Now is the time for deflation in liquidity costs to begin

[JordanLee]

Decentralised liquidity is one of the most innovative and powerful features of our network. We have succeeded at creating it and we should all be proud of what we have accomplished together. I have long predicted that the compensation for liquidity provision would experience pronounced deflation, at least for a period time. When we first began establishing decentralised liquidity, there was more demand than supply. I had set a goal of 100,000 NBT in decentalised liquidity in tier 1 at the current level of NuBit adoption. Several months ago we didn’t have that supply. So we paid very high prices for liquidity. We needed to pay whatever the market demanded to reach adequate liquidity levels.

Now the situation has changed. We have adequate levels of liquidity. It is probably excessive on the sell side at this point. So, it is time to lower the compensation we offer for it. In order to make a well calculated decision on which pool or pools ought to have their rates reduced we need a short and concise summary of what each pool is offering us and what we are paying each of them. Then we cut where the value delivered is the least. I don’t have time to gather all those facts right now, so I am hoping someone familar with our liquidity operations will do it and post their findings in this thread so we can discuss them. The goal of this thread and discussion is to form one or more motions that reduce the cost of liquidity by reducing the rates and/or quantity of liquidity at specific pools and specific trading pairs.

Not all liquidity has the same value. Tier 1 is worth more than the other tiers because it is more available. Buy side is worth more than sell side, because the risk of losing the peg to downside needs the be managed more carefully than the risk of losing the peg to the upside. Liquidity that is used is worth much more than liquidity that is not. So, the value of liquidity on a specific exchange and trading pair is a function of the trading volume on that pair. So, in this way liquidity at Poloniex (our highest volume exchange right now) is worth more than an exchange that has little trading activity. Liquidity that can be guaranteed for a period of time is worth more than liquidity that can evaporate at any time. NuLagoon’s liquidity has limited persistence while the TLLP pools have none. I hope NuLagoon will continue to grow and enhance the persistence of the liquidity they provide.

While I will say again that a concise presentation of the relevant facts is needed to make an optimal decision about where to cut, with the limited information I have right now I suspect what we pay for sell side liquidity on NuLagoon is a good place to cut. Bittrex liquidity provided by NuPool is probably also over funded right now. It is possible that liquidity on some low volume exchanges is also over funded. There is the reasonable notion that we have to provide liquidity first and then it will slowly attract volume over time. So it sensible to accept low volume in new markets or markets that we have reason to expect can grow for us. Poloniex, on the other hand, is still under supported, so we ought to do what we can to increase liquidity there.

For liquidity pool operators, this is a time to make shareholders aware of the value you are providing to the network so your funding doesn’t get reduced.

So, where should we reduce liquidity compensation and why?

[Nagalim]

Force pool operators to comply with this:

[Passed] Motion to regulate spread values for liquidity operations

UPDATE: New motion body UPDATE: Newer motion body and modified introductory text UPDATE: Even newer motion body UPDATE: Motion hash determined after minor amendments. When I began drafting this post, there was about 35k-36k NBT liquidity each on the buy side and the sell side. Liquidity providers face considerable volatility risk and the possibility of exchange default. Shareholders pay a high price to mitigate these risks. Nu provides disproportionately deep liquidity at small spreads, whic…

Pass the 1st and 3rd of these strategies:

[Draft] Liquidity provision on low volume pairs

The liquidity pools borrow many parameters from each other in an attempt to create a consensus on what liquidity costs. However, it is quite clear that liquidity provision on one exchange may come at a very different price than liquidity provision on an alternate exchange. Therefore, I would like to make clear what direction shareholders wish liquidity pool providers to go in. Option 1: Medium Peg Fix both the rate and the spread at the same values as on high volume pairs. Have the targets…

New Motion:
We need to find a way to stimulate competition between operators on a single pair. With the current software, the only way to do this is to have each provider have a home pair that passes a grant each month to pay for their server expenses and yada yada. Then, have a few pairs that are declared open for competition. Have people propose several motions (not grants) for pool provision on that pair for 3 months all with the clause that they are invalid if a different one passes first. Whoever wins proposes a grant that will of course pass. If they pass in the same block by some miracle we can default to whoever proposed the motion first in the forum.

[Draft] Periodic 90 Day ALP Grant Competition

Motion RIPEMD160 hash: tbc =##=##=##=##=##=## Motion hash starts with this line ##=##=##=##=##=##= Automatic Liquidity Pool (ALP) operators have a minimum level of payment required to continue server performance. At the same time, operator fees have the potential to stimulate competition between operators. To achieve a competitive atmosphere, 90 days after the passage of this motion a new round of ALP operations will begin with standardized time schedules. Potential pegged pairs will be s…

NuLagoon is outside of a lot of these motions. However, I believe that as we start really talking about spread after fees and competition, NuLagoon will find its place as a transient pool that looks for the highest volume pairs and competes with ALP’s. Then maybe we’ll get some MLP competition. We could define MLP in a motion and say that it is exempt from all regular liquidity pool rules and maybe set up some unique parameters for what an MLP is, but as long as NuLagoon is the only one they have a lot of leverage over shareholders.

[Nagalim]

P.S. Bter regularly places third and/or fourth for volume on CMC after Polo and Bittrex since we started getting liquidity, despite the regulated spread.

[woolly_sammoth]

I agree with the points raised here so far by @JordanLee and @Nagalim and offer my apologies again for not doing more to comply with them in the current NuPool operation.
For a breakdown of the liquidity offered and the rates available I can’t suggest better than the very nice summary site put together by @willy here: https://raw.nupool.net/nubits

@Nagalim. I like your proposal for stimulating competition between pool operators. I think a good step towards that would be to create a standard motion/grant proposal template that can be used by TLLP operators. Having a standard template would allow shareholders to easily compare and contrast different proposals and would also ensure that all the correct information is held in them in order to comply with the motions you inked to.

