This finalized proposal is being managed on Daology here. I will quote it here for convenience:
Normally I provide some context and explain the reasons why motions I advance will help the shareholders. In this case, that context was provided in my recent thread about the importance of liquidity and tight spreads. However, I will briefly say that this should dispel the notion that liquidity providers will widen spreads when the peg appears to be under any degree of strain. Such actions would only imperil the peg. In fact, there is such a strong relationship between spreads and NuBit demand that if the peg is perceived to be in peril one of the best actions to take would be to lower the spread.
Please comment. I hope to refine it and begin voting in a day or two.
I don’t see the usefulness of this kind of motion!
Any motion or grant should freely propose its own spread and then ask for shareholders’ vote.
If shareholders want the 1% spread, then they will seek to vote for those specific proposals
Lets say that this motion is passed and then i make a new operation proposal with a 2% spread
and it passed too, what then?
Changing spreads to 3 or 4 percent isn’t a last line of defense. It is defeat itself. A surrender and a default of sorts. Doing so will have the immediate effect of lowering NuBit demand, and demand will tend to not return after the standard spread is restored, because trust and reliability have been compromised. It is a suicidal tendency. If the normal situation is that we buy NBT at 0.995 then changing that to 0.975 is simply stiffing customers out of 2% of their funds. It is extremely toxic.
ALP at Poloniex failed, because it was economic suicide for LP to continue providing liquidity during heavy BTC volatility. The losses they faced from being used as BTC hedge made them retreat from the pool.
All that was defending the peg were my two NuBots, which were initially sell side only and buy side only at a tight spread.
First I had to increase the spread to slow down the trading - otherwise they’d have run out of funds very soon,
Then I converted them to dual side, because I had to refill the drained side of each NuBot account.
The spread was around 2 percent, yet the track record at Coinmarketcap looks flawless.
If Nu wants to provide a line of defence by Nu funded bots in case other LPs fail, the amount of funds on exchange needs to be increased by far to deal with traders trading BTC swings without having one side drained,
This increases the calculatory costs (amount of lost funds * probabaility of occurance).
There’s no need for that, seriously.
2% spread for Nu funded bots is fine.
JL has a point here. Of course we have to find a way to keep the peg safe and also have a huge liquidity
(only possible with a tight spread).
I believe that every LP has got the mesage about the tight spread
We are having a problem with consistency in the quality of our liquidity. We need to be able to say that shareholders pledge to keep the spread at or below 1% so customers will feel confident they can sell at any time for a predictable good price. If this motion passed and then a liquidity provider provider proposed a 2% spread, they would be reminded it doesn’t comply with shareholder standards for liquidity. It would likely be changed. If it weren’t, it probably wouldn’t pass because it violates an important promise shareholders have made to customers.
We don’t ever want to slow down customers trading with our product. That would be a suicidal tendency. We need to be committed to consistent service. If the walls are moving so fast that we can’t keep them there, that simply means we must have more liquidity. It might makes sense to make plans to offer additional liquidity during times of high BTC volatility. Degrading our service at just the time when interest in it is peaking is incredibly counterproductive.
It is worth noting how dramatically well liquidity costs scale as part of this discussion. Right now we are offering 133,000 in liquidity on a money supply of about 750,000. This means 18% of the entire money supply is sitting on order books ready for immediate exchange.
This high percentage is a consequence of a very small scale. Consider the currency that has scaled the most, the US dollar. I don’t have figures, but I think we could agree the percent of US dollars sitting on currency exchanges is extremely small when compared with our 18%. I will speculate that it is lower than 0.1% of US dollar money supply, and probably much lower than that. Neither the Federal Reserve nor the US government pay for liquidity. Because they have scale.
To get scale we need liquidity. As we develop scale, liquidity costs as a percentage of the money supply will drop dramatically. It may be that a 10 fold increase in money supply only requires a two or three fold increase in liquidity. Reducing liquidity by increasing spreads only lowers our scale and increases the percentage of the money required for liquidity provision. It is really critical shareholders understand this. I will repeat my assessment that poor liquidity, or a lack of understanding of the importance of it in developing our market share, is the greatest threat to the NuBit project right now.
I think the only time I made a more desperate plea to shareholders was in January 2015 when I warned about the dangers of counterparty risk introduced by using shareholder funds for liquidity. Less than a month later, our progress was slowed a great deal by multiple exchange defaults. My focus was exactly in the right place then, and I am equally confident that my focus on liquidity now is appropriate.
Without it, the funds wouldn’t have been enough to keep orders on the book on each side.
You explain it from an architect point of view.
I tell you from my experience: 2% for NuBots is great. Let ALP and MLP stay below 1%.
On the contrary - it’s keeping a slightly worse peg opposed to no peg.
Where does that misunderstanding regarding last line of defence come from?
Of course there needs to be sufficient liquidity at a tight peg.
If that liqudity is gone, fails, isn’t there, there needs to be support, unless you want to give up on the peg.
More liquidity means increased cost.
As long as it’s not clear what the support of trading at a close spread really costs, I won’t give up the idea of a paremetric order book with Nu funded bots as last line at an increased spread.
Again: if all runs fine (ALP provides sufficient funds), no one will ever trade into the Nu funded walls!
What service is worse: offering trades at 2% spread or not providing any liquidity on a side, because all funds have been traded to the other?
Do we really want to rely on arbitragers?
Do we want to stuff hundreds of thousands of USD into exchanges like we did when @KTm and @jmiller ran liquidity operations just to keep a tight peg?
How much money got lost back then?
My opposition is not caused by the belief that all liquidity should be offered at an increased spread.
A part of the liquidity must, though.
The Nu funded bots need to stay at a higher spread than the ALP and MLP - up to 2%.
This motion is fine, if it excludes Nu funded bots.
Would paraemtric order book have been available back then, liquidity could have been provided with way less funds.
Parametric order book is keeping the costs of liqudity provision low while allowing a high quality of the peg.
Why throw that away?
If we continue to move in these silly circles, I’m going to create a motion that allows Nu funded operations at up to 2%, while limiting ALP and MLP to below 1%.
My position on parametric order books has always been that they would permit us to support illiquid trading pairs, such as Peercoin/NBT. They were never intended to be used for BTC or USD pairs. I am surprised they are being used on BTC pairs and don’t think they should. In my view, parametric order books are yet to be implemented, because we have no trading pairs with illiquid assets such as Peercoin.
We haven’t expanded to these kinds of pairs because we lack the scale to support them. I still think we should attempt to support ETH pairs now, but it hasn’t happened for a variety of reasons. However, ETH pairs do not require parametric order books, because ETH is very liquid.