quality) or Nu needs to take the loss.
Outsoucing that loss to LPs leads to…you know.

I’m still convinced that single side gateways for minor exchanges and dual side NuBots for major exchanges operated with Nu funds are long-term the most efficient solution.
A first line of defence at dual side operations by ALP with CRFC is welcome.

No way zero cost, we have Mod for that

Discontinued.

[jooize]

I struggle with the peg concept. We provide a certain amount of immediate liquidity (Tier 1). We refill that with higher tiers, but it will always be possible to buy all immediately available liquidity given enough funds. At the point where no liquidity is available at a rate within the range we consider a successful peg, if nobody is selling their NuBits for lower than that, it’s fine, but when trades are made whether unintentionally or for whatever reason outside the peg range, that would be called a broken peg. Correct?

Since we can’t provide infinite immediate liquidity (not sure how BCE plays into that), traders have to accept the reality they cannot sell back NuBits faster than Nu’s liquidity flow.

At this time we provide different amounts of immediate and semi-immediate liquidity at different exchanges, with most at the one with most trading volume. It’s unreasonable to provide much more liquidity than is being utilised because of the risks.

When is the overall peg considered kept? If we can’t guarantee local pegs (though we’re arguably doing an excellent job at it), is the conceptual peg kept as long as there is liquidity available at any exchange? With no trading volume at zero liquidity, the local peg stays put, but at the mercy of nobody being in a hurry or for other reasons trading outside peg range.

The Daily Decrypt

Our peg has been perfectly accurate at all times in the past. Specifically, there has always been buy orders and sell orders for NuBits open on public exchanges that center on $1.00, with a small spread, at all times.

Coinmarketcap displays a weighted average (according to what I’ve heard) of all the NuBit trading pairs it tracks that has volume above some threshold. CMC isn’t accurate with e.g. Bitcoin pairs as explained by Jordan Lee in that same post, but provides some artificial protection for the perceived overall peg by averaging all pegs it tracks. Possibly for worse anyway with the peg stability Nu supposedly has (I don’t feel confident enough to say with more certainty).

What happens to CMC’s reporting with this suggested approach? We probably shouldn’t go by that in deciding how to operate, but it might be worth considering.

There has to be a way to abandon liquidity operations on an exchange. The only way the overall peg appears to make sense is in the way described by Jordan Lee that I just now understand. Still kinda feels deceptive to say the peg is perfect if it’s been lost at certain exchanges. Can you make me feel differently? In any case Nu is obviously providing the best pegged currency available.

I think @masterOfDisaster’s idea simplifies both operations and understanding. We can’t maintain high-liquidity pegs everywhere, so we decide where, and focus effort at those places while still providing entry points to NuBits at additional exchanges. Sounds like what we’re already doing, but more well-defined.

What if NBT can only be sold at Poloniex, NuLagoon Tube and Blocks & Chains Exchange once it’s finished, but bought at all exchanges which currently are supported by Nu?

Users will probably want trading pairs for US-NBT/USD, EU-NBT/EUR, etc. on the exchanges where they turn fiat to crypto and back. Such pairs are relatively cheap for Nu, right?

[mhps]

We can’t maintain high-liquidity pegs everywhere, so we decide where, and focus effort at those places while still providing entry points to NuBits at additional exchanges. Sounds like what we’re already doing, but more well-defined.

I agree. It is theoretically impossible to maintain the peg everywhere. Nu should be upfront about it (It is – read the fine prints in https://nubits.com/exchanges/nubits-exchanges ) consistently, and after a year Nu can have a refined strategy.

[Nagalim]

I imagine a world where someone goes into their client and can sell NBT directly for BTC with a T3 custodian matched automatically. They can also submit their NBT to NSR auction directly in the client.

That’s my farfetched dream.

[crypto_coiner]

This: it does not make sense to run in a decentralized fashion as for money supply decision if our sources/hosts of money supply are centralized.

[cryptog]

s of money supply are centralized

except when the exchange is BCE.

