Draft: Proposal to continue LPC operation on Poloniex for 60 days

[henry]

Hello, everyone.

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:

Proposal for NBT/BTC dual-side liquidity provider on next NBT exchange

Hello, everyone. I am from peercoin community. I feel little bit disappointed about peercoin community's conservative attitude and slowness of action. I am excited to read @Sabreiib and @Benjamin 's post about how to improve Nu, I think we are close to real solution now. @JordanLee 's post also imply that he is open to suggestions and will act quickly. I am so confident about Nu's future. I am not a technical guy who can code, but I can provide LPC service. So I just copied @desrever 's…

In exchange for this service, I demand 4000 NBT as a reward, which represents the monthly interest rate is 10%.

Thank you.

Update: I will reevaluate my proposal.

[Cybnate]

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.

[henry]

Informaion updated. Thanks

[mhps]

The last completed custodian operation on Poloniex ran 30 days and saw ~70 BTC volume concentrated in only ~10 trades in total. Your current LPC operation on Poloniex started on Jan 24, one month after the vote passed, unharmed by the BTC price crash. How much liquidity has it provided so far? Do you plan to hege your exposure to BTC ?

[cryptog]

I would consider voting if the reward is transferred after the mission is completed.

[JordanLee]

I would prefer to see this proposal modified in two ways:

1. Ask that compensation be received after services are rendered similar to what @muchogusto has done.
2. 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.

[mhps]

To maximize the utility of your liquidity, you need to keep it balanced.

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.

[JordanLee]

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.

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.

[cryptog]

LPC by using OKCoin or Bitfinex

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.

[mhps]

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.

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.

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.

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).

[cryptog]

LPCs by taking over the risk until hedging is proven reliable and easy.

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…

[mhps]

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).

[cryptog]

Most customers want to use Nubits only when there is price volatility

I noticed that the volume of trade of nubits was getting also higher when there is positive volatility (btc going up).

It’s Nu that loses money because the cost is passed via custodian fees

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.

[mhps]

Why not forcing the custodians to give back to Nu the spread profit?

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.

This expense can be regarded as a marketing expense

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.

[cryptog]

they make from spread and how much they lose from exchange rate fluctuations.

I see. We should pass a motion to include this monitoring functionality inside NuBot then if it is not already in the plan, I am feeling.

[henry]

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.