Some people have suggested that liquidity providers lose money because speculators push them into NuBits when Bitcoin is about to rise and into Bitcoin when Bitcoin is about to drop. I doubt anything like that occurs simply because no one can predict how the Bitcoin price will change.
It is an important question. If speculators can bleed value from the network by taking advantage of liquidity providers, that is a serious issue for the network. If evidence against the notion that liquidity providers are victims of speculators can be uncovered and communicated, then the network can get on with the business of providing cheap liquidity.
I have designed an experiment where I have provided $20,000 in NuBits and Bitcoin. This breaks down to 9953 NBT and 23.820 BTC. The BTC have an initial valuation of $421.79 each, bring the starting net asset value to exactly $20,000. The funds will remain in use at Poloniex by NuBot in connection with NuPool for an extended period. I will watch and report how the net asset value changes. There are three variants of the net asset value that I will report in this thread, perhaps on an approximately weekly basis:
Simple NAV: The USD value in the Poloniex account, where NBT is valued at $1 and Bitcoin is valued at the price used by NuBot.
Bitcoin Price Adjusted NAV: The same as the Simple NAV, but adjusted for changes in the Bitcoin price. If the Bitcoin price were $431.79, then with a starting price of 421.79, $10 times the 23.82 BTC would be subtracted from this NAV value.
Bitcoin Price Adjusted With Pool Payments NAV: This will be the same as the Bitcoin Price Adjusted NAV, but with NuPool payments added in.
I accepted all default NuBot settings except the following:
This creates a single buy wall and a single sell wall with exactly a 1% spread, not including exchange transaction fees.
While I don’t know how the Simple NAV will unfold, my hypothesis is the Bitcoin Price Adjusted NAV will grow from profits from the 1% spread (which will be reduced to 0.85% by the Poloniex fee). I expect the Bitcoin Price Adjusted With Pool Payments NAV to grow even more.
The experiment started a little less than a day ago, around the beginning of April 11 GMT. I have presented it before any results are available so that the methodology could be reviewed and critiqued, which may result in the experiment design being altered at this early date.
Many thanks to @woolly_sammoth, who provided extensive technical assistance in getting NuBot set up.