Liquidity provider profitability experiment

In a bearish period @muchogusto might be as unlucky as now - then he’d sit on BTC in times of dwindling BTC rates…

After all that’s what we expect from this experiment:
a liquidity provider bears the risk of a partial loss, because the funds are used from traders hedging BTC volatility and furthermore takes the risk of a total loss by exchange defaults/thefts.

Let’s see whether this experiment can meet the expectations with regard to volatility.
We can learn from it how high the offset must be to compensate the loss from volatility/hedging.
While this will not be true for all situations, it’s better than the guesstimates we have now.

Thank you, @muchogusto for doing this!


So, the LPC cannot make money unless supported by a grant, justified by a perpetual NBT market demand


If you add the costs from exchange defaults/thefts to the spread, you can operate at break even or make a again if the offset is even higher.

Results as of 06/05/2016:

NBT Balance: 0
BTC Balance: 45.16

Simple NAV: 20,546, a 2.73% profit

Bitcoin Price Adjusted NAV: with current price of 454.98, the adjustment is -791, so 19,755, a 1.23% loss

Bitcoin Price Adjusted With Pool Payments NAV: NuPool rewards total 219, so 19,974, a 0.13% loss. Annualised and compounded rate of loss is 1.9%.

Results as of 08/05/2016:

NBT Balance: 14,764
BTC Balance: 13.01

Simple NAV: 20,737, a 3.68% profit

Bitcoin Price Adjusted NAV: with current price of 459.09, the adjustment is -888, so 19,848, a 0.76% loss

Bitcoin Price Adjusted With Pool Payments NAV: NuPool rewards total 240, so 20,088, a 0.44% gain. Annualised and compounded rate of gain is 3.3%.

Results as of 15/05/2016:

NBT Balance: 19,929
BTC Balance: 1.21

Simple NAV: 20,484, a 2.42% profit

Bitcoin Price Adjusted NAV: with current price of 459.01, the adjustment is -887, so 19,598, a 2.01% loss

Bitcoin Price Adjusted With Pool Payments NAV: NuPool rewards total 406, so 20,004, a 0.02% gain. Annualised and compounded rate of gain is 0.2%.

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In the way of changes being made to liquidity quality by Jordan Lee and NuLagoon, I would like to put my own offer on the table.

I will change the experiment from the current 1% spread to a 0.5% spread if shareholders will commit to pay 2,000 NBT for 60 days of liquidity after it has been provided with 95% or more uptime.

Without some type of additional compensation or much improved results, I will probably end the experiment in a few weeks and exit liquidity provision.

Please say if you would vote for such a motion and if you prefer the spread, amount of liquidity or some other aspect changed. It might also make sense to give the extra funds to NuPool and have myself and other pool participants compete for them.

Bottom line is I am not afraid of a tight spread and want to do my part to help, but I probably won’t continue long with the current level of compensation.


Are you going to make an MLP proposal then?

I don’t want to handle anyone else’s money like NuLagoon does, so no.

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No, i mean with your money. I haven’t understand your change of plans. :slight_smile:
You like to be payed by NuPool or by shareholders as an MLP?

I was proposing to be paid by NuPool and shareholders. Everything about my operation would stay exactly the same as it has been in the last month, except I would change both the buy offset and sell offset to 0.001, resulting in a 0.5% spread. Reporting will also continue as it has been.

I would formally propose a motion to get shareholder commitment to pay me, then ask it be paid as a custodial grant (or transfer from FLOT) after 60 days of service are complete. I am awaiting comment before formalizing the motion proposal.

So you want 1% + ALP reward for 60 days to hold 20k liquidity at 1% spread? Not a bad deal, honestly.

I wonder how much liquidity we’d get if we just lowered the ALP tolerance.

2,000 NBT reward in addition to the NuPool reward is more like 5% on top to the ALP reward per month for lowering the spread of the 20,000 USD value liquidity.

