[Passed] NuPool Grant Proposal 2

[cryptog]

We are given ourselves a very hard time and get ourselves into a corner by keeping such a small spread.

I fully second that.
I don t see why Nu should continue to provide a stable crypto-currency for free to traders.
Nu has been doing it for more than 6 months. It was maybe justified from a marketing perspective but right now, because of that, Nu is a money losing business.

Right now, I feel that a trader should pay for the privilege of being able to use a stable crypto-currency.
And that is why the spread should be increased drastically.
As I pointed here, we can imagine that B&C could help a lot in that regard: since the costs would be much lower than centralized exchanges, LPCs would be able to take a significant portion of the the traditional exchange trade fees while being able to keeping a small spread and while leaving a significant portion to the shareholders.

[masterOfDisaster]

I agree it is a good idea to allow more flexible spreads.

An improvement is already in the road map.

Once the parametric order book is available (expected for NuBot version 0.35) this will solve some of the financial problems providing liquidity creates.
If someone wants to buy large chunks from a parametric order book (instead of a wall), the price is floating for the benefit of Nu.

At the moment only increasing the spread of the walls can help mitigating the costs.

[mhps]

There have been discussions on flexible organic spread and using simple spread setting to generate income for Nu without disturbing the market

[dysconnect]

Ok, pardon my ignorance. As both a liquidity provider and shareholder I am willing to support increasing the spread, if there is a detailed plan I can agree with.

Volatility risks for liquidity providers may be somewhat lower and mildly offset by the spreads, but exchange default is still real. It is difficult to significantly reduce the interest rate, which is so far the most reasonable form of mitigation to exchange default. On the other hand, in terms of cutting costs, the increase in liquidity targets should be proportionate to the decrease of interests. There are conflicting objectives so it’s hard to decide upon a fair plan.

As a temporary fix, it is easier to support a change in the reward system in liquidity operations, partly to experiment the effects of a spread increase. For example, in NuPool the only way to bid for reward is to change your preferred interest rate. I think, once you reduce the desired interest rate, you should also be allowed to place orders at slightly higher spreads, which gives less volatility risk. We can see how the incentives of liquidity providers play out to support a higher spread and make it cheaper for shareholders.

[masterOfDisaster]

My ignorance sensors didn’t tingle - so either they are broken, or there’s no ignorance

My take is that the volatility risk can be mitigated by

• bigger spreads (for now),
• a parametric order book (with NuBot 0.35) and
• maybe with funds in Tier 2 (fiat):

On the profitability of liquidity provision

I’m thinking of using the tiered model for providing liquidity and move a part of the funds to Tier 2, but stored in fiat and not in BTC.

The exchange default risk could be dramatically reduced with “B&C Exchange”. And with time-locked encryption the funds would be even safe if reputed signers disappeared in such big numbers that the deposits were locked.

[Nagalim]

@masterOfDisaster how do you feel about separating the buy and sell order prices such that the spread is changing and defined by the market. Coinbase.com does this kind of a thing. We could even just use their price feeds.

[masterOfDisaster]

Sounds like a good plan!
Anything that allows providing liquidity at rates that are accepted by the market while saving Nu money (or even making Nu money!) is good for Nu

I imagine the spread to increase in times of high transaction volume - is this assumption valid?
Intuitively one could imagine that the srpead tightens in times of high transaction volume…

With an increasing spread it would be possible to make money in times of high transaction volumes to (partly or fully) compensate the volatility losses - by our experience times of high (BTC) volatility are those with the highest transaction volumes and this is likely to stay this way as long as NBT are mainly used for hedging at exchanges.
It could be an effective countermeasure for volatility risks!

[mhps]

As a temporary fix, it is easier to support a change in the reward system in liquidity operations, partly to experiment the effects of a spread increase.

Not sure this will work well. people will just trade on the exchange where spread is tighter, assuming no friction between exchanges. If we are to experiment, we have to do it on the biggest exchange so liquidity doesn’t just flow to else where.

I imagine the spread to increase in times of high transaction volume - is this assumption valid?

It’s not an assumption. Increasing spread (usually asynmetrically) when market jumps is a widely used strategy by forex market makers to make money and to self-protect. LPCs should be allowed to do this.

[mhps]

For all the pegged coins, in the last 24hr Nubit volume is $70k, bitUSD+bitCNY is $6k, coinoUSD + Tether are low two digits, according t o coinmarketcap.

I think for marketing / demonstration purposes it is enough to lead the runner-up by a factor of 10. Let’s spend rest of the marketing budget run good old ads etc. ( and reward the early adoptor PEGs)

[woolly_sammoth]

The OP has been updated with an modified proposal and voting has started.
The notable changes are the reduction in Target Liquidity (100k > 70k), amount requested (~10k > ~7k) and the reduction in fee (1,000 > 700).
These reductions were made to make the total spend on Liquidity for Nu ~10,000 NBT when the other liquidity sources are taken into account.

The details to vote for are:

BNUPooL5Q4THaAQV3gz3tuPuagVaiwtCaK
6,862

Thanks in advance for your votes.

[creon]

OK, its a lot of liquidity we will have with all the grants together, but this is a good experiment to see if this indeed also attracts the corresponding trading volume. I would have loved if you would have been a bit more specific on your planned documentation efforts and community outreaches, but I am convinced that you have a good concept in mind.

