Liquidity provider profitability experiment

The Plaza
#28

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.

#29

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.

#30

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.

#31

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.

#32

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

#33

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.

6 Likes
Lack of commitment to liquidity is our biggest threat now
#34

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

@woolly_sammoth

1 Like
#35

No I do not experience this with ccedk or bter.

#36

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?

3 Likes
[Voting] Fund liquidity provider profitability experiment
#37

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?

#38

please elaborate some more.
1500 + whatever ALPv2 rewards?

#39

This is correct. With the other plan, shareholders would know ahead exactly what the cost will be.

#40

Correct.

I get NuPool rewards on top of that but also have to suffer any trading losses myself.

#41

I very much like your experiment so far, but I seriously doubt that it’s worth a fixed compensation of $1,500 for two months or $750 monthly on top of the ALP compensation to buy a reduced spread for $20k volume.
And the alternative, having Nu pay 3% revenue for a NAV of $20k while not participating in a revenue above 3%, doesn’t seem fair.

I can imagine to run the fixed compensation approach (because the variable one puts Nu in an incalculable risk) for a few months just to find out, what the effect of a reduced spread on the revenue for LP is.

It might be better to use the NuPool compensation scheme for rewarding a tighter spread - for a way smaller volume.

#42

I would expect something like:
total payment = NuPool rewards + any possible losses (payed by FLOT)
if no losses at all, just keeping the nupool reward + any possible trading profit :wink:

#43

you can be an other NuSafe

#44

Results as of 22/05/2016:

NBT Balance: 18,693
BTC Balance: 3.53

Simple NAV: 20,232, a 1.16% profit

Bitcoin Price Adjusted NAV: with current price of 436.40, the adjustment is -348, so 19,884, a 0.58% loss

Bitcoin Price Adjusted With Pool Payments NAV: NuPool rewards total 488, so 20,372, a 1.86% gain. Annualised and compounded rate of gain is 18%.

The major improvement of the last week is mostly due to holding mostly NuBits in a declining BTC market.

2 Likes
[Voting] Fund liquidity provider profitability experiment
#45

I have published a motion draft here:

https://daology.org/proposals/f6f6eea2e5c8d00b6ff287c8906b93219feae759

Please make suggestions to change it if you like. I hope to start voting soon.

#46

By spread 0.5% you mean a 0.0025 offset in each wall?
I like the proposal and the compensation scheme. A very good compilation of MLP+ALP :wink:
Moreover i am feeling very relaxed with your provided liquidity in Poloniex. Something i want to say about NuLagoon too, but i cannot :slight_smile:

#47

Requesting a guaranteed compensation of 3% monthly without capping in case the NAV makes an immense loss for whatever reason will not make it to my data feed.

It would be interesting to know the results for the NAV from reducing the spread from 1% to 0.5%, but having no capping makes me shy away from it.

You receive a compensation from NuPool for liquidity already. Filling the revenue to monthly 3% is different from asking another 3% on top for reducing the spread.

You already bear the exchange default risk and get compensated by the ALP compensation.

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