[Proposal] Flexable pegging for organic BUY/SELL walls

[Indigoman]

First mention of the proposal: Asymmetrical control in NuBits and the problem it creates

Intro:
Maintaining an exact peg to $1 is very difficult in an open market especially with such volatility in the cryptocurrency world. The responsiblity is put completly on the custodians which would put a great amount of pressure and require alot of capital.

Proposal:
Change peg from exactly $1 to $1+/- X% (buy wall at $(1-X%) sell wall at $(1+X%))

Users of Nubits will have the understanding that the network will maintain a range of value (easier to maintain with help of organic free market trading) rather than a fixed rate of $1 which is more difficult to maintain. Hence, businesses that operate with Nubits would have the incentive to hold when the price is lower than $1 and sell when the price exceeds $1. They could benefit from the spread. As long as the spread is chosen wisely, it would provide relative stability to the market and business using NBT. I’ll leave the proper calculation of the correct X% to economists.

The idea behind this is provide a breathing room for traditional traders to profit from trading in NBT encouraging more circulation of Nubits and therefore higher number of transactions and with it higher number of burned NBT due to transaction fees (which is much needed to keep the supply of NBT at bay). Organic buy and sell walls will be created naturally by the market above and below the walls NuBot will use which will ease the pressure off of our custodians. The spread can also be utilized by experienced custodians to trade the market and generate profit for the Nushares network.

That’s the end of the proposal .

I welcome a discussion of the merits of this proposal. Feel free to disect it and present any flaws I’ve missed. Please keep emotions out the discussion and keep it objective and constructive smile

[desrever]

Maintaining an exact peg to $1 is very difficult in an open market especially with such volatility in the cryptocurrency world. The responsiblity is put completly on the custodians which would put a great amount of pressure and require alot of capital.

this very same proposal came by @Chronos a few weeks ago. NuBot implements it, and this functionality is exposed to custodians via a parameter in the configuration file.

What percentage to use and why, is yet to be defined, ad should be 0% currently.

[Chronos]

On NBT/crypto currency pairs, this is a necessity to protect against misplacing the walls. It seems that a good margin may be 0.5% on each side of the peg, for a total of 1% spread, in this scenario. I believe it’s best to get custodian funds off these currency pairs as soon as possible, due to the various risks involved.

On NBT/USD pairs, this is entirely optional.

Pros:

• Easier to maintain peg
• Generates “earning the spread” profits for custodian

Cons:

• Weakens the public perception of the peg (it’s no longer always “right on target”)
• Users of NBT can incur capital gains and losses, which complicates accounting and taxation

In light of this, I favor no spread for the USD/NBT market. Providing a “guaranteed” buy wall at the correct price is of great value to the customer.

[masterOfDisaster]

Cons:

• Weakens the public perception of the peg (it’s no longer always “right on target”)
• Users of NBT can incur capital gains and losses, which complicates accounting and taxation

I second the idea of leaving the NBT/USD trading pair at buy and sell levels of $1 +/- exchange fee as this is what will define the public perception of the “official USD exchange rate of NBT”.

I could imgaine to expand the spread at the NBT/crypto pairs to not only protect against misplaced walls, but as a way to generate revenue. If this spread is chosen to tight it will be a matter of time until this gets abused by arbitrage trading bots. I’d prefer having that earning on the accounts of the custodians.

[KTm]

@Chronos:

What you have presented is very similar to how I’ve had to structure the bot in absence of a fully liquid NBT/USD market.

On CCEDK, the NBT/BTC and NBT/PPC markets are working to maintain a 0.5% spread on each side of the peg. For the NBT/USD market, the price is set at $1.00 +/- exchange fee.

So far, it seems to be working as intended, and we have not seen evidence that arbitrageurs have widely been able to take advantage of pricing differentials within periods of time on the same market, or from market to market.

Here is the latest grant liquidity report, 29-SEPT-2014 @ 17:20 GMT.