Sorry for playing the penny pincher now, but I also assume that the 138 NBT will be corrected by the true value in the next grant, right? Because its an lower bound which already cannot be reached anymore, looking at the liquidity on bittrex over the last days.

[woolly_sammoth]

Thanks Creon.
With the documentation efforts, there are some plans which were mentioned but a lot will also depend on the issues that arise from the (hopeful) influx of new users. I was cautios about putting too much detail in the proposal text itself as it would be counter productive to be held to produce something which actually gives no value to the users while missing something that is helpful. Rest assured that there will be a lot of movement on this.

Please do play the penny pincher :). Yes. The 138 was the figure calculated a few days ago and assumed that target liquidity would be hit for the remaining duration. That isn’t the case so the remaining Nubits will either be rolled over into the next run or burned.

[cryptog]

9a13182e18122bafb5c21374b3355880ac6291fc verified and custodian grant voted.

[willy]

Regarding fee reductions:

It’s not that easy to implement such a solution in a pooled environment, as many different accounts will have orders running. We could however hand a list displaying the orders which are validated by the pool to the exchanges and hope to get an individual refund / discount for the PLPCs. That wouldn’t necessarily lower costs on shareholder’s side though.

Woolly and I are still discussing the spread topic.

[creon]

Here is an idea:

• Compensate every order with a spread tolerance of < 0.5% with 0.3% per day (as right now). Submit this as Tier 1 liquidity
• Compensate every order with a spread of 0.5% < spread < 1.0% with 0.1% per day, but only up to the remaining target of the original payout (i.e. if the target is 10k, and currently 7k are placed < 0.5% then only 3k will be compensated at 0.1%). Also submit this as Tier 1 liquidity.
• Compensate every order with a spread of 1.0% < spread < 10.0% with 0.01% per day. Note that this is the range where you can make profit anyway, so there should actually not be a large compensation. Submit every order in this area as Tier 2 liquidity
• Allow orders to be placed with a spread of 10.0% < spread < 20.0% These orders don’t get compensated, but each NBT provided here per minute gives you one ticket and every day on ticket is picket randomly and honored with 2 NBT or something. Submit every order in this area as Tier 3 liquidity.

This wouldn’t be so hard to implement. I mean we are already voting for this grant, so here it will be 0.5% anyway as usual. We cannot pay 0.3% for a spread area where you can make profit with a 50 line python arbitrage bot. But you could make a motion to change it.

The user could simply specify the level in the config file so nobody would really need to do math here.

[dysconnect]

Compensate every order with a spread of 1.0% < spread < 10.0% with 0.01% per day. Note that this is the range where you can make profit anyway, so there should actually not be a large compensation. Submit every order in this area as Tier 2 liquidity

Your proposal basically expects people to do this sort of tier 2 liquidity for free. Remember liquidity providers take a lot of risk; this is not a good incentive model, and income from high spreads far from guaranteed. It also concentrates liquidity around very small spreads, which is the opposite of what the above discussion is trying to achieve. An incentive model can be seen as good if it makes the order distribution look like the “parametric order book” mentioned above.

[creon]

I don’t understand. The picture you see in the parametric order book is a cumulative representation, like the buy and sell walls on the exchange. Of course we want to concentrate liquidity around very small spreads, 1 NBT should be 1 USD, and this is also the case in the parametric order book. And above solution will create an order book which looks similar to the right side of the parametric order book picture, where you only have three points on the curve and can adjust the expected slope by setting corresponding interest rates.

That 0.01% is too small for Tier 2 may be true, these numbers serve as example here and surely need some more thought. But in general the parametric order book and this here are equivalent models.

[Nagalim]

Remember liquidity providers take a lot of risk

That is mostly because of the small spread. That’s why we should be paying more for a smaller spread and less for a wider one. Let those willing to take risks for higher reward move their spread closer.

[cryptog]

I understand that in your view the farther away from perfect peg (no spread) the sell/buy spread is the less real liquidity it produces. That is why a higher spread liquidity would be in a lower Tier. I think it would sense.
We should encourage lpcs to adjust their spread and let them know that they are likely to get less rewards in case they put a large spread. Right now, it seems it is not clear at all if you can easily modify the spread in the config file.
Then the market should find a balance in which most of the liquidity should be concentrated on a compromise: decent reward for a tolerable volatility risk.

I do believe tha the current spread 0.2% (it seems in most cases?) is too small.
Even in forex, when you change from usd to jpy you pay more like 1%.
In fact i think traders should have no problems paying more than 0.2%.
Stable crypto is not a normal crypto. This should justify a higher trade commission, not charged by the exchange but by the lpc.

Edit: of course, right now traders would rather hedge with usd in case the spread is too strong but once nbt is spread accross several exchanges hedging with nbt should be more advantageous. Furthermore right now nbt has a strong lead on other pegged crypto. So nothing prevents us from imposing a standard rate at this stage.

[mhps]

Park Rate Voting

@mhps
Roughly starting from here there were discussion about increased spread for 3-4 days. You actually started the discussion from a post somewhere before the one in the link. I would like to hear what you think.

… I think experimentation with spreads is healthy to see how the market reacts. Wider spreads lower the quality of our product, but it also lowers or eliminates the cost of liquidity.

We hear people not trusting Nu because there is no income in sight. How solid is the quality of a financial product if the issuing company has a shaky financial footing?