[Draft discussion] - A market-maker to end NSR illiquidity

[desrever]

chosen by the custodian

A price feed, or an internal price computation is necessary. If we let custodian choose price directly, then it’s exactly price fixing. Custodian (or better, market-maker) should be able to configure its strategy and risks, but not set the price directly.

But yes, that’s the way to go more or less.

[Nagalim]

It’s only price fixing if we are compensating the custodian. No matter what, we are fixing to a price, the question is how to dynamically choose that price. If each custodian puts in their concept of a reasonable nsr price, then the bot responds to local market dynamics, I could suggest that is just as rigorous as an external price feed. For example, Charlie puts in 100 nbt and an estimated price of 9 microbtc with a 10% offset and a 5% dynamic shift based on his account. A buy order at 8.55 microbtc will be placed. Let’s say he gets half his order. Now, the buy wall will shift down to 8.1 microbtc and a sell order at 9.9 microbtc will be placed. With parametric order book, you can see how this could be profitable at such large spreads and if charlie updates his price semi-regularly (maybe once a week) he should do just fine. The nsr bot on bter (whoever owns it) has been using a similar strategy for a few months now and has been making out like gang busters.

[desrever]

I agree with you but

If each custodian puts in their concept of a reasonable nsr price

Do you envision people doing this manually multiple time per day? Market making should be automatic or we are going back to pre-digital age, there is a lot of literature on it.

Modern marketmakers look at price on other pair and exchanges, twitter feeds, real time orderbooks, news website, volume, velocity, historical records to adjust some parameters of probabilistic models and decide target price… I don’t think any custodian can do this reasonably well multiple time per day, manually.

[Nagalim]

if charlie updates his price semi-regularly (maybe once a week) he should do just fine

There are only two places to really get a concept of the price feed: bter and polo. Assuming the custodian is operating on one of those exchanges, a single pricefeed from a single market isnt going to help much.

End game, of course, is to use seeded auctions as the price feed.

[desrever]

Also true right now.

At this stage, beside the implementation (that can be discussed later), I am interested in what you think about the rationale, the source of funding for the walls, the choice of the pair, the benefits of it and the risks.

[Nagalim]

Nbt/nsr liquidity is our jam, for sure. My philosophy on the wall funding is ‘make it profitable and they will come’. Make a solid piece of software, get someone to start using it with small amounts and show how profitable it is and people will voluntarily start running the bot. Nu doesn’t pay anything but dev.

Ultimately, I’d love to see some T6 multisig action. In the event of a share dilution/nbt buyback, the signers need to get the nsr to market somehow. Find someone who will run the bot for say a month or two and eventually get more and more aggressive with their manual price points until they sold all their nsr, then they burn the nbt. In the meantime, they will be providing dual side support at a huge spread (like 10%) to motivate a liquid market.

[cryptog]

NSR market is illiquid because there is only a thin supply (most shareholders do not want to sell at a low price) and because Nu has not been providing real dividends for almost a year (from nbt sales proceeds), which does not create a high valuation?

Edit: typos

[desrever]

That could be one of the reasons which are included in draft

NuShare markets are very illiquid for multiple reasons.

Now, do you think that automatic liquidity provision can help making it more liquid, regardless of the root cause?

[desrever]

Oh, and some very similar reasoning can get for the BKS/NBT pair …

[dysconnect]

I don’t know how I could contribute to this discussion; most likely whatever non-evil motion you end up hashing I’ll vote for it. As you’re going to be looking for developers I guess I should spend some time studying the code, which also helps me knowing what would really be needed.

[cryptog]

I am wondering. What is the main idea behind this?
In other words, what makes it solve the problem on a theoretical level in the first place?
Sorry for the basic question.

[Nagalim]

We want people to market make NSR. If we develop opensource market making software we may be able to decentralize the whole whaling thing. We can also tie it in nicely with how we create and distribute NSR and NBT via custodial grants.

[crypto_coiner]

Nbt/nsr liquidity is our jam, for sure. My philosophy on the wall funding is ‘make it profitable and they will come’. Make a solid piece of software, get someone to start using it with small amounts and show how profitable it is and people will voluntarily start running the bot. Nu doesn’t pay anything but dev.

This is crucial indeed and of the highest priority

[desrever]

Bump!

NSR buybacks will not last forever, and we should start working now, before buybacks end, to start designing and lay down a liquidity strategy that makes NSR markets interesting.

Time is now…

[masterOfDisaster]

You are right. Sorry, this one slipped off my radar, although it’s veeeery important…
Just like you said - buybacks can’t (or rather shouldn’t - even if more and more BTC hit the T4 buy side!) last forever.
Let me digest it and provide you with my feedback.

[dysconnect]

OPRS10.pdf

Asking as a novice, does this look reasonable to you?

[desrever]

I skimmed through abstract and conclusions to understand if that is something we can use. The paper is theoretical and at least 4years old. They wrote …

We plan to experiment with our liquidity-sensitive market
maker with real traders to see how they react and how the
market performs. 

Now and I am very curious to read a follow up study with a real case scenario and implementation. If by any chance you can find anything, that would be useful.

[Mark]

@desrever, please look at this:
http://cdetr.io/smart-markets/

cdetrio/smart-markets

[desrever]

Thanks mark, will take a look, although it seems that smart-markets are directed to Stablecoins, and NSR is not one of them.

[cryptog]

"The hedging strategy that we describe is similar to some monetary policy schemes in that a sort of “central bank” performs open market operations.[37] Possible open market operations for a stablecoin mechanism include conducting “burn auctions” or setting interest rates on deposits"
It sounds like Nu but no mention of nubits.
There is one mention of schillingcoin.
The paper was published in jul.
At that time, nubits was already the most successful stable coin.
Why don t they mention nubits?
Generally papers do not mention nubits.
Is it taboo to talk about Nu?