[Nagalim]

I couldn’t figure out how to stimulate competition without synchronized operator schedules and that really requires a longer liquidity provision time like 90 days. It’s like an election of sorts, once a month is too intense. I also put up the templates for the two types of ALP operations I’m proposing. The operator would have 60 days to pass the motion first and then the grant so that they can begin operation on time.

[cryptog]

Liquidity provision should be rewarded much more in case the liquidity contributed to actual trade volume than in case it did not.
Right now the automatic pools and the managed pools look only at the quantity of liquidity set to each side. Would there be an easy way to track the actual movements and not the states?

[Nagalim]

On B&C it will be. Now, we’re beholden to API commands that are exchange specific, so it’ll all end up being complicated.

[JordanLee]

Force pool operators to comply with this:

[Passed] Motion to regulate spread values for liquidity operations

@Nagalim can you please tell us which pools are not in compliance with this motion, what they would have to change to be in compliance, and how compliance would lower liquidity costs?

[Nagalim]

It is a mandatory minimum on spread after fees. I recently brought it to @woolly_sammoth and @willy’s attention here: [Passed] NuPool 5

I brought it to @Cybnate’s attention here: [Passed] Liquidbits.net trustless liquidity provision on USD, EUR and BTC pairs
It seemed to me that most pools will follow whatever NuPool does.

A mandatory minimum default spread will cause our peg to deviate more from $1 than it currently does. As a result, LP’s will lose less money to hedges and our volume will go down somewhat. The result is that we can lower rates below the current level of 0.3%/day for BTC/NBT.

If I may read into the motion more than was perhaps originally intended, it defines 3 types of pegs:

1. Tight Peg: 0% spread after fees
2. Moderate Peg: 1% for BTC; 0.4% for fiat and USD
3. Loose Peg: Maximum of 10% for BTC; 4% for USD; 10% for fiat

Everyone’s running a tight peg but me and @nmei

“Spread after fees” means if the price doesn’t change and someone buys 100 NBT then sells 100 NBT to the same LP, how much NBT would that LP make?

what they would have to change to be in compliance

Change the default settings of nupool’s default config files and server tolerances to achieve a consistent picture of the spread after fees.
Example BTC/NBT with 0.2% fee to achieve 1% spread after fees:
Tolerance = 0.01
Deviation = 0.0025
Offset = 0.007
Example Fiat/NBT with 0.2% fee to achieve 0.4% spread after fees:
Tolerance = 0.006
Deviation = 0.0015
Offset = 0.004
Example USD/NBT with 0.2% fee to achieve 0.4% spread after fees:
Tolerance = 0.0041
Deviation = 0.00005
Offset = 0.004
Example USD/NBT with 0% fee to achieve 0.4% spread after fees:
Tolerance = 0.0021
Deviation = 0.00005
Offset = 0.002

[crypto_coiner]

Decentralised liquidity is one of the most innovative and powerful features of our network. We have succeeded at creating it and we should all be proud of what we have accomplished together. I have long predicted that the compensation for liquidity provision would experience pronounced deflation, at least for a period time. When we first began establishing decentralised liquidity, there was more demand than supply. I had set a goal of 100,000 NBT in decentalised liquidity in tier 1 at the current level of NuBit adoption. Several months ago we didn’t have that supply. So we paid very high prices for liquidity. We needed to pay whatever the market demanded to reach adequate liquidity levels.

Now the situation has changed. We have adequate levels of liquidity. It is probably excessive on the sell side at this point. So, it is time to lower the compensation we offer for it.

Not all liquidity has the same value. Tier 1 is worth more than the other tiers because it is more available. Buy side is worth more than sell side, because the risk of losing the peg to downside needs the be managed more carefully than the risk of losing the peg to the upside. Liquidity that is used is worth much more than liquidity that is not. So, the value of liquidity on a specific exchange and trading pair is a function of the trading volume on that pair. So, in this way liquidity at Poloniex (our highest volume exchange right now) is worth more than an exchange that has little trading activity. Liquidity that can be guaranteed for a period of time is worth more than liquidity that can evaporate at any time. NuLagoon’s liquidity has limited persistence while the TLLP pools have none.

Much material to reflect upon (or extract principles/notions from) and lucidity here - Very much appreciated

[huafei]

what is the define of Tier 1 Tier 2?

[masterOfDisaster]

Have a look here for the details:

Finalized evolution of liquidity operations

The following is the finalized version of the motion I am advancing to guide development of our liquidity operations. The motion hash you need to enter into your client to vote for it is: 65CB60D096508A7FA9ECC2017B38BC3AFEB5663D *****Begin motion***** Liquidity operations should have the following tiers. The first tier is available to the market immediately, but is at higher risk of loss than the other tiers. Subsequent tiers have the disadvantage of not being immediately available but featu…

[CoinGame]

We also have a liquidity page on the docs site. https://docs.nubits.com/nubits-liquidity/

Good place to point people since there’s a lot more information as well.

[desrever]

It is a mandatory minimum on spread after fees.

In NuBot this is implemented in development. Operators that set a spread outside the imposed range will receive an error notification :

The total spread you set (0.001$) is out of the allowed range (0.007,0.052). 
We highly reccomend to adjust your offset so that your values are within that boundary.See motion 0ec0be7f113a0bf6ff603545a974cd6410458e00 for more detail

currently it won’t block the execution tho