Lack of commitment to liquidity is our biggest threat now

#38

The problem is many fold. but the crux is I think we’re losing ground to Tether because of a lack of a use/strong tie to fiat. If we had the absolute and quick fiat exchange, we wouldn’t need to pay for the BTC/NBT peg. It would create itself.

Cross post from Liquidity provider profitability experiment:

As I see NBT is loosing ground to Tether because polo fully integrates tether. In times of volatility NBT and Tether are used a lot by speculators. Without the volatility we see decreased use. Tether is on the rise because you can get to fiat readily through Bitfinex. NBT simply doesn’t have that - sorry to say but CCEDK doesn’t have the mass that Bitfiniex does.

NBT claims usability because it is tied to USD, but its hard to get there without easy fiat exchange. As it is tether is doing our job “better” because all the users are creating the peg without being paid.

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#39

I have long thought Nu should do that to all LPs. LPs bid on reward for providing balanced liquidity with own fund in a given accounting period, and Nu pays the lowest bidder such that the bidder takes away the the amount put in plus the reward at the end.

#40

Yes, we should worry about making traders and arbitrageurs perfectly happy using NuBits. They are the low hanging fruit in terms of NuBit adopters. We can provide them with something they really want right now, at the size that we are today. We could experience major growth merely from having 2 or 3 automated arbitrage operations use our product. All we need is liquidity and for them to be aware of us. They are actually likely to be aware of us because such people are closely connected to the blockchain space, so if can’t attract them it will be because of poor liquidity.

I would like to ask those that are suggesting traders and arbitrageurs are not the right market for us to articulate what they think our ideal market is at this point in time. I don’t see any type of customer that will be nearly as easy to please as traders and arbitrageurs. A claim that this isn’t the right market can’t really be intelligently evaluated without comparing it to what you think is the right market.

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[Voting] Proposal for granting NBT to NuLagoon to create exchange-traded pool A, sub-funds BearBTC, BullBTC and build-in exchange
#41

We have this on Bter already. I’d suggest it has a much smaller effect than you are implying.

#42

Nu is supporting this market for over one and a half years now.
Where has it brought Nu? How many - or should I say: how little - fees were destroyed supporting mainly on-exchange trades?
A claim that this is a low hanging fruit should turn no blind eye on the fact that this low hanging fruit might cost money.
How much can Nu afford?
How much does Nu want to afford?

Before we seriously consider to ramp up liquidity operations, we need to evaluate the costs for doing so. After one and a half years we still have no reliable data. ALPv2 is brand new and no one knows whether it really can fix the (economical) defects of the previous pool scheme.
If you start ramping up the operation, you either need to be sure that ALPv2 is reliable or you need a reliable backup.
We don’t have a big enough reserve to provide NuBots with Nu funds if the liquidity operation would be scaled up big time now.
How else shall we support the peg if ALPv2 fails and the Nu funded bots don’t have sufficient funds?
That’d leave only NuLagoon.

@muchogusto already made an offer to allow gathering data at Poloniex and I did the same albeit on a different way for hitBTC.
Better fo that kind of homework before bringing the peg towards the brink of an abyss.

One target market for using Nu products should be payments. Payments cause transactions on blockchain. They destroy fees. That generates permanent revenue.
NuDroid is very well suited to support that.
It hasn’t taken off.
Maybe we should try to find out why and work around that?

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#43

During the last year and a half there has been a great deal of variation in the quality of the liquidity that been offered. It isn’t as though liquidity has been good the whole time and it hasn’t worked. In the first months of operation when KTm and jmiller were providing huge amounts of liquidity at a tight spread we enjoyed very high trading volumes, fast growth and an exploding share price. The NuShare price was highest toward the end of the period where the highest quality liquidity was offered (January and February 2015). We needed to switch to decentralised liquidity without counterparty and this transition had the unfortunate consequence of lowering liquidity.

In March of 2016 liquidity quality saw another major drop. Unsurprisingly, we saw NuBit demand and trading volumes decline in lock step.

Inconsistent or poor quality liquidity is very harmful to NuBit adoption. We can’t tolerate that and grow.

The kind of liquidity I think we need at this point is a significant expense, but it is not a huge expense. I suspect it will result in the additional NuBit adoption we need to keep growing and prospering.

Specifically, I would like to see the Poloniex target at 30,000 and all shareholder funded liquidity offered at a maximum spread of 1%. Muchogusto’s operation needs to be properly supported, although the form that support should take is a reasonable topic of discussion. I expect these changes will cost less than 3000 NBT per month while bringing dramatic improvements in the quality of our product. I can’t think of any investment more likely to bring a good return on investment.

With these changes we will have ~ 70,000 in liquidity at a 0.1% spread at NuLagoon Tube, 20,000 in liquidity at Poloniex at a spread of 0.5% with tens of thousands additional gateway liquidity offered at a 1% spread. We will also have small operations at several other exchanges. It is a strong offering that is likely to result in the adoption we need from traders and arbitrageurs.

When considering budgets please bear in mind spending on core development for NuBits has been less than half the 10,000 NBT target per month in recent months.

