The higher the liquidity and the lower the spread, the higher the resulting costs.
Liquidity creates no revenue. Revenue may be made from the spread, though.
So there’s need for a spread that is high enough to compensate the costs of liquidity provision at least in parts.
The vehicle is moving forward. The tank is not exactly full at the moment and we try to reach a destination. We are on fuel-saving mode and for good reason.
High liquidity at low spread doesn’t necessarily create demand for new NuBits to be sold. It might just cause more trading.
Trading at exchanges creates no revenue!
Using NBT for transactions creates revenue.
That’s currently the only revenue model Nu has.
Other potential revenue models like lending aren’t even modeled!
But even if increased liquidity creates demand, selling additional NuBits creates additional liability for which we have no insurance and NSR buybacks in the illiquid NSR market caused surges of NSR rate.
So NSR buybacks are currently not the ideal instrument to avoid BTC volatility.
…the risks of an increased liquidity provision stay reduced.
Nu needs to do some homework, before it’s wise to increase the liquidity at a reduced spread.
One part of that is to find a sweet spot at which Nu (or the LPs) can make some money from the spread to compensate the costs.
That requires data we currently don’t have.
Other parts of the homework are ways to control the risks caused by Nu’s liabilities
- BTC volatility insurances are required
- alternatively/additionally the NSR market needs more liquidity (to trade BTC for NSR back and forth without loss from moved NSR rate or spread)
Even B&C Exchange can’t fix those two important tasks out of the box!
The spread was much smaller.
I need to look in the old logs, but off the top of my head I dare say it was most of the time <1% and only after I realized that I can’t keep sustaining that alone up to 2%.