The following is the finalized version of the motion I am advancing to guide development of our liquidity operations. The motion hash you need to enter into your client to vote for it is:
Liquidity operations should have the following tiers. The first tier is available to the market immediately, but is at higher risk of loss than the other tiers. Subsequent tiers have the disadvantage of not being immediately available but feature a lower risk of loss (and therefore lower cost). Combining these tiers is an excellent way to provide deep liquidity while minimizing the cost (and risks) of providing that liquidity.
This liquidity is immediately available, being on the order book. Basically, the level of liquidity in a particular market should be matched but not exceeded by NuBot. The current practice of using the bid and ask at the top of the order book and offering a large sum of liquidity at this price exposes liquidity providers to loss. Consider the case of an NBT/PPC trading pair and let us assume for a moment that the BTC-e PPC/USD pair is the only PPC market for a moment for simiplicity. To prevent liquidity provider loss, the BTC-e PPC/USD order book must be mirrored on the NBT/PPC pair. Additionally, when an order is executed on the NBT/PPC pair an equivalent order execution on the BTC-e PPC/USD pair must be immediately effected by the liquidity provider. This way the trade on the NBT/PPC properly effects market pricing. It is still possible for a trader to consume the order books of the NBT/PPC and PPC/USD at the exact same moment, inflicting a loss on the liquidity provider. For this reason, liquidity provided in this first tier should be quite limited. How limited it should be can be determined by experience of whether this exploit is actually employed regularly.
While the example I’ve given only utilizes a single market, ideally NuBot would eventually pool the liquidity available on many exchanges to each NBT pair. It might be best to do using different liquidity providers for each real market (for example PPC/BTC and PPC/USD).
This liquidity sits on exchanges but is not placed on order books and can be promoted to the order book (Tier 1) in a couple seconds. When Tier 1 liquidity is consumed and it can be verified that the corresponding trade in the real market has been successfully executed, NuBot promotes funds in Tier 2 to Tier 1 by placing orders.
This tier is unavailable for a couple seconds but is not subject to what I will call the double fill exploit described in Tier 1.
This liquidity sits off exchange and is held by liquidity providers in wallets not exposed to counterparty risk or the risk of NuBot malfunction. It can be promoted to tier 2 when needed in minutes.
This liquidity can be provided by custodians not dedicated to liquidity operations. A present example are the proceeds of NuShare sales. They are intended for operational and development expenses, but can be used to support the critical function of liquidity provision as needed. When these funds are used for liquidity, they are exchanged from one type of asset to another, but are still available for their original purpose, such as development. These funds can be promoted to tier 3 in hours and the cost is exchange rate risk.
This liquidity presents itself in a decentralized manner from the manipulation of interest rates (park rates). This liquidity is generally buy side, although technically it can be sell side in the case of lowering interest rates. This liquidity is available in days and the cost takes the form of interest paid.
This liquidity takes the form of custodial grants for sell side and currency burning for buy side (presuming a currency burning motion is passed and implemented as appears likely). It takes a week or more to bring to market but has zero maintenance costs.
Outside of this tier structure there is a need for liquidity to be balanced between markets at times. I’m hoping someone will step up and offer this liquidity balancing service for compensation via custodial grant. Bear in mind that if you feel shareholders won’t trust you enough to give you funds up front, but you trust shareholders, then you should propose a motion that consists of a contract between you and shareholders for services and compensation. The motion could specify that shareholders are to pass your custodial grant after services are rendered.