FLOT BTC Operations (buy side)

Liquidity
#52

I feel we as a business should not pass up such an opportunity, this could be and should be great for Nubits. I do feel it’s wise to ask them why they require a large amount, if they want it for hedging then it’s very likely they might soon sell it back to us. We can ask them if they would be willing to sell it back to us directly instead of dumping it on an exchange, and if they rather sell them on an exchange inquire which one they would use so we can increase tier 1 buy side liquidity on that specific exchange.

My vote would be to do so with a spread slightly bigger than our liquidity provision currently does so the “emergency” backup liquidity that we put out is only used for huge dumps of Nubits. They way we could bring this liquidity to the exchanges would probably be some sort of gateway similar to what @masterOfDisaster is setting up for the sell side.

#53

I agree that it sounds intriguing. As much as I’d like seeing Nu go viral, I need to raise a warning:
as long as Nu is mainly used for hedging BTC volatility AND has no deep NSR liquidity, selling an unlimited number of NBT can be dangerous.
I don’t say 50,000 NBT is too much. I don’t know the exact number. But I know that there’s a number which is too much.

Example:
Nu sells 1,000,000 NBT today. Tomorrow BTC drops 20% in price. The buyer wants to sell the 1,000,000 NBT for BTC. The value of T4 buy side (I ignore the BTC that have been there before to keep it simple) dropped by 20%. 200,000 USD value are lost by BTC volatility. Nu needs to sell NSR to retrieve BTC worth 200,000 USD.
The daytrader is happy.

As long as Nu doesn’t have the capability to store a big amount of value in a short period of time internally it remains dangerous for Nu to sell big amounts of NBT, especially in a short period of time.
Mitigating that requires e.g. NSR buybacks that don’t push the NSR price because of the tremendous NSR market depth and daily trading volume of tens of thousands of USD.

I have set up one for buy side as well anticipating the need for that :wink:

1 Like
#54

50,000 is still a long way off from 1 mil at once though. But I do second your concerns I think looking for ways to protect ourselves from BTC volatility are very important. We need some sort of hedging instrument although I’m not sure what would be suited for this yet.

#55

That is what I have been thinking. Maybe NSR futures?

#56

We’ll have to keep an eye out, futures could be a solution but also holding USD at trusted exchanges instead of BTC could be an option to partially hedge some funds.

#57

I know where this might end, but I need repeat this proposal anyway:
Nu could consider selling NBT for NSR instead of selling solely for BTC - especially if somebody wants to buy big amounts directly from Nu!

This might be a rather philosophical topic, but I dare say that Nu can’t survive if it doesn’t evolve beyond being a hedging instrument. I say so, because Nu’s costs for providing liquidity are several orders of magnitude bigger than the earnings from fees associated with the hedging.
But if Nu can use the (temporary) revenue from selling NBT (even if they are intended to be used for hedging BTC volatility) to bolster adoption beyond hedging, it’s worth a try.

Nu really needs more (efficient) marketing. Nu is great, but the world needs to know.
It’s so good that “The Daily Decrypt” is sponsored by Nu and BCE for some weeks!
Nu needs more…

For the record: the grant to operate NuBot on Poloniex as buy side gateway passed.
If the peg on Poloniex is in danger and BTC need to be brought to market, NuBot should do that automatically if funds are deposited at the Poloniex BTC deposit address.

I don’t feel good about the fact that the Poloniex deposit address can’t be changed by the account owner.
For that reason I’m going to send the deposit address only to FLOT members instead of posting it publicly.
It will only be available publicly if the gateway gets used and funds get sent there.
If everything pans out nicely, this will never be required.

1 Like
#58

https://alix.coinerella.com/walls/

Have I understood it correctly that we would send BTC to @zoro (for NBT?) and they would inject it to the 6519 NBT worth of BTC currently on the buy side at Poloniex?

In which case how much?

#59

It’s not very well agreed upon yet. One can propose a transaction but it might not receive enough signatures.

#60

I understand from @zoro’s post that he/she is willing to trade NBT for BTC to put the BTC on T1.

And this is where it gets tricky. There is no reliable historical information that I’m aware of and attempts to create a rule set for how many funds to trade in which case to achieve what goal have failed.
It seems that all relies on the discretion of the FLOT.
I don’t feel comfortable with T4 being the only layer that is able to trade NBT for BTC or vice versa (except for @JordanLee, but that only if the FLOT fails.), especially because FLOT only has one multisig address that requires 6 of 8 to execute transactions.
We must find ways to involve T3 in this process.
ALiX reports only T1 liquidity. The volume of T2+T3 (sell side) needs to be calculated by subtracting T1 from the total amount of circulating NBT.
As long as T1 is unbalanced and lacking BTC or NBT, but T2 and T3 still have sufficient BTC or NBT left, involving FLOT is the wrong measure.
T1 needs to be balanced with funds from T2 and T3.
Only if constant demand for funds from T2 and T3 that brings the overall liquidity of T1-3 out of balance, FLOT gets involved to fill the low side (T3) with funds from T4.
At the moment T2 and T3 are more or less decoupled from T1. That’s the reason for this thread:

The gateways I created to inject NBT or BTC into Poloniex T1 might send the wrong signal. This is not what the FLOT is designed to do - to interact with T1. I tried to explain it over and over: these gateways are for emergencies only and might save the peg if all else failed.
Even with a more agile FLOT subset that has 2 or 3 of 8 multisig addresses with only parts of the funds the FLOT is never agile enough to balance T1!
And to be honest: if that’s how the work of FLOT is interpreted by NSR holders, some of the FLOT members might rather sooner than later quit and some NSR holders might be dissatisfied with the performance of FLOT.