Ha, I moved a decimal place, I thought it sounded off. So 10%+ALP for 2 months. Yah, that’s not so good. That’s nearly double the ALP reward.

Lets see a draft of the proposal. In fact you are proposing a mixture of ALP+MLP. Interesting!

OK, big post with a lot of thoughts…
My own experience from providing liquidity since 7/18/2015. I have kept extensive spreadsheets. I have participated on all the pools (as the pool manages can attest :wink: ). And I even ran my own operation on HitBTC for a time.

As of 9/15/2015 I reached my max invested position that I felt comfortable with: $18,500.
Since then I have been taking profit - cashing out and moving to other BTC based investments.

As of 12May2016
My current balance is: $25732
Investment after profit taking: $16396
Profit: 9336.15
Monthly %: 5.71%
Daily %: 0.19%

Current distribution supporting ALP:
BTC: 7.2
NBT: 6954
Fiat: 7887

Praise the Lord, Nu has been very good to me. I have been around through the strong BTC volatility periods and through the calm. It has been stressful and difficult at times. Honestly, it is very labor intensive compared to holding stocks. But the ROI is also far superior.

But the new trend of pools (to shrink and to tighten rates) as well as the software is making it very difficult for me…

  • All of the pools (save Bittrex - which I’m trying to rectify) are full.
  • It is tough for me to understand and use the new ALP software on Polo and Bittrex. I’m supplying an awesome spread of 0.2%, but it only credits me half the time and the rest is out of spread tolerance. So I get VERY low returns (~0.05% a day) not worth the effort or risk.

I don’t know the answers, but I see the trend: DIFFICULT.

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.


This is an issue. You don’t experience this with pybot on ccedk or bter?


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No I do not experience this with ccedk or bter.

There has been a suggestion that I ask that a certain profit level be guaranteed by shareholders instead of asking for a specific sum of NuBits, such as 2000 for 60 days as I did above.

I am amenable to that. I would like to get some quick feedback on which compensation agreement shareholders prefer.

The change in service I am proposing is the same: I am offering to decrease the spread to 0.5% while continuing the operation just as it has been otherwise. Compensation from NuPool and shareholders will be added to funds used to provide liquidity.

Flat fee compensation
One option is to pay me 1500 NuBits for 2 months of service, to be paid by FLOT or shareholders after service is rendered.

Guarantee minimum profit
The second option is to guarantee a minimum profit of 3% per month, compounded monthly. The calculation used to determine profit would be the Bitcoin Price Adjusted With Pool Payments NAV, which I have been reporting regularly in this thread. After two months, the guaranteed return would be 6.09%, and 9.27% after three months. After more than a month the actual rate of return has been 0.02%. If it were still 0.02% at the end of the first 2 months, then either FLOT or shareholders must pay me enough to make a 6.09% profit, which would be 6.07% on the original 20,000 being used. In this example, that would be 1214 NBT. Payments would be monthly.

This will be guaranteed liquidity, meaning I will not remove the funds from the Poloniex order books for any reason, including a liquidity crisis. Not removing funds shouldn’t be confused with uninterrupted service. There have been two service interruptions due to unexpected server problems and one due to a NuBot failure already. I’m promising a 95% service level.

Please be aware I plan to terminate the operation unless I can get a 3% monthly return, either through shareholder compensation or trading profits. While returns have been non-existent so far, I expect they will pick up with Bitcoin volatility.

Which compensation model would shareholders prefer?


Just to make sure I don’t misinterpret that - in this option you provide liquidity in NuPool at a spread of 0.5%.
If trading with these settings including pool compensation gets you 3% monthly, Nu doesn’t need to pay anything on top.
If you don’t make 3%, but 2%, Nu needs to pay up to 3% of the NAV at beginning, which was $20,000.
Or is it Nu needs to pay 3% revenue total, which means if you have a loss, Nu needs to compensate that as well; so no matter what the NAV is at the end of the month, Nu has to fill it to $20,600?