The dominant market price is used to valuate your portfolio. If your submission price strays away from the dominant price, then in the eyes of the majority of the market (according to the second conclusion here) you are paying for their profit.
There’s a concept of ‘one man’s trash’ when it comes to trades. If the daily exchange volume of NSR is something like $10, the auctions could easily have more volume. In that case, the auction price is the dominant market price. If the auction closes on a price, that price is more ‘fair’ than any current exchange price because it had the most participants agreeing on a price.
It should be clear: Even if your price point is $1000000/NSR, you will still be trading your coins at the auction closing price. The concept of ‘profit’ really starts to give way to a concept of a ‘conversion efficiency’ between NSR and NBT at the market price. When your price point is close to auction close, we can for sure talk about profit and loss and spread. When your price point is infinite or zero (i.e. you’re only submitting NSR or NBT alone) we need to talk about conversion efficiency and how much you can submit to auction without dumping the price too much. (hint: it’s linear with the total auction volume)
I have 100 NBT. I want NSR for it at the going rate. I know that at least MoD and Cryptog have been submitting regularly to auction. You have a bunch of NSR you want to convert to NBT. We will tentatively put our funds up, playing chicken with each other and matching each other’s bids. Eventually, we have made the conversion and are happy to go on our way, it may take more than 1 auction cycle. MoD and Cryptog get the profit from the difference on any deviation of our exchange from the ‘dominant price’. You and I treat this loss as a form of exchange penalty. With time, this process should become less tentative and more automatic.
In my eyes, everyone lost and I gained, because I didn’t want the NBT and I did want the NSR. In your eyes the same thing, you won and everyone else lost. Cryptog and MoD see it all as a wash, except for the bits here and there to cover network fee.
If you consider 1NSR=1000NBT you mostly will gain in the auction according to your own price(“Calculated based on one’s own price, no one makes a loss. The more one’s own price deviates from the average price, the greater profit becomes.”) but not really, because you have to valuate your portfolio by the most probable market liquidation price, and that price is the dominant (by volume) market price. Not all prices are equal here.
I think you should separate the argument on speculative value of the auction. I for one don’t need another speculative venue.
We only have 1 liquidid nsr market: poloniex. I think having a second speculative venue for nsr is by no means a negligible thing.
Without the speculation done by MoD and Cryptog in my example, the auction would fail miserably. I would submit my 100 NBT to auction, you would submit 1 NSR, and you would walk away with all my money. The speculation and arbitration with outside markets (I.e. our 1 other speculative venue) is the whole method by which price exploration is driven.
If you want, we can break it down into two players:
Player 1 is speculative only and keeps the auction closing price near the market price. Without player 1, the auction is unreliable and near worthless.
Player 2 uses the auction only as a burn gateway to convert only nbt to nsr or only nsr to nbt. Player 2 relies on player 1 to keep the price relevant.
Best case scenario:
Auction volumes are huge and auction always ends right on market value. Anyone that wants to can convert any amount of NBT to NSR or vice versa at market rates for ~0.0124 NBT and ~1.24 NSR. They do not need to make any kind of account or provide any kind of identifying information aside from an NSR and an NBT address that get linked together. The funds for conversion ultimately come from shareholders burning NBT or NSR to keep up with the market. If that is not a burn gateway, I’m really unsure what a burn gateway looks like.
We can assume that the result of the auction is close to the external market price.
As long as there’s sufficient participation (volume) in the auction, Nu can participate by submitting only NBT or only NSR to get them exchanged to NSR or NBT.
The price point of the auction will be moved away from market price by that.
As long as the volume provided by Nu is small enough (in relation to the volume already submitted to the auction) the price point will not be moved far.
In the end Nu will make a slightly worse deal than exchanging at the current market price and the other participants who were close to the price point (before Nu entered the scene) will make a slightly better deal than exchanging at the current market price.
The point here is that compared to exchanges the auction can exchange quite big volumes of NBT or NSR, respectively without moving the market much.
With markets as illiquid as they are at the moment there’s no better approach for Nu to get big volumes of NBT or NSR traded without messing up the market price.
If Nu were to sell, say 1,000,000 NSR (to buy NBT and burn them) at bter it wouldn’t even be possible (buy side too small) and at poloniex it would push the price significantly down.
After all this was the reason why the last NBT burn was initiated by an NSR auction and no NSR sale at exchanges.
This is why this auction is so important.
Or do I still get it wrong?
About the pricefeed :
I am not sure what you guys are trying to achieve and didn’t read the whole thread.
If I understand correctly you can make use of having a real-time NSR/BTC price. Am I correct? (or NSR/USD?)
There is no such thing as “the price” as someone pointed out before. If you want just one number, then it is a proxy estimation. One way to compute it is to compute the average across markets* and auctions weighted by their respective 24h volume .
*all markets where NSR is traded : NSR/BTC poloniex, bter, ccedk , but also NSR/NBT or any other existing pairs.
Then since you have different denominated price you should also compute the weighted average of BTC (i.e. https://bitcoinaverage.com/explain )
If desirable I can try to track NSR/USD price and spit it out the price streaming service.
That’s all correct MoD, aside from the fact that the act of Nu submitting to auction will increase participation and so may result in Nu actually getting a better price than on the open market.
mhps is saying that there doesn’t need to be a speculative element, the burners will be enough. I’m arguing that the speculative element is what keeps the price close to external market price and that phase 2: staibilization is actually necessary as an ongoing process to keep the auction honest.
There is only 1 theoretical attack vector for the automated auction (not including hacking the server, bribing the auctioneer, 51%, etc.): dominate 1 side. At that point you win everything on the other side of the auction. The cost of this skyrockets when there are other participants, but if we don’t have people participating and speculating for tiny spread-like rewards, dominating the auction becomes a very effective means of manipulating the burns (in the case of a seeded auction). If the argument is that it is unprofitable for speculation because there is no true spread, I think you will see how wildly the auction prices fluctuate in the beginning. I’m expecting changes up to 10% between auctions in the beginning as people settle down and price-discover. Eventually, this volatility will calm down, but isn’t that the whole point?
The concept is that the auction closes on that exact dominant market price. Then, everyone trades everything at that price. Since no one trades at any price other than the dominant market price, from the dominant price perspective no one ever loses and no one ever wins. However, since people do not operate from the dominant price perspective at all times, there is game to be had in the auction.
@desrever Thank you! Yes, we could use an NSR/USD tracking system. For BTC/USD I used the same price feed the tllp bots run off of, but that’s less of a weighted average and more of a ‘just use bitfinex’ kind of philosophy. For NSR/BTC I’m using a cocktail of poloniex stuff like 24h high and low and stuff. I had troubles getting Bter up, but yes volume weighted averages were the intent. The issue is that NSR is so much more volatile