It appears there is a strong correlation between share price and the quality of liquidity, as it should be. The reputation of NuBits has been somewhat tarnished by our poor liquidity offering of late, so what is needed is to quickly turn this around and provide convincing evidence high quality liquidity will be maintained for a very long time. I would expect it will take some time to gain new customers and new confidence after chasing some of them away with poor liquidity.

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(2nd Version - Expanded) My Interpretation of Jordan Lee's Liquidity Engine Model & Why its First Attempt at Pegging Failed
#44

Just for brain-storming. It seems there is an alternative way to ramp up liquidity operation at small cost. Deposit shareholders money into NuLagoon Pools. Instead pay more, that will earn part of 150nbt/day custodian fee back to shareholders. This bring counterpart risk back, but risk is smaller than in KTM’s operation. Exchange default risk is shared by total funds. NuLagoon default risk is low if the value of NuLagoon contract exceeed the amount shareholders deposit.

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#45

I’ve agreed with @JordanLee’s intermediary currency strategy since he first presented it. The cryptocurrency market is mainly made up of trading and speculation with payments being only a very small part of that market. The fact that the payment side of the market is so small is most likely due to the fact that most cryptocurrencies like Bitcoin are volatile in price.

But we can’t simply turn the payment market around and significantly increase its size just by introducing NuBits as a stable crypto. Our network is too small and we don’t have the necessary liquidity, reputation and trust level in order to significantly impact the size of this market. Refocusing our attention on such a tiny market and reducing liquidity may likely mean the end of Nu.

I see the crypto payment market as our long-term goal and Jordan’s strategy as our only chance of reaching it. As Jordan said, the time we were providing our highest quality liquidity was the same time the value of NuShares and the usage of NuBits were at their highest level, $3-4 million in daily trading volume. Our product was in high demand. It’s a stark contrast from where we are right now.

I believe we need to focus on providing high amounts of liquidity for as tight a spread as possible. We can regrow and maybe even surpass our previous volumes if we can do that. If shareholders don’t fully commit to this strategy, then I fear we will never reach a state where becoming a payment network is possible. As Jordan said in one of his quotes below, we have to create this role for NuBits in the cryptoasset trading markets first. I believe it is our only viable way forward.

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#46

Or it could be mistaking correlation for causality.
A lot of cryptocurrencies went down since March while e.g. Ethereum started to rise.
Maybe people shifted some investments? I don’t know.
But I know that continuing the path of Nu on assumptions rather than evidence is very likely dangerous.

What revenue does that trading on exchanges bring?
We don’t know. Will it create demand for Nu?
Why not raising park rates permanently to create demand?
Because it’s no sustainable business model?
…could be a reason…

Nu was new and interesting. Was it really because of the trading volume? Who can tell that?
Can anybody tell whether that trading volume made revenue or cost money and how much?
Trading on an exchange costs 0 fee. So there’s 0 revenue from that by fees.
If Nu can’t make revenue from the trading itself, it’s a costly endeavour, because either LP in ALP require a high compensation (decentralized liquidity) or Nu loses money in the Nu funded operations.

Wanna know whether it’s that simple to prop up the NSR rate?
Stuff some tens of thousands of USD in a gateway operation at Poloniex, configure a tight spread and watch,
Or increase the compensation of NuPool while decreasing the spread.
Or have NuLagoon move the funds from NuLagoon Tube into the Poloniex MLP at a tight spread.

Why is no single comment here?

I might back out of this dicussion for now.
I think I’ve addressed my concerns.

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#47

I tend to agree. BTC price has been in a upswing, causing sell pressure in NBT and SNR, reducing T4 and buyback. We are in a cyclic economy.

Interesting fact to find out. The tx fee and liquidity cost in that period can be calculated. i don’t know how to pull the tx fee data out from the blockchain and where the fee record for the liquidity operations.

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#48

I don’t know enough about liquidity operations to make any arguments of my own and I know we don’t have much data to go on, but Jordan’s strategy just seems to make sense to me. These are only my opinions here without having an indepth understanding. Jordan called Nu a liquidity engine in this thread. I think about it like this, using his engine analogy…

Nu started up and was running fine, but then we hit a bump in the road and the engine stalled out (exchange hacks and low liquidity). What we need to do is jumpstart the engine (high liquidity, low spread) to get the vehicle moving forward again (higher NuBits demand). The process of jumpstarting and keeping this particular engine running is likely going to be very costly though (high liquidity fees). As long as we keep the engine running though, we’ll continue to pick up speed (higher trading volume). The cost of keeping the vehicle moving forward will start decreasing (lower liquidity costs through competiton). At some point in the future, the engine will achieve a state of self sufficiency (intermediary currency role surpassing Bitcoin, extremely high volume and liquidity. Well known and trusted reputation leads people to start using Nu as the payment network it was designed to be, finally creating real revenue through fees). Without jumpstarting that liquidity enigine though, the vehicle will remain dead on the road and it will be impossible to achieve a state of self sufficiency. Again, these are only my opinions.

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#49

I’ve read so much, but what’s the reason of NBT demands declined? No idea.

