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%.
JL says this motion will only have weight because it establishes consensus. As spread regulation already has established consensus, that same logic means that this motion very likely will not pass.
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.
My focus was exactly in the right place when I created the gateways at Poloniex late in 2015.
Without them, there would have been NO peg support by Nu early 2016.
From that I know that effectively supporting the peg is only possible if
an increased spread is allowed
a huge amount of funds is pumped into exchanges (from Nu reserve, at risks we had to face early 2015)
This is my version:
Please continue the discussion here. It makes following it easier.
We need our orderbook to look like the orderbooks of trusted markets. Image is everything, when people look at an NBT order book, it should look like this:
You have obscured that these are questions for desrever, not assertions, by removing “Would there be” from the beginning of the first sentence. In any case, it applies to illiquid pairs, which are the only pairs for which parametric order books are well suited.
There is a useful role in automatically changing the curve values to encourage balancing the available liquidity. In essence, if the sell side has less liquidity, steepen it while while making the buy side more flat.
Illiquidity is a price feed issue, not a spread issue.
It seems like it would be useful to review the reason for parametric order books.
Imagine we decide to maintain liquidity on an NSR/NBT pair. With very low liquidity, there is a real risk that NuBot will attempt to peg NSR. This isn’t possible to maintain, and will result in a loss for anyone attempting to peg NSR. The important question is whether the supported market is creating the price or reacting to it. If most volume in NSR is on a supported NBT pair, then we are making the NSR price, not following the market. That is the problem that parametric order books can address.
With liquid pairs, our own NBT/BTC pair at Poloniex isn’t attempting to peg the BTC price, because trading on the pair is dwarfed by Bitcoin trading on other pairs, which determine the price NuBot offers trades at.
Essentially, parametric order books are needed if there is a risk that our supported pairs will have any where near the majority of trading volume for a particular asset. That isn’t a risk for BTC, ETH and USD markets, so they should not employ parametric order books.
Parametric orderbooks cannot address this price-feed issue. If you attempt to use parametric orderbooks as a solution for the price feed issue on illiquid pairs, your system will abused by people who are manipulating the illiquid price feed. Parametric order books are a solution for better bulk liquidity provision on liquid pairs like BTC. A solution for illiquid pairs will require a lot more thought and attention to the price feed rather than the spread.
The solution to this is a recursive price feed, not parametric order books.
Good luck telling that to traders and bots that don’t care what our product is. They’re just looking at the order books and see big red flags that say ‘this is being manipulated, stay away!’
The only way a trader can know whether the manipulation is from Nu or from some nefarious 3rd party is to know the intimate details. What if someone starts pegging NBT at $0.99 on HitBTC? The volume is so small there we wouldn’t respond for maybe weeks. So then a trader goes and just assumes that the price is correct because they don’t know our details, and they get manipulated. With the parametric order book, a takeover like that would require making a whole lot more waves that shareholders will respond to.
A trader doesn’t need to know anything to buy an altcoin. How are you going to take their NBT away from them?
If you mean to say every NBT user should know this, well if ‘shoulds’ were bitcoins we’d all be rich.
You say you want traders to use bots to arbitrage exchanges. Bots are not aware of what is pegged and what isn’t. If you want bots, we need to cater to bots. People aren’t going to redesign their entire bot just to take advantage of our measly little market. We need to bring them to us, not force them to accommodate our completely new economics.
A lot of bots react based on the order book. If our order book reacts to the LP balance, we can get bots to react to our LP balance. This would be a huuuuuge step forward for us.
Bot operators do typically specify what pairs are to be traded, just like NuBot does. An arbitrageur would set up the BTC/NBT pair as though it were a BTC/USD pair. It is quite simple.
Right, and their bot would proceed to not trade at all because the order book looks screwy. Making a bot that understands the fact that our orderbook looks different from other pairs would require much more than a simple modification.
