If Nu provides liquidity on B&C, it will be essentially paying the BKC fee to provide a service for B&C. Are we in a unique position to nullify that fee solely for liquidity providers?
I will start with a number of assumptions that I hope to relax later:
BTC/NBT is the only pair on B&C
Everyone knows and agrees on the BTC/USD price
BTC has 0 volatility
Nu and B&C agree 100% on what liquidity provision is
‘Liquidity provision’ is defined by having up to 1000 nbt total orders up at all times on both sell and buy side at 0.2% offset from the price.
With these assumptions, we can begin going through what a liquidity Tx would look like. First, an LP gets money together and tells Nu and B&C that they want to provide, exactly how much, and when. This could be done nicely by submitting the unsigned BKC order to Nu and B&C for approval. Once it is approved, the LP signs and places the order. Then, Nu pays the LP’s reward and B&C pays the fee.
What would the BKC order look like? It would of course be btc or nbt at 0.2% offset from the price, but would there be an OP_return on it? Nu could pay a certain reward for a certain return length, despite whether the order gets bought or not. Or, Nu could pay a small reward at the start, then the full reward based on time of provision once the order is filled or the return time is hit.
Am I on the right track so far? I haven’t even begun to lift assumptions yet.
Basically, Nu should be a priveledged exchange customer. Otherwise, money siphons from Nu to B&C in the form of fees. As B&C profits from having liquid markets, B&C should consider ways to essentially waive the BKC fee for liquidity providers.
Placing orders on BCE requires transactions, which have a size and require a fee in BKC to be paid (depending in the size).
So placing orders at BCE costs Nu money.
But providing liquidity at BCE doesn’t only cost Nu money, it’s expected to reduce the compensation for liquidity providing, because BCE is by design more reliable than decentralized exchanges.
The thing is: BCE pretty much relies on the liquidity in an USD equivalent crypto currency. It’s for the benefit of BCE as well.
I think the question for reducing or even nullifying that fee for NBT liquidity providing is justified. I don’t know how to handle that, but I can imagine granting BKC to liquidity providers for free or at a very low rate. Liquidity providers would then not only apply for a NBT (or NSR) grant to pay the compensation, but for a BKC grant as well. The BKC could be sold (for NBT) by the pool operator to pay the liquidity providers.
The current ALP implementation is not able to track the number of placed and deleted orders .I doubt it will be easy to accomplish that, but it might not be necessary at all. Not being able to track that directly has an effect on the behaviour and the parameters of the bots: a flat compensation for liquidity providing would need to compensate the real costs of placing and deleting orders.
I expect it incentivizes using a smaller offset and a bigger deviation for the orders compared to centralized exchanges.
That way the orders don’t need to be shifted (deleted and placed at a new ratio) very often.
Without compensating liquidity providers for the fees to place orders, the spread can’t be very tight. The liquidity providers need to earn the money for shifting the walls from the filled orders. At centralized exchanges they only pay for filled orders.
First of all, where did the term ALP come from? I thought we were going to use TNLP. But I digress…
The current ALP implementation is next to useless for B&C liquidity provision.
We can know exactly what orders are being placed and how much the BKC fee is. It’s all written on the blockchain. In some ways, B&C is even more convenient than API or what have you because everything is 100% public and verifiable.
Steps toward submitting liquidity that gets rewarded:
BKS holders agree to pay for any BKC costs that Nu incurs. A limit on the KB/block that is subsidized would be prudent. Nu is given a standing reserve of BKC.
Nu puts out a request for x liquidity at y price for z time.
LP reveals to Nu the unsigned BKC order with x,y,z parameters.
Nu approves the order and removes the public request for liquidity.
LP signs the BKC order and submits it to the network.
Nu pays the gives the LP the BKC fee but waits until after the order is either OP_return’d or filled to give the NBT reward. Alternatively, we could artificially insert a payment/minute if we want, it’s really not a theoretical issue but a practical one.
Rinse and repeat.
“Nu” in all these cases can be replaced with decentralized functions. In step 1, multisig holds the BKC. In step 2, a decentralized price feed system would be ideal (parametric order book?). In step 3 and 4, a team of Nu pool operators would suffice. In step 6, an elected custodian.
For the complete view, think about it like this:
Nu hires B&C pool operators. Pool operators run push services where they propose different x,y,z combos. When 4 pool operators agree on a set of parameters, the LP is given a green light to submit. If the LP can get all 4 operators to agree, the push is removed and the LP signs their order. After the order is submitted the BKC multisig is accessed and the LP is given the fee. When it is returned or filled, a multisig NBT address controlled by the pool operators sends NBT to the LP.
No, placing orders on BCEX costs Nu money because they have to pay the BKC fee.
