The trade volume has been low recently.
Over the last 24h, it has been 2k but the buy side is 78k and the sell side is 103k.
Assuming that most demand comes from hedgers, I think we are offering too much liquidity.
Of course, when bitcoin decreases in price, the demand will pick back up.
Also, a new type of demand could show up from nowhere suddenly.
Offering some decent level of liquidity is important.
So we cannot decrease drastically the liquidity.
Still we should decrease it.
Why? Because it costs money.
If Nu was a bakery, it as if we were baking 1000 croissants while there are only 25 ones actually purchased…
Ideally, there should be a mechanism that automatically adjusts the liquidity according to the demand…
One important indicator is historical trade volume.
Another one is the level of the sell side liquidity…The higher it is, the lower the level of the current demand.
The solution seems be in using skillfully Tier1/Tier2/Tier3 via the parametric order book mechanism as it was described here. Basically, only a portion of the liquidity is put around the peg price of 1.00 USD. That portion is the one that got rewarded (RL for rewarded liquidity). The rest of the liquidity put into order (with a spread) or not put into order (Tier2 or Tier3) is not rewarded.
When RL is depleted, the parametric order bool would replenish automatically the walls around the peg price to form a brand-new RL.
So here, not only we have a mechanism to reduce our liquidity costs drastically (we do not reward Tier2 and Tier3 and we do not reward the unnecessary Tier1) but we have also an automatic mechanism to offer the right liquidity at the right time.
I feel it will a huge game changer for Nu.
However, until the parametric order book is implemented, we should adjust manually the liquidity.
Thus, I suggest we decrease by half the overall liquidity for the next 30 days.
It seems that the parametric order thing could become operational very soon. So 30 days look reasonable because it is not too long not too short. Basically, I suggest we reduce the liquidity offered by all providers for the next wave of custodial motions votes.
What do you think?