[masterOfDisaster]

One additional benefit of having an army of sell side only operations while only sustaining a few dual side operations:

[Passed] Single Sided NBT Gateway on HitBTC - Updated 18FEB16

If there are plenty of single side operations, but only a few dual side operations, Nu has several benefits. I already lined out the administrative benefits and some of the economical benefits.It provides a small, but valuable additional economical benefit to sustain only sell side liquidity operations at most of the exchanges:

• people who want to sell NBT, which they bought at a sell side only operated exchange, might need to send them to another exchange with a sufficient NBT buy wall -> tx fees need to be paid -> revenue for Nu!
• arbitragers who operate the buy side on their own (because there’s money for them to be made from the offset…), might need to withdraw NBT from time to time -> tx fees -> revenue for Nu
  -> this works better, if we allow sell side only operations to run dry from time to time; otherwise the arbitragers can just balance with the sell side NuBots
  -> even when arbitragers balance with sell side NuBots, it’s not bad for Nu, if the offset is big enough to make money for Nu from the offset

[mhps]

send them to another exchange

this adds friction to economy, although mostly by traders only.

[masterOfDisaster]

How long do we want to schmooze traders with that much passion?

In the last close to 18 months we might have already shown what Nu is capable of.
Dual side exchanges will continue to provide low friction trade.

Remember: as soon as there are additional products and not just US-NBT in circulation, it will become even more expensive than it is now to put the costs of reduced friction on the shoulders (and books!) of Nu.

[zoro]

Shapeshift and Nu Lagoon tube can help in this friction issue

[huafei]

the fee pay to them. and Is the spread fee paid to tube as profit with NU？

[Nagalim]

No, tube takes the spread for themselves. They wave the 0.1% fee for rebalances from FLOT though.

[masterOfDisaster]

Just in case we’d follow that road and have NuOwned operations at Poloniex, would it make sense to evaluate lending some of the funds that are considered “T2 overflow”.
With “T2 overflow” I mean, they are not used immediately, but maybe not very much later so that withdrawing them and depositing them again would be too much effort?

Taken from: https://poloniex.com/support/aboutMarginTrading/

##How Do I Offer Loans and Earn Interest?
If you prefer to earn interest on your funds instead of trading with them, you can lend them to other users. Click on the Lending tab at the top of the page, then select the coin you wish to offer in the My Balances box on the right. You will need to transfer funds to your lending account to offer them, which you can do from the “Quick Transfer” link in the offer box.

• Rate: The daily interest rate you are offering your funds at.
• Amount: The amount of funds you are offering.
• Duration: The maximum number of days your funds will be held in a loan.
• Auto-renew: Check this box if you want your funds to automatically be offered again at the same rate after the loan they are used in closes.

Once you have placed your offer, it becomes available for margin traders to use. Margin traders will consume lending offers starting with the lowest rate. If a lower rate becomes available after a margin trader’s loan has been opened, the contract may be transferred to the lower rate. Remember, a loan can always be closed early by the taker, so be sure to offer competitive rates if you want the best chance of your offers being taken.

When your loans are being used by margin traders, you are earning interest on them, which is paid to your lending account when a contract closes. (Poloniex takes a fee of 15% from the interest you earn, so be sure to consider that when you place your offers.) Your active contracts are listed under My Active Loans.

Although you cannot cancel an active loan, you can disable Auto-renew, which will ensure that your funds return to you no later than the number of days listed under Duration.

What are the risks?
Poloniex defaulting? Already part of the NuOwned operation.
You lend BTC, then they drop and can’t sell them? NuBot wouldn’t sell them, even if they weren’t lent.
Do those whom you lend the funds pose a risk? Can they default, lose some of it, all? Are those loans insured by Poloniex?

[Cybnate]

Poloniex defaulting?

That is probably the biggest. The more on exchange funds the more risk. Funds we don’t requires immediately can also be stored on a safe multisig account. My opinion is that you only lend money that you don’t need for a while, which should only be T4 funds above the minimum reserve. For a part of those funds the Poloniex lending is certainly a consideration.

[masterOfDisaster]

The more on exchange funds the more risk

This is nitpicking, I know, but the risk stays the same, only the calculatory costs increase.

My opinion is that you only lend money that you don’t need for a while, which should only be T4 funds above the minimum reserve.

That’s what I meant with “T2 overflow” - this one would flow upwards (through T3) to T4.

For a part of those funds the Poloniex lending is certainly a consideration.

At least it would make some revenue. I have no clue about the APR and whether it’s worth the risk.