There are many facets to this issue, one of them being the cost-efficiency of NuLagoon itself. But to directly answer your question, why should we wait until there’s an immediate need before trying to rebalance? The gap that was observed was not a trivial one, even though it did not signal a true emergency.
You assume that there’s always somebody able to constantly monitor the situation, react prompty and then lead to a fully signed transaction that will be confirmed within the appropriate time frame to deal with an imminent threat to the peg. This is not the case, and it is evident that fast response in T1 depends on the availability of funds of each individual LP/custodian, and FLOT spends more time worrying whether it’s nagalim or zoro or you who would next wake up for us to send funds to, and then worrying who will be the next person to sign. The reason is that, in a stable state, we individually focus on the type of imbalance that is of the main concern of our own roles, and when a particular party needs help they communicate.
When facing a truly urgent situation, what I’ve seen is that we end up having to scratch our heads on the most effective way to deal with it. Something like this: Oh liquidity is now 30%, oh but it swung back up to 40%, shall we sign this transaction? NuLagoon is dry, henry’s sleeping. Now lets see if zoro is there to get his NuBot working, but hey woodstockmerkle isn’t online yet, he’s should be waking up in 2 hours to sign this. k jooize is up GOSH WHEN WILL IT CONFIRM and then it takes another hour to end up in Polo.
Now as I’m writing this, there’s a 10k gap in T1, despite a heavy load of sell-side in NuLagoon Tube. It’s still not perfect, but if he hadn’t sent in the 15k we’d be doing the above right now, Without watching out for rainy days, we end up doing that more often; now we can afford more time to think and plan. For a while I found myself spending more time checking the next person to come online than actually thinking about the network. This is why it was also suggested that a regular balancing of custodian funds can be a good thing, and is the approach taken by nagalim. By more lenient terms of somewhat regular re-balancing we’d even be putting less pressure on T1 custodians, so it’s not just sweeping problems under the rug to save time for FLOT members.
Furthermore, with NuLagoon Tube’s pledge to waive fees and spreads for known LPs, it becomes a very good venue for NuBot custodians to balance their own liquidity. I have yet to confirm a working example for T1 custodians, but I anticipate that under an imminent threat some people will try it with some good volume. A healthy balance of NuLagoon Tube will actually reduce the need for direct FLOT interference in these situations. I appreciate that you signed the transaction promptly even under doubt, but the timing that I proposed the transaction at least would not have allowed a small debate to endanger the peg.
Assuming this workflow, more diligent balancing becomes possible; although this concentrates a lot of trust on NuLagoon, it is little more than what we’ve assumed from the first time we pay them for liquidity provision. This is indeed something to watch out for, as is the issue of how much responsibility NuLagoon is supposed to take, and more discussion and concern on this are definitely welcome.
Just some notes on what might be improved next:
- More transparency in the working hours of NuLagoon, and make sure there is good availability for it to put funds in Polo. For the 5000 NBT we pay for the liquidity. Cost cutting and deepening liquidity is a constant concern that I have no intention to refute.
- More eyes on T1 - while I’m not comfortable being a NuBot custodian I can consider a pure sell-side gateway. It’s still less than ideal that it messes up the accounting in my personal account on Polo, but not as much as a dual-side gateway would.
- I am still not comfortable with the idea of x NBT spread across exchanges. Though I’m settling down on 5k at 1% spread and 5k more at smaller spreads on Polo. To bridge the current gap in automation, it would be a good idea to put something like the Tube as a layer of abstraction between T1 and T4, so we let some part of T1 balance themselves via the Tube and them we balance the latter.
