[Draft] Liquidity provision on low volume pairs

NuShares Motions
#1

The liquidity pools borrow many parameters from each other in an attempt to create a consensus on what liquidity costs. However, it is quite clear that liquidity provision on one exchange may come at a very different price than liquidity provision on an alternate exchange. Therefore, I would like to make clear what direction shareholders wish liquidity pool providers to go in.

Option 1: Medium Peg
Fix both the rate and the spread at the same values as on high volume pairs. Have the targets grow to avoid being full. Basically, just force the same parameters on all pools despite differences between exchanges and let the dutch auction mechanism sort it out.

Option 2: High Peg
When volume is low on an nbt pair, little money can be earned from the spread. Therefore, a strict spread is kept on low volume exchanges to attain a spread-after-fees of 0%. In return for such a high quality peg, provider rates are kept high. Since the volume on that pair is low, targets can also be kept low. Therefore, even though rates are higher, the total cost per month of that pair is mostly negligible.

Option 3: Low Peg
When volume is low on an nbt pair, the peg quality can suffer because that pair is less representative of Nu. Therefore, a loose spread is chosen such that provision rate is held constant amongst different pools. Target can still be kept low due to the low pair volume. The end result is that the liquidity providers pay less for low volume pegs and the quality of those pegs suffers.

In the last 2 options, the target is kept lower than on high volume pairs. As the pool operator cost is still similar (there is a threshold effect for setting up a server) the operator cost on low volume pairs should be a higher percentage of the provided liquidity than on high volume pairs.

I intend on drafting these three options into motions to see if we can attain consensus on one or the other. Does anyone have other options to propose?

These motions would supersede the regulation specified in this motion: [Passed] Motion to regulate spread values for liquidity operations

2 Likes
The BKC fee and Nu
Now is the time for deflation in liquidity costs to begin
[Passed] NuPond 4
#2

Motion RIPEMD160 hash: tbc

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A need has arisen for guidance of trusted network liquidity pool operators providing service on low volume NBT markets beyond that provided by the motion 0ec0be7f113a0bf6ff603545a974cd6410458e00. Acting as a tool in a box of viable, shareholder approved strategies, this motion is intended to provide a declarable philosophy that supercedes the spread regulation motion in pertinent NBT markets. The method spelled out is to be called upon as a guideline for the conversation between the liquidity pool operator and the shareholders when proposing a grant.

A Moderate Quality Peg
The intent proposed here is to keep a peg of moderate quality on low volume NBT pairs while still maintaining both competition and fiscal prudence in relation to liquidity provision on pairs of similar type (i.e. BTC or Fiat).

Liquidity provision (LP) across pairs of similar type should maintain similar parameters with regards to LP reward rate and market spread. To account for the variation in risk and volume among different exchanges, the LP target will be used as the variable of interest. A liquidity pool should never support a target of less than 500 NBT total liquidity and should increase target term by term as long as that target is being consistently reached. The operator should be awarded a consistent % of the total liquidity target. Once the pool has reached a target of 5,000 NBT total liquidity the guidelines set out by this motion are no longer relevant.

It is incumbent upon the shareholders to identify the situation where a pool is accumulating large amounts of liquidity provision while simultaneously maintaining little or no trade volume. This scenario is outside the scope of this motion and should be understood as a special circumstance. The philosophy espoused by this motion is that if we build it they will come and if it’s crowded they’ll spread out.

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Motion RIPEMD160 hash: **tbc**

=##=##=##=##=##=## Motion hash starts with this line ##=##=##=##=##=##=

A need has arisen for guidance of trusted network liquidity pool operators providing service on low volume NBT markets beyond that provided by the motion 0ec0be7f113a0bf6ff603545a974cd6410458e00. Acting as a tool in a box of viable, shareholder approved strategies, this motion is intended to provide a declarable philosophy that supercedes the spread regulation motion in pertinent NBT markets. The method spelled out is to be called upon as a guideline for the conversation between the liquidity pool operator and the shareholders when proposing a grant.

A High Quality Peg
The intent proposed here is to keep a peg of high quality on low volume NBT pairs while still maintaining both competition and fiscal prudence in relation to liquidity provision on pairs of similar type (i.e. BTC or Fiat).

Liquidity provision (LP) on low volume pairs is fundamentally different from that on high volume exchanges. Spread after fees is minimally relevant on such a pair and so should be minimized as close to 0% as possible. As low volume pairs tend to have additional exchange risk associated with them and this type of LP is of a higher quality than normal, the provision rates are expected to be high.

To maintain fiscal prudence, the target on such a pair is limited to 5,000 NBT total. As target is consistently filled, the pool operator is expected to lower the provision rates until they are consistently in equilibrium with other pools of similar pair type. Once that goal is attained, the pool has advanced outside the scope of this motion.

The operator fee should be inversely related to the LP rate, such that the fee increases as the rate decreases. It is incumbent upon the shareholders to hold an operator accountable for an unfilled pool, as the pool is being well funded with the goal of a filled pool. The philosophy espoused by this motion is that a big bang opening will get people interested and once they are set up they will willingly stay for longer, even if the rates go down.

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Motion RIPEMD160 hash: **tbc**

=##=##=##=##=##=## Motion hash starts with this line ##=##=##=##=##=##=

A need has arisen for guidance of trusted network liquidity pool operators providing service on low volume NBT markets beyond that provided by the motion 0ec0be7f113a0bf6ff603545a974cd6410458e00. Acting as a tool in a box of viable, shareholder approved strategies, this motion is intended to provide a declarable philosophy that supercedes the spread regulation motion in pertinent NBT markets. The method spelled out is to be called upon as a guideline for the conversation between the liquidity pool operator and the shareholders when proposing a grant.

