[NuBits LPC] Centralized Exchange vs B&C Exchange

With the development of ALPv2, and the continual thinking of new paradigm for Liquidity Provision schemes on centralized exchange, I was wondering about what B&C Exchange will bring for NuBits liquidity in terms of quality and quantity, namely across these aspects:

  • economical cost to Nu
  • reactivity to demand in real time
  • ability to rebalance buy/sell sides (bots, pools)
  • volume generated
  • type of demand
  • risk
  • profit generated
  • etc…
    In particular, are we going to be at the mercy of BTC volatility to keep the peg of the sovereign fiat currencies?

Any plan and financial projections?

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Not sure if anyone has a plan here, but I can share some thoughts.

I believe that B&C will bring lower costs for liquidity as the exchange default risk can be taken out. With the ability to provide more liquidity against the same cost volume would likely increase. Higher volumes would generate more fee generation on the blockchain. As you know every transaction will take place on the blockchain contrary to classic centralised exchanges which use off-chain tokens. You might do some simple calculations based on the number of transactions and volumes off Poloniex and translate that to on-chain transactions and related fees.

The demand would be typically from traders, but a new more anonymous type of user/trader would join us given that you don’t need to sign up for B&C. The BTC and probably the ETH volatility will always be there, the more the better as it justifies NuBits’ existence and will increase demand.

Time will tell how much new volume and fees will be generated by B&C for Nu. But Nu definitely has a common interest in making sure B&C succeeds.

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In funding LPC grant, how much goes to support exchange default risk and how much goes to support bitcoin volatility risk?
Which one is the most significant?

NuLagoonTube seems to be paying out ~0.1%, so id say exchange risk is like half, maybe 40%. Suuuuper fudgy number though.

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The ongoing experiment conducted by muchugusto should gives hints here

Don’t expect a safe conclusion from a single experiment.
losses or profits depend on BTC’s volatility and the appetite of traders!