[Passed] NuPool Grant Proposal 2

[woolly_sammoth]

Very good points. I am currently working on a script that scrapes the .credits files from the server and calculates minute by minute breakdown of the liquidity provided. It is expected that this can be checked against the reported liquidity from the Nu client for that time.
As for checking how much volume the liquidity has generated, that may be a little more tricky. Should be posiible with some api calls and log parsing though.
Anything that gets coded towards these ends will be made available publicly for review and also to be available for future pools reporting needs.

[cryptog]

So this proposal would generate as much as 5 times the liquidity provided currently.
I feel it is a healthy boldness
That would certainly make Nu look bigger and would be good for its visibility.
That is why I would like to support it.
However Nu has already 40k on the buy side and 63k the sell side at the time of this writing but only 9k of trade volume over the last 24h.
So the question we need to ask ourselves is as follows: would increasing drastically the liquidity stimulate the trade volume? In other words, what would be the cost performance of such an increase?

how much volume the liquidity has generated,

Can’t we check that in CMC?

[creon]

Volume can be seen here: https://www.cryptocoincharts.info/pair/nbt/btc/bittrex/1-month

Its the grey areas on the bottom, probably a running 24h average. So it peaked twice to around 4k but otherwise rarely went over 2k. There were a lot more trades on bitcoin.co.id. It really depends on the current hype of NBT and the BTC price fluctuation.

So I don’t know if we really need this much liquidity to support the natural market, but we will soon need a similar buy side liquidity to compensate the sell pressure from the B&C development.

[woolly_sammoth]

Also very good question.

That would certainly make Nu look bigger and would be good for its visibility

That is the main aim of this proposal. It provides a very attractive offer to get fresh funds into the liquidity system as well as hopefully stimulating others towards running competing pools.
The worry is (as has been pointed out privately) that the amount of NBT generated by the grant is certainly unsustainable in the long term, and possibly the short term. This is the reason for providing the proposal in draft form rather than just going straight for the vote, so that this question can be asked and debated.
It’s certainly true that there is a link between the amount of liquidity provided to market and the volume. Whether providing this liquidity will stimulate that volume isn’t a question I can answer with any degree of certainty.
It is certainly a risk, both to the peg and to Nu. The question from me is: is it a risk worth taking when weighed with the benefits of raising the visibility of Nu and aiming for the end point of reducing the cost of liquidity provision through increased competition? I like to think so but I’m sure that others have opposing views.

[creon]

is it a risk worth taking when weighed with the benefits of raising the visibility of Nu and aiming for the end point of reducing the cost of liquidity provision through increased competition

The question is more if there is any better use of the 10,000 NBT printed through this. As pointed out in the PM, 0.1% / day customer fee + 300 NBT operator fee has always been kind of the target, and I think I don’t spoiler the competition in the current nupool operation if I say that you all seem to agree on this since the minimal interest rates you provide are mostly around this area. This would be at most 3,300 NBT liability per month - something we might even be able to afford. I would even be ok with 50k total liquidity and 0.2% per day for customers to attract more users, but the deal is already pretty damn good. And we will surely find somebody to burn 3,300 NBT.

Will we also find someone each month to burn 10,000 NBT?

[masterOfDisaster]

I have outlined the only solution (I can think of) to reduce costs dramatically here:

On the profitability of liquidity provision

Let me give an example with the NBT/BTC pair - I'm going to use BTC and crypto exchangeable as well as USD and fiat. Exchanges that don't have NBT/fiat pairs, but NBT/BTC pairs, often have BTC/fiat pairs as well. One way to fight the volatility issues the NBT/BTC pair poses, is to shift BTC to fiat and create a virtual NBT/fiat pair by chaining the two pairs NBT/BTC -> BTC/fiat. Drawback I can think of: additional fees slower response to market additional complexity you can't withdraw f…

In short:

• if you have a NBT/crypto pair increase the spread
• trade a decent amount of crypt you receive to USD, put it there and keep it as Tier 2 liquidity reserve until it’s needed

That reduces the volatility risks when trading NBT/crypto and the spread can even generate revenue if it’s in excess of two times the exchange fee.

