This depends on how you define or interpret T2.
T2 funds might be interpreted as fund being on the order book, but outside the spread for which compensation is paid.
Liquidity providers who do that forfeit compensation of those funds, but get them traded for a nice uplift if they can sell them in times in which the T1 funds (the ones inside the defined max. spread)are temporarily depleted.
NuBot supports a parametric order book.
The funds on T1 can be limited, the rest of the funds is put in orders at more expensive exchange rates.
This is the supported and intended operation model of NuBot, because it decreases the risk for LPs to fall victim to hedging with a lot of money, leading to decreased costs and cheaper liquidity operations.
If I understand the operation of NuBot correctly, funds on the closest spread (T1) don’t get replaced if consumed by matched orders, until the price moves and the oders get cancelled and placed anew.
If the BTC price swings in any direction, the amount of funds that can be traded in a short period of time for a close spread is limited. Hedgers might choose to pay a premium for trading beyond T1 or need to wait until the price moves to find T1 funds again.
I hear what you say. I fully agree to the function of T3.2. But I’d explain it in a slightly different way.
T3 sell side (T3 buy side has millions of BTC ready ) custodians hold NBT that are their property.
They verify that they hold the NBT and pledge to use them for T1 (and T2) operations.
They get compensated for having NBT “locked” (pledged to liquidity operations).
This compensation is lower than T1-2 compensation, because no exchange default risk applies, but needs to be big enough to make people hold the NBT.
I’ve thought some time about the accounting of the compensation.
I still believe that one of the easiest ways to do that is to make this via custodial grants by people who run NuBots.
The T1-2 funds get reported by NuBot.
T3 funds can be read on the block chain.
The total of T1-3 is more or less constant and only prone to BTC volatility when being traded hence and forth.
The incentive for the custodians to move funds from T3 to T1 is the increased compensation for a sell wall that has run low. This of course works even better with the fixed compensation scheme, because it amplifies the compensation effect of providing liquidity in low walls. With fixed rate it only provides an increased incentive, if the side drops below the compensation threshold.
FLOT is only doing business with these custodians, but not with random people.
That limits the involvement of the FLOT in liquidity operations and ties T4 to T3.
Plus it can allow (by NSR holder vote, depending on the terms of the custodial grants) to have the FLOT send NBT before they received BTC from the custodian. This speeds up the refilling of T3 in case the funds run really low there.
It might not play a big role, but can make the difference between the FLOT doing business with T3 and the FLOT beind required to use NBT entry gateways to directly inject NBT in T1 - which requires to have such a gateway at the exchange with the low sell side!
T3 custodians should trade with each other to balance sides on different exchanges as long as the overall T1(-3) sides are balanced.
The easiest way to do that is by transferring funds to another exchange and trade there.
If on one exchange there is demand for NBT, while another has sufficient NBT or NBT in excess, send BTC there, trade them for NBT and send the NBT back to where they are low.
T4/FLOT would only be involved if one side is overall low or in emergencies.