#50

One of the biggest problems of Nu right now is that we do not have a precise idea of Profit and Loss.

It seems that shareholders, including me, seem to forget that Nu is a business, a decentralized one but still it is a business.

So the primary goal is to make revenues.

And to make revenues, we must remind ourselves, I believe, of the value proposition that we offer to the business world out there.

It seems that we do not have any other market than the traders market right now.

So I must say that I agree with Jordan here: we need to focus on the traders and the hedgers market for a while.

In order to get revenues (= sell NuBits in bulk), we need to bring NuBits to market, which means liquidity.

That trigger immediately costs.

But costs are ok if we make more revenues.

So now the question is: will a generous liquidity trigger more NuBits sales than the costs it entails to reward its provision?

In order to answer that question, I believe we have some historical data that we need to dig up.

We need to know when we sold NuBits since inception.
Then we can ask ourselves: what was the level of liquidity when we made those sales?
Was a high level of liquidity the cause of those sales? is a crucial question.

I think I will need to resume working soon on the monthly P&L but perhaps @JordanLee or someone has keep track of when and how much we sold NuBits at times over the life of Nu.

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#51

Agree, A DAC is still a company, and a company can become bankcrupt.

Nu’s BTC/NBT pair makes Nu into a BTC speculation activity, because none BTC speculators can precisely predict the BTC price trend, LP may get profit or loss randomly., so the future of BTC/NBT pair is uncertain.

The biggest weakness of Nu is the uncertian revenue, while B&C has a relative stable revenue from trading fee. People believe that if B&C stop issuing BKC, the BKC will consumed up sooner or later, this gives the confidence of BKC’s FIATvalue. However,I have little confidence with NBT’s pegging.

Assume that in this summer BTC price soars to 1000$, and an old BTC whale sell 1000 BTC for 1 million NBT to keep his BTC speculation profit. Unfortunately, in the end of this year, BTC declines to 400$, he begin to dump 1 million NBT for 2500BTC. Can our buy wall withstand this kind of dumping? From tier 1 to tier 10, bring up all the money, whatever the **Bot!

We may call help to borrow BTC and give high rewards to lenders, but that whale’s sell wall is at 0.9$, the Market believe Nu is insolvent, NSR price plumbs, situation get even worse when shareholders burning NBT for NSR. In the end, the whole NSR market capitalization less than our debt: NBTs on his hands. The less money you have, the less people/banks wanna lend you money. :frowning:

Is this possible? Since I have no confidence on NBT’s pegging, why should I use NBT at all?

#52

The Impossible trinity (also known as the Trilemma) is a trilemma in international economics which states that it is impossible to have all three of the following at the same time:
1)A stable foreign exchange rate
2)Free capital movement (absence of capital controls)
3)An independent monetary policy(such as interest rate)

Nu as a centralbank, a stable foreign exchange rate is the hardcore fucntion, 1:1, NBT vs USD. Here USD is the foreign currency. So option1 is the must.

Option2 is still the must, since in cryptoworld the free movement is inevitable.

So we have to give up option 3, we cannot vote for parking rate. What’s the interest rate of USD in America now? All in all, if we make NBT=1$ and cannot control capital movement(of course we cannot), Nu is just a slave of FED, that’s why some liberalist dislike FIAT strict pegging cryptos.

For me, as a Hayek fan, dislike FED and any other central bank, they are monetary monopolists.

#53

So now the question is: will a generous liquidity trigger more NuBits sales than the costs it entails to reward its provision?

More Nubits sales does not mean more profit. An example as I raised above, if a BTC whale buy 1 million NBT in June,2016@1 BTC=1000NBT and dump NBT in Dec.2016@ 1BTC=400NBT. This is a disaster, the proceed of selling NBT is temporary, all NBT wil rush to exchange when Nu in danger.

#54

Is it though?

I have been ruminating over the function of nubits. There was a curiosity recently if a pool of currencies would be more stable, like the SDR of the IMF. The problem with that argument is 1.) IMF began stable exchange with a fixed priced to gold 2.) currencies can become contaminated and volatile and infect stronger currencies

Part of the problem with demand for nubits is that it doesn’t have any volatility. The crypto space is nothing but a Vegas for geeks, big dreamers, and sharks.

This problem isn’t nu, it’s the dollar. It’s the wrong instrument to peg to. Nu needs to break ties with being paired with another currency.

Silver would be a great asset to fix to, where settlements procure the immobile storage of physical.

Further, the dollar is toxic. There has been a global consorted effort to undermine the dollar. Eventually, you guys are going to have to scramble to find something else. That is just reality.

#55

Precisely. :+1:

How about the idea to offer better gamble tools, which is built on top of NuBits, for them? Would like to hear your comment on NuLagoon’s new pool proposal.

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#56

Would be nice to have a 1broker.com with Nubits. I talked to JordanLee about that a while ago, but if I remember correctly he said it can’t be done in a decentralized manner.

#57

According to inflation rates, there are three types of currencies.

1)inflated. eg FIAT, loved by central banks

2)deflated, eg, gold, bitcoin, loved by liberalist? gold fans

3)relative stable buy power curency, advocated by Hayek.

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