We have seen some discussion regarding the walls on non-USD pairs being subject to arbitrage abuse. For example, if the price of BTC moves suddenly, a whale trader may sell or buy a large portion of the wall before it has time to react, which can cost shareholders a significant amount of value. This is only a problem on crypto pairs, because USD pairs maintain unmoving buy walls at 0.998 and 1.002.
I am putting forward this motion to very slightly alleviate this issue. It also has the added benefit of a very small profit potential due to the spread.
BEGIN MOTION
This motion mandates that custodians operating with shareholder-granted liquidity, currently only @KTm and @jmiller, widen their NuBot spread on non-USD currency pairs by 0.05% on each side of the peg. On exchanges with a 0.2% fee, this means that the buy wall must now rest at 0.25% below the peg, and the sell wall 0.25% above, instead of the previous 0.2% spread. Any profits earned by this spread shall be added to the custodian’s fund to be distributed as dividends, in accordance with the associated custodial grant proposal. END MOTION
It is true there are significant flaws in our pricing on non-USD pairs. I have proposed a solution to these flaws here:
The proposal in this current thread is not an effective way to address the problem. Basically, with our current model the first part of the wall is priced correctly while the rest of the wall is under priced. This proposal would make the first part of a wall over priced, followed by a point in the wall that would be correctly priced, followed by the remainder of the wall once again being under priced.
@JordanLee The idea proposed in your linked thread, mirroring another exchange’s order book, has technical challenges. It would require too many API calls to keep walls up-to-date with any significant order book depth on an active exchange. Also, an attacker can place orders simultaneously at multiple exchanges, negating the safety of the matching orders. Further discussion on that idea should probably take place in that thread.
I agree that this motion is not a complete way to address the problem. Instead, it can be considered an in-between step, to help mitigate arbitrage-based shareholder losses, while a more effective solution is designed.
Note that this motion proposes a very small change. Legitimate purchasers who buy or sell at wall prices already pay 0.2% exchange fee + 0.2% spread fee, or 0.4%. With this motion, the “tax” becomes 0.45%.