If BCEX subsidizes Nu’s liquidity, the consumable would be blockchain space. Basically, B&C should be willing to allocate a certain amount of blockchain space per block for Nu’s liquidity operations.
Nullifying would be ideal but perhaps it would be perceived as unfair from the perspective of ordinary traders.
So a decreased fee is probably more appropriate.
But I feel that even in case it is the full fee, it could still be profitable for NuShareholders because we can speculate that the liquidity enabled by BCE would enable to stimulate greatly the demand for NuBits and hence increase Nu’s revenues sufficiently.
No matter what, the LP’s will not shoulder the burden of the BKC fees, they will instead pass those along to Nu. If B&C does not provide Nu with sufficient BKC, Nu must buy BKC from B&C directly to supply to its custodians. If we force the LP’s to buy the BKC themselves, they will upcharge Nu for the effort of doing so (which will of course come through as higher reward rates). Nu should head this off at the pass by giving the LP’s exactly how much BKC they need.
I am suggesting a $0 BKC price for Nu buying from B&C based on mutual trust. B&C can charge $0.1/BKC or even the full $1/BKC if they want, but B&C should realize that LP targets are directly correlated with reward rates and that higher LP targets means more dividends for BKS holders in the long run. As is being shown at Polo with NuPool and NuLagoon: liquidity stimulates trade volumes.
That’s what I’m saying: BCEx wants Nu’s service; the only thing it stands to lose by giving Nu free BKC is:
Nu loses the BKC reserve onto the market somehow (I.e. funds are stolen)
Nu will use blockchain space for liquidity operations
If BKS holders see the value is Nu liquidity operations to generate day 1 (or shortly thereafter) trade volume, they will gladly give a portion of blockchain space for that service.
If B&C pays for Nu’s BKC, liquidity provision on B&C will be very close to fundamental limits for rewards. Of course, liquidity provision will never truly make money for Nu except through putting NBT into circulation, which is a 0 interest loan at best. The place Nu will truly make money is off the NBT block chain fee as people arbitrage B&C using other exchanges.
NBT is an arbitrage token. B&C will have a lot of pairs to arbitrage; that is where we make our money. Insert shameless plug for volume dependent fees here.
I think NSR holders should speak up about the importance of Nu to B&C such that Nu won’t be paying anything to BCEx, they would have a mutual relationship. Nu must pay for liquidity, there is no way around that, and to justify the liquidity costs we should be instituting a serious arbitrage penalty. With BCEx taking care of exchange hack risk (which is arguably a large portion of the current LP risk), Nu stands to turn a profit.
There are ways to spin this argument such that Nu should pay BCEx for BKC or BCEx should pay for Nu’s liquidity, but the core is that they are in a mutual relationship. The most profitable thing all around would be to let both grow strong, which is why I am arguing for an allotted amount of KB/block for verifiable liquidity activity to be reimbursed to Nu in the form of BKC, which they are expected to distribute amongst their LP’s. I have previously outlined possible technical details, but it would of course be better if the NuTeam did it their way.
It depends on the willingness of BKS holders to compensate Nu LPC cost. Although half BKS held in Nushare holders hands, there are some investors who have no interest in Nu when Jordan said they wanted to buy BKS solely and then the funding rule changed.
I"ll vote for nu cost reduction. B&C and Nu should benefit each other.
But the plan is to make NBT the main pivot in the trading pairs. In this perspective, NBT would become the arbitrage token that brings the most volume to BCE, and hence the most revenues.
At this point, it is still unclear how much revenue B&C would bring to Nu, because we don’t know exactly which new cost and new margin/profit LPCs working on B&C will be lead to and shareholders choose.
Hmm…exactly where would we need to peg Nubit at B&C ? Since B&C doesn’t use dollars we don’t need to peg Nubits at B&C as long as Nubits stay stable at other exchanges its already pegged. I’m unsure as to what we would actually be pegging Nubit against on B&C. I mean BTC/USD isn’t stable it fluctuates reflecting price increases/downswings just as BTC/NBT should fluctuate corresponding to BTC/USD movements.
All we need for B&C is good liquidity at other exchanges so people can buy Nubits and transfer them to B&C, possibly even setting up an external vendor site that sells 1 Nubit for 1 Dollar directly to customers.
This is the great thing about B&C it creates a huge demand for Nubits due to Nubits replacing the USD at the exchange. We just need to make sure enough Nubits are readily available at multiple places for people wanting to transfer funds to B&C.
Exchanges don’t supply the dollars people at their exchange trade with, they merely provide the trading pairs. Traders themselves supply the liquidity. This shouldn’t cost either Nu or B&C anything.
