I found it was about time to start a new topic and stop derailing the motion draft for providing liquidity on hitBTC even further.
If this discussions lead to conclusions which are suited for the motion draft or the final motion, respectively, I’ll gladly include them.
Continuing the discussion from [Draft] Motion to provide liquidity using NuBot on hitBTC:
That is true for flash crashes or high volatile/high volume markets.
But I don’t think it’s true for bear markets.
In a bear market, the BTC price is falling, because the demand for BTC is low due to the expectation it would fall further - which makes the price fall even more.
At the beginning of the bear market LPs start receiving more and more (falling) BTC for (stable) NBT. If they could trade the BTC for NSR from the beginning and sell the NSR for NBT at Nu seeded auctions, they could keep stable NBT.
Nu would bring NBT to the market while receiving NSR. The NSR would be sold for PPC to distribute dividends, for development or share buy backs (it the limits of tier 4 ask liquidity would be exceeded by the seeded auctions).
Isn’t that what how the connection between NBT and NSR should be?
- rising demand for NBT causes new NBT to be sold for NSR by Nu
- falling demand for NBT causes new NSR to be sold for NBT by Nu
There are for sure the tiers 1 to 3 which offer buffer capabilities.
But ideally the total sum of all tier 1 to 3 ask and bid sides should be on an equal level as this is can be a guarantee for the peg to be kept in case of falling NBT demand (which is the more important side).
Slow changes of balance can be equilibrated by seeded auctions.
Quickly falling demand is no problem if walls aren’t torn down - as long as enough BTC remain in the ask side.
Keeping the walls (at least partly) up can be incentivized in fixed payout pools by paying a constant compensation per time frame - leaving LPs and missing volume means more compensation for those who stay.
NuLagoon can offer another pool which has less possibilities to withdraw than twice a week. The reward obviously needs to be bigger in this pool.
I intend to keep the walls up under all circumstances (at least if I start being LP at hitBTC and promise that in the motion), but for technical issues with my RaspberryPi, NuBot or the internet access.
So the Nu network should aim at a bigger ask side than 50% to have some buffer.
And in case the demand surges the FSRT can support the market quickly with new NBT.
A BTC bear market is nothing else but a market with demand for NBT!
The only big problems are low NSR/BTC volume and lacking ongoing seeded auction.
If LPs would get used to seeded auctions - because they are offered by Nu - two birds could be hit with one stone: participation in the seeded auctions would cause NSR/BTC volume to rise.
Nu would finally have a real market feedback loop between NBT and NSR.
I’d gladly trade BTC for NSR to receive new NBT instead of passing the ask wall (the volatile side!) around to other pools - if only I had a seeded auction to participate!
The same way could be used to get rid of a too big bid side: just sell NBT in a seeded auction and receive NSR which then can be traded for BTC.
I think it’s necessary to make a new assessment of the ratio between overall ask and bid side ratio that is considered safe for the peg.
Even now there might be enough demand for NBT to keep the peg safe even if lots of people were selling NBT.
There’s a big amount dedicated to liquidity providing and that amount is providing the LPs with good compensation.
That part of NBT can almost be deleted from the equation.
As NBT have more and more success, are kept in wallets to keep them at stable value and spend them as BTC, PPC, etc. just at the point of sale using shapeshift, the ratio between ask and bid can be lower and lower without endangering the peg.
But that is something for the future.
At the moment I think the ask and bid size should be in equilibrium, maybe the ask size even a bit bigger.