This is a proposal to continue my operation of providing dual-side liquidity for the BTC/NBT
pair on the poloniex exchange.
Address : xxxxx
Amount : xxxx NBT
If elected, I will extend my LPC operation on poloniex exchange for 60 days. Nothing else in my previous proposal will be changed, no fund will be withdrew or added from the operation.
Previous proposal:
In exchange for this service, I demand 4000 NBT as a reward, which represents the monthly interest rate is 10%.
Given that this is not a draft, I think I’m missing some key information. E.g. the amounts at play (liquidity offered) and a signature on the proposal, especially given the fact you already made a change to it removing some information.
4000NBT in advance is a very high reward, especially on a relatively low-volume exchange. I would expect about 30-40k liquidity provided for that instead of the implied 20k. The 60 days time frame is a positive.
For the reasons provided above I’m holding off adding this proposal to my datafeed.
I would prefer to see this proposal modified in two ways:
Ask that compensation be received after services are rendered similar to what @muchogusto has done.
Pledge to balance your liquidity in a specific manner. At the moment there is only 208 buy side liquidity on the pair you are managing, while there is 21,000 sell side. This destroys half the utility as no one can exit an NBT position using your liquidity (they can only enter NBT). To maximize the utility of your liquidity, you need to keep it balanced. A reasonable approach might be to pledge that each side will not fall below 25% of the total liquidity for a period of more than 24 hours. So, once a day, you check the balance. If either side has less than 25%, you balance it using liquidity offered by another LPC. Eventually, I expect people will take on the specialized role of balancing liquidity. Once that occurs, you could subcontract someone to balance your liquidity.
Then the problem with exposure to BTC price has to be addressed because when the LPC rebalances in a bear market he/she effectively is taking losses. The LPC might consider capping losses according to the fee being asked for, which should to be told to the shareholders in the grant proposal because it effectively takes fund off the walls.
Exposure to BTC price can be effectively separated from being an LPC by using OKCoin or Bitfinex to acquire a short Bitcoin position to hedge the long position. It is quite simple to address if an LPC wishes to. Some may wish to speculate with a long position. Either way, shareholders and NuBit holders are unaffected, as any losses or gains belong to the LPC.
Balancing is not related to the pricing of BTC, so I don’t agree that it imposes a loss. There are many variables at play.
So far it seems that no LPCs have hedged their NBT/BTC buy support positions by buying some put options or using a similar strategy at OKCoin or Bitfinex.
It would be great to have a first example.
Well there is a reason why no LPC has started to do it I guess. I try to think in the shoes of an LPC … as I don’t know how to do it because I never tried leveraged trades on cryptoexchanges, I’d had to learn it. If not done right it’s a false sense of security. So I need to make sure I really know what I am doing before applying to LPC operations. It is not simple.
That is why I think maybe Nu should remove some of the burden of price exposure and path-finding from the LPCs by taking over the risk until hedging is proven reliable and easy.
The scenario I think will prevail is that when BTC price falls a lot of NBT are bought and the NBT/BTC LPC has no NBT and all BTC. If the LPC rebalances she/he has to buy some NBT back at a higher price (denominated in BTC). If BTC price keeps going down that is OK. People will buy those NBT at the same or higher prices. But if BTC price goes up, these NBT will not appreciate. Loss is made.
The same is true if the BTC price goes the other way around (up then down).
Right. That could be a possibility.
Right now the solution adopted is to reduce the thickness of the liquidity provided at Tiers 1, it seems.
Another solution is to increase the NBT/USD liquidity hoping traders will start using it.
If the vast majority of the liquidity was on NBT/USD, traders would have to use it somehow…
You have a point there. NBT/USD is perhaps not going to be the main stage where the action is, however. Right now Nu’s expansion strategy hinges on direct trading with cryptos. We need to find a way out of the dilemma : Most customers want to use Nubits only when there is price volatility; But when there is price volatility LPCs tend to lose money, even there is no long term price trends ( It’s Nu that loses money because the cost is passed via custodian fees).
I noticed that the volume of trade of nubits was getting also higher when there is positive volatility (btc going up).
It is true that right now Nu is getting no revenues from the actual trades.
Why not forcing the custodians to give back to Nu the spread profit?
It seems that currently the custodians can put any spread and pocket the profit and I am surprised that it seems that no custodians have tried to do it.
About the fact that Nu is losing money each time there is a new custodian…
This expense can be regarded as a marketing expense to spread the word about the peg or as an investment in the future; the aimed return of investment being a high trade volume of nbts to stimulate the demand for nubits so that the sales of nubits can be increased and thus the yielded dividends from them
But as mentioned here we need to find other revenues sources rapidly, I believe.
I don’t know what the report nubots generate now look like but I am not surprised if the LPCs themselves cannot really tell how much they make from spread and how much they lose from exchange rate fluctuations.
Yes that is what I said back in October. However there should be metric and reviews of how this marketing is doing. Sometimes I got the feeling that we might do better by giving free Nubits away.
I will change this proposal into a proposal to create and run a Nubits liquidity group pool.
The main idea is to run this pool in a way similar to an open-end fund. I will calculate and publish NAV every working day. Participant can deposit into and withdraw from the pool every working day. Custodian fee will be calculated in daily basis. I will propose an action to let shareholders promise grant custodian fee every month.