Please tell me what you think - I think it’s necessary to make NSR holders aware that the tiered liquidity model needs to be used to balance buy and sell side and that the FLOT is only used to balance uneven T1-T3 sides, ideally making deals with T3.

2 Likes
#61

Not totally. [Passed] Motion to regulate rules of fund management in NuLagoon requires auto rebalancing t1-3 for Nulagoon (@henry how much T1 buy side on poloniex is from NuLagoon). We only need to implement a similar way for ALPs. (The thread leading to the motion is alsoa good read)

1 Like
#62

You are right.
And it will get better with fixed compensation scheme.

The thing is: T3 buy side has potentially millions of BTC. Every BTC owner can move funds to a T1 operation. With ALP it requires not much to do that.

So the compensation of T1 buy side should be enough to have sufficient funds there, to incentivize people for putting up orders. At the moment the compensation scheme doesn’t favour putting funds on buy side if the buy side is low.
I think we should wait for the fixed compensation scheme to be widely supported, before we try to find solutions for a problem that I expect to be much less urgent with a different compensation model.
If fixed compensation works like expected, his doesn’t require involvement of any of the higher layers.

The sell side is something that needs more attention. The amount of NBT in circulation is limited and the USD value of NBT in circulation way below the USD vlaue of BTC in circulation.
But that rather belongs in the sell side FLOT thread or in fact even better in the T3 custodian thread

Current Liquidity
#64

I propose to sell to @zoro 15.8 BTC at a price of 0.00264722 BTC per NBT, which matches the lowest sell side order on Poloniex at the time of writing. The total sale proceeds will be 5968.53 NBT, rounded to 2 decimal places.

(Suppressed until some technical issues are dealt with)

Current Liquidity
[FLOT] I wish we had talked about that before
#65

Can you do the @zoro sale and the NSRbuyback txn in the same txn?

#66

Will give this a try. Tks for the pointer and explanation.

#67

FLOT should still do this, right?

Note: Jordan took care of that transaction.

I don’t know how to calculate that yet. Do you first look at the walls, and then…? If I’m to do this later I’ll need help learning how.

#68

We’ll sell NBT for about 1.003 to @zoro. 1.007 is the standard sell-side price based on the spread regulations. The 0.004 difference pays for volatility risk - about the same rate as Tier 1 interests, for the 36-48 hours of signing time. When @zoro indicates how many BTC he can buy, FLOT should prepare an unsigned transaction and calculate an NBT amount for @zoro to deposit. When FLOT confirms the deposit we should proceed to signing the transaction.

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#69

I have sent a pm to Jordan to perform an agreement. The 36-48 time frame is not convinient at all.
The liquidity situation could have been changed from the time i sent the NBT until i get the BTC. If we can have a time frame below 2 hours then i am ok to proceed.
It is much more convinient for NU and FLOT to use the sell/buy gateways of MoD but again the time frame is very very bad for this kind of operations!

#70

This is exactly the spread I suggest for T3 operations. Just give @zoro some credit and let him be his own T3 custodian at that spread. If he puts up collateral, even better, but we should be extending at least 2 kNBT buy and sell side to him. That would give a time of response that is literally as fast as he can sign his own Txn and get it through the blockchain of volume up to his credit. Then, T4 can take their sweet time (48 hours or whatever) to refill it.

#71

If you intend to just send the funds back to T1 the delay shouldn’t be a big problem - we still effectively pay you interest for the delay. Or put it another way, is there a price point at least 1.000 that you could accept for up to 36 hours of delay?

@nagalim I guess somewhere deep in my subconscious I adjusted the figures to fit yours, because 1.003 doesn’t match my arguments very exactly. NuPool’s rates are 0.24% per day so for 36 hours of delay there should be a 0.36% offset from the sell-side price. For 48 hours, the offset should be 0.48%. We may want to adjust for the lack of exchange default risk in the process, but on the other side of the coin we also need to consider the opportunity cost of the trader. The bottom line of the above considerations is that the offset (T1 sell side price minus T4 sale price) for a T1 LP on Polo should be less than 0.48%.

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#72

We can anticipate further needs to fund the NSR buybacks, and risk is lessening in the FLOT operations and the processes + toolkits.

For the FLOT members, can we adjust the consensus for FLOT to be responsible for 33% of the Nu BTC and request JordanLee transfer an additional amount to the MultiSig address?

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