A Low Quality Peg
The intent proposed here is to keep a peg of low quality on low volume NBT pairs while still maintaining competition in relation to liquidity provision on pairs of similar type (i.e. BTC or Fiat).

A low volume pair does not speak for Nu the way a high volume pair does. In that case, out of extreme fiscal prudence, we should simply not fund them as well. The best way to accomplish this is to reward a very large spread after fees. A pair of similar type with higher volume can afford to tighten the peg and award a low rate, but on a low volume pair the spread should be let go in order to keep a competitive liquidity provision (LP) reward rate.

To maintain the strain of fiscal prudence, the target on such a pair is limited to 5,000 NBT total or less. As target is consistently filled, the pool operator is expected to raise target up to the full 5,000 NBT first, then lower the spread after fees until they are consistently in equilibrium with other pools of similar pair type. Once that goal is attained, the pool has advanced outside the scope of this motion.

The operator fee should be inversely related to the spread after fees, such that the fee increases as the spread decreases. It is incumbent upon shareholders to demand a low operator fee for a poorly filled pool. The philosophy espoused by this motion is that anyone on the order book is our friend and we can get them interested if we let them keep a large spread while they provide liquidity.

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The 5,000 NBT figure is now united across motions. This number is the level at which pools are expected to operate at similar rate and spread as other pools before they are considered no longer fledgling.

#3

I don’t feel I clearly understand some of the points.

Why is the pool not full having/increasing these risks?

Aren’t all pairs nbt pairs?

Why do we need to regulate on this level? I think defining a clearly understood set of terminologies and gauges is important. But I don’t see the need to define one and only one definition of quality (some people think tight spread is high quality, some think high available liquidity and volume is), not to say to enforce it on all exchanges.

Let one hundred pools with different philosophies bloom.

#4

Two of these methods have a small target that’s always full while the other option has a target designed to never be full. That means that option 1 has a bigger standing reserve than the other two.

We could just let people do whatever, but I have felt like the community wants me to do three different things simultaneously as a pool operator and I was hoping to come to some kind of consensus. I’ve found that people try to impose all three philosophies at the same time.

The idea here is that on a low volume pair the peg quality is not determined by the target as much as it is the spread. Anyway, all three options tend to end up with similar levels of liquidity (~2 kNBT), it’s the rate and spread that tends to be very different.

What I’m trying to say is that these three options are mutually exclusive and it would be beneficial if the community picked one and went with it. Otherwise, the shareholders end up demanding an operator satisfy all three mutually exclusive philosophies, which is indeed impossible.

For example, option 2 is expected to have pools that are always full. However, option 1 and 3 have no such expectation. How can a shareholder know whether or not to hold a pool operator accountable for a low pool filling if the philosophy is not clear? Better yet, how’s the pool operator supposed to know what’s expected of them?

#5

I have edited the intro to each motion such that they play more nicely with each other should more than one be accepted. I strongly urge shareholders to not vote for all 3 simply because ‘why not?’, but instead to only vote for the strategies that you actually think are viable and you actually would like to see applied.

In experimental science, when a problem has been identified as having multiple tunable parameters, it is often the best practice to fix other parameters at some practical value and tune just one to find local minima and other features. That is the strategy employed in these three grants. There are 3 parameters (Target, Rate, Spread) and therefore 3 different strategies.

If anyone can think of an elegant strategy that uses some combination of multiple parameters and can explain it such that the shareholders know what a successful pool and an unsuccessful pool looks like, please speak up. We can always implement additional strategies for the toolbox later, as well as refine those already in there.

Do note: these strategies are all better when all low target pools are operating under a common strategy. Therefore, it is vastly better to keep the number of shareholder approved strategies low, if not always singular.

1 Like
#6

Do I need to make these motions NuPond specific? I was hoping to formulate a general approach, but ultimately the reason I am pushing this forward is because of the controversy surrounding NuPond’s spreads. NuPond has adhered to the spreads spelt out in the motion to regulate pool spreads, yet that has caused some contention and shareholders have even gone so far as to say they won’t vote for a proposal that is in compliance with the previously passed motion. This is convoluted to me and has caused me a great deal of confusion about what I’m expected to do by shareholders. These three motions are my attempt at a solution.

If nothing is done about this before the next NuPond term, shareholders should not be surprised when NuPond refuses to go out of compliance with the motion that is currently written in the blockchain.

#7

I’d be fine to follow such guidance with NuRiver if/when it gets approved.

1 Like
#8

Great! Yes, guidance is all this is, it is a toolkit for beginning liquidity providers and those on struggling exchanges. Take, for example, option 1: this would be a great strategy for all low volume pairs, as it simply says to do what everyone else does. However, the other options have advantages too and they somewhat undermine each other to one degree or another. It really is something that needs to be voted on in my opinion.

A pool does not need to comply with any of these strategies, but this makes it clear (at least in my opinon) that those operators should be aware of what they are doing and that they are a special case.

#9

You are alluding to [Passed] Motion to regulate spread values for liquidity operations , I suppose.

#10

Yes, I refer to that motion directly in all three drafts as 0ec0be7f113a0bf6ff603545a974cd6410458e00 and I link it in the OP.

1 Like
#11

I believe most shareholders that follow the forum’s threads do not understand this draft, including myself :frowning: