A worse scenario is that NuBot is too slow to update a price change and this is caught by an arbitrage bot.
Say BTC/USD is currently 450. A sudden drop occurs in many other exchanges to 440, but NuBot has to be stuck at buying BTC with 450 NBT for 30 seconds. I dump 1 BTC for approx 450 NBT (minus fees), and wait for NuBot to change its price, and repurchase 1 BTC with approx 440 NBT. The liquidity provider lost money.
I’ve been seeing that walls are consumed more quickly than I can react (the reversed price display on Polo definitely doesn’t help) during large price changes, prompting me to consider an actual risk that this is done by some people in the wild.
Now that I think of it, this isn’t called arbitrage, but is a problem buried within the messy details of ALP.
That indeed is a problem of NuBot, because it bets before speculators. However, that problem is overcomed by NuLagoon Tube due to the completely different design. In tube, the trading price is determined after the “Tube-in” transaction captured by NuLagoon in the blockchain. In other words, we let speculators bet first and give them a fair price.
I don’t think anything in my RNA proposal was poorly disguised - it is quite obviously a default mechanism. Shareholders continue to ignore contingency planning for a scenario where 90% of NuBits demand evaporates overnight. Default preparations are not a standard part of our operations; it is an end-game plan to preserve the network. To avoid these preparations is irresponsible.
If there are 1,000,000 NBT worth of currency demand today, and only 100,000 NBT worth of currency demanded tomorrow after a permanent crisis event (such as a government declaring it will prosecute anyone who holds NBT), it doesn’t matter how tight we keep our spread. Some NBT users must lose USD value of their holdings.
My RNA proposal attempted to add a semblance of fairness by providing a differentiation mechanism to ensure those who are willing to pay the most to redeem their NBT do so. The alternative to RNA in my permanent crisis scenario is at least a temporary collapse in the peg, and possibly permanent if no speculators arrive to purchase NBT.
I wholeheartedly believe in tight spreads and high liquidity in regular operations, as there is no question it improves the value of NuShares. I also believe in having a plan for a disaster situation. My RNA proposal is still the only mechanism that would preserve a 1.00 USD peg for users (provided they wait until the emergency state is lifted, which could be days, weeks or months as available supply reduces to match demand) in the event of a complete demand collapse. It is a common mistake to confuse continuing operations with crisis planning, and nothing in this post addresses the second concept.
We would like to share our understanding of liquidity operation and what it means to NuBits
A stable decentralized currency should have enormous demand. We believe only the case that people want to transfer money freely and to hold liquid asset anonymously could generate thousands times of NuBits current circulation. Then, why we don’t see those demands come? Just simply because people don’t 100% believe they can cash out their NuBits for Dollars for any amount and any point of time.
A few month after NuBits launched, I began my role of liquidity provider with my own money. I remember I not only asked for a high compensation, but also raised a special request. I requested my money was less than 20% of the total LPC liquidity size. Because I didn’t really believe I can 100% get my money fully back in future. But if there are 10,000 in liquidity operation, I tend to think the chance to cash out my 2,000 NBT in short term is high. I guess there must be lots of people have similar ideas.
That leads to the conclusions we would like to draw:
The more liquidity the better confidence people will have on NuBits. If the daily trading volume is 10k, 100k fund on liquidity wall is NOT waste of money. For example, 80k fund on the Tube walls doesn’t have any trades in last three days, but we don’t treat it as a waste, we even want to add more fund into the walls if we have more. Because those money can just simply sit there to give critical confidence to people on their holding on NuBits. “Hey, we have plenty money to cash out your NuBits”
The guaranteed duration of liquidity is crucial. Although I can cash out 10k NuBits in the 100k liquidity wall easily today, I have no idea on what it will be in one month or in one year. I still not comfortable to store my money which needs to be spent in a few months in NuBits. Imagine if there are 1000 BTC are guaranteed to sell for NuBits at the price $1 for 1 month, 500 BTC guaranteed for 2 month, and 200 BTC guaranteed for 6 months. I will be very comfortable to hold 10k NuBits for 3 months, and it is high possible to hold another 3 months when I found NuBits is in a good liquidity shape in 3 months.
However, guaranteed duration is much more expensive than tight spread. Liquidity provider will ask for much higher compensation. The innovation in NuLagoon ETP(exchange-traded pool) is to address this issue. In ETP, there are two exit doors for pool investors, one is redemption, another one is to sell on exchanges. The latter one will become the most liquid one and major one when the exchange is established. If BearBTC/BullBTC is sold on exchanges, the buyers money will replace their share in ETP, leaving the size of money in ETP and the size of money in liquidity operation not changed. That is a significant value point, resulting we could extend the ETP’s close period while doesn’t negatively affect the liquidity in pool investors’ respective. Therefore we can reduce the cost for locking the funds in liquidity operation for a guaranteed period of time. This mechanism is original from exchange-traded close-end fund, which can lock a certain amount of fund for a few years while provide very good liquidity in exchanges. It is a very mature idea and already been proved work well.
I have seen several people on Reddit say that this is the reason they no longer use NuBits. They gave it a try, but liquidity wasn’t consistent and they had problems cashing out when they wanted to.
I’m only aware of one trader who said he couldn’t trade 2,000 NBT at Poloniex whenever he wanted to.
The average liquidity is much higher at Poloniex, except during price adjustments.
While I’m grateful for feedback, I don’t understand the nature of the complaint.
Who else complained about lack of liquidity and what order of magnitude of liquidity was expected from those who complained?
Even if traders can’t predict the market or use NuBot price adjustment delay to their benefit, liquidity costs increase, if more liquidity shall be provided.
Traders at exchanges don’t need to pay tx fees.
They provide no benefit for Nu.
It’s regular use of NBT for payments that needs to be fostered.
To trade some thousand USD worth of NBT there has always been enough liquidity at a quite tight spread.
But it didn’t allow a breakthrough of NBT.
This was not due to lack of liquidity.
How shall more liquidity fix that?
If gambling is a business…The “bankcrupt” probility is quite high.
Nu company is a pure gambler. As early as Sep. 2014, I asked David “what’s your profit model”. The answers never satisfiy me till now. Every NBT sold on market is our liability, because we promise it is worhty of 1$. NBT is Nu company’s bond(with zero interest rate).
The BTC proceed by selling NBT is Nu’s asset, if the backing asset devalues, the probility of insolvency goes up, if BTC price soars, we have a holiday, we can easily buy back NBT even promote the NSR price!
However, gambler is gambler, I have zero sense of safety on it.
BTW, It seems I shoud not say something bad on Nu anymore. All I can say is that when the gambling house(B&C) ready, welcome & good luck!
Why didn’t he use USDT instead?
Not withdrawing USDT should make it as convenient as using NBT.
I suppose he tried to profit from the delay between the BTC price moving and the NBT orders being moved.
What other explanation makes sense?
If my assumption is right, I don’t care about making that customer not 100% happy.
If there are several others in the same position, I care as much about them.
Not on a large scale I believe. That’s why I advocate for keeping the target on NuPool, but lowering ALPs spread to encourage trading within a certain bandwidth. 15k on NuPool is enough to play with. Higher amounts come at higher spreads/costs which the NuBots take care of. Once we have B&C we can increase targets as transactions will go directly into the blockchain and thus attract fees.
what? where this comes from?
Of course you should say what ever you are thinking about NU. This forum is not censoring
anyone that is why i love this community!
If decreasing spread increases profit, there’s no need to fund @muchogusto’s experiment, because he will make more gain by reducing the spread.
We should rather offer an insurance:
if @muchogusto makes a loss with the reduced spread, Nu covers that loss or even overcompensates that loss honoring the experiment in a financial way.
Absolutely.
However, as @PinkyAndTheBrain has pointed out, as per basic economics,
liquidity will not be provided if the provider does not feel correctly rewarded and incentivized.
IMHO, that means:
the guarantee to make money (statistically, that has not been proven I believe)
the right and easy tools (transitioning from manual monitoring to much more automation)
the visible and obvious market driven demand for nubits (public evangelism and marketing plays an important role here, a la ethereum team)