I’m not glad about putting the Tier 2 liquidity into USD, but as we can’t trade the crypto to NSR and burn them to receive new NBT, “parking” Tier 2 in USD seems to be the only way to get rid off a big part of the volatility risk.

I’d prefer increasing the spread and keeping a big part of the liquidity in USD to trying to find each month somebody to burn 10,000 NBT…

[woolly_sammoth]

I understand what you are saying and sympathise with your concerns.
I would like to reitterate that I don;t see the figure being 10,000 NBT month on month. This is a ‘big bang’ introductory offer to provide the big headlines that will attract outside users who may or may not have heard of Nu.
I fully intend for the cost to Nu of providing Liquidity to go down. Whether that is through reducing this grant to reduce the immediate liability or taking the risk and keeping it as is, and using it to drive competition.

I think you would agree that we have reached somewhat of an impasse in our private discussion of this. I would be very interested to hear what other Shareholders views are on the current state of Liquidity provision and this proposals place in it.

[JordanLee]

When evaluating liquidity proposal such as this, several questions should be answered first:

1. What is the total amount the network should pay for liquidity on a monthly basis at this time?
2. How much is currently committed to other liquidity operations?
3. Could and should the costs to shareholders be reduced by increasing the spread between the walls?

I think around 10,000 NBT is a reasonable monthly liquidity budget at this time. 75 NBT is likely to be committed to NuPond, 1750 to Liquid Bits and 1100 to NuLagoon. That leaves a little over 7000 unallocated. While I would like to see a better distribution among the pools (not so much at NuPool), the other pools are not prepared to ramp up right now.

If transaction fees are 0.2% for each side, perhaps a spread of 0.3% or 0.4% for each side could be considered, with profits reducing the fee to shareholders. It is also possible to negotiate exchange fees as we were doing in January and February. Certainly pools that can negotiate fee reductions will be at an advantage over pools that can’t or won’t. @willy and @woolly_sammoth what are your thoughts regarding the suitability of raising spreads and negotiating discounted fees?

[creon]

The spread already has a 0.5% tolerance. If pool operators increase the spread, then we don’t have a pegged currency anymore. If someone wants to provide liquidity with a larger spread, then I can write a bot for that which uses existing LPCs to take the profit, but those operations must not be shareholder funded. 10,000 NBT are about 5M NSR dilution every month. I would rather say let’s shift the payout to NSR for such a large operation.

Can you please tell me the state on this? I just made an NSR grant on testnet by simply removing all your hardcoded checks. Its only the restrictions on the coinbase transactions that are a bit tricky. When will we have NSR grants officially implemented?

[cryptog]

perhaps a spread of 0.3% or 0.4%

I would be in favor of increasing the spread because providing a stable crypto at this time is a service that costs. So traders that use NuBits must pay somewhat for this service.

The spread already has a 0.5% tolerance.

Can’t we increase easily that tolerance in the tllp bot you created?

5M NSR dilution every month.

I think I could consider such a way to reward lpcs.

This is only my opinion.

[creon]

Can’t we increase easily that tolerance in the tllp bot you created?

Of course.

I think I could consider such a way to reward lpcs.

This corresponds to an NSR inflation of 7.2% from liquidity provision assuming we can keep the current NSR price + 2% block reward. So about 10% inflation. Most PoS coins have around 1% yearly inflation today. So we have to get about ten times the value in our ecosystem than these coins.

This is why I like the idea of NSR provision so much, because it directly affects current shareholders and doesn’t allow to shift liability into the future. This establishes trust to the outside world. Again, @JordanLee, please give us some ETA for the NSR grants. I’ll set up a pool immediately once this is implemented.

[JordanLee]

The spread already has a 0.5% tolerance.

What normally happens to these profits?

10,000 NBT are about 5M NSR dilution every month. I would rather say let’s shift the payout to NSR for such a large operation.

I’m concerned that paying NSR to pool users could have a negative impact on the price of NSR. It is well understood that most Bitcoin miners immediately sell their BTC. Right now NSR is relatively illiquid. It is better to sell NSR to investors that are likely to want to hold and use the sale proceeds to pay pool users.

Can you please tell me the state on this? I just made an NSR grant on testnet by simply removing all your hardcoded checks. Its only the restrictions on the coinbase transactions that are a bit tricky. When will we have NSR grants officially implemented?

You can watch the ongoing progress and conversation about this here:

Permit NuShare custodians and burning transactions

It is our top development priority.

[Nagalim]

What normally happens to these profits?

NBT/BTC is already unprofitable. The way the bot works is to move the orders if the price exceeds %0.5 from where the order is. This is to stop rapid movements of orders. There is not a catch-all btc price, we should be using a btc sell price and a btc buy price like coinbase does.

I agree with Creon about paying out liquidity with NSR, to promote the crossover between shareholders and custodians. Miners are a third party to BTC holders, and we should be paying any third party developers or what have you with NBT. However, I do not believe custodians should be entirely third party, I think we should incentivize custodians to become shareholders by giving them NSR instead of NBT so they don’t have to trade for it.

[creon]

Nice, the issue tracker is open

What normally happens to these profits?

I don’t think that there is much profit from that, but large liquidity provider will be able to say more about this. The main reason to handle it this way is to reduce API calls from the client side, i.e. the server allows for a 0.25% deviation from the actual spread, which is the exchange fee (usually around 0.2 - 0.25%, so its about 0.5% in total).

I’m concerned that paying NSR to pool users could have a negative impact on the price of NSR.

I would like to have this as separate pool. Right now all pool operations are mostly funded by shareholders. Many of them will be more than happy with the NSR reward in order to improve their voting power and influence. People who prefer a stable value payout can stay on the NBT pool.

Let’s consider the alternative: Can we really expect someone to burn 10,000 NBT at market price? I think we probably would need to pay more here.

[JordanLee]

I would like to have this as separate pool. Right now all pool operations are mostly funded by shareholders. Many of them will be more than happy with the NSR reward in order to improve their voting power and influence. People who prefer a stable value payout can stay on the NBT pool.

Giving a choice for NSR payout while leaving NBT as a convenient option is likely to prevent large numbers of NSR from being sold, so I would support that.

[cryptog]

Giving a choice for NSR payout while leaving NBT as a convenient option

I feel the amount in NSR should correspond to 1/2 or 1/4 of the amount in NBT at market price or perhaps even less because getting NSR should be considered more valuable.

[willy]

I’m not sure I’m getting this correctly.

You propose that if someone has earned a compensation of 1 NBT, you want to give them 0.50 NBT or 0.25 NBT equivalent in NSR?

[cryptog]

u want to give them 0.50 NBT or 0.25 NBT equivalent in NSR?

Yes. Sorry for being unclear.

[mhps]

If pool operators increase the spread, then we don’t have a pegged currency anymore.

Why? Even we disregard Hongkong, S Korea, and China’s hitorical pegs that had a few persent floating spread and effectively lifted their domestic export sector, we can look at existing e-currencies such as PerfectMoney-USD, OKpay-USD, and even BTC-e-USD etc. They are traded on the market with 2-5% spread and are still regarded as USD by the users

It doesn’t matter what the nushareholders think the spread should be. It matters what the market and users think. We are given ourselves a very hard time and get ourselves into a corner by keeping such a small spread.

If I were a user i’d rather want to have a currency with wider spread but finacially very healthy than one with zero spread but questionable means.

[willy]

Yes. Sorry for being unclear.

No problem at all.
Back to topic: I’m not sure why anyone with no interest in Nu other than liquidity providing (we might attract this kind of PLPCs in the near future) would chose NSR over NBT then. As Jordan mentioned, those people are most likely to convert their coins as fast as they can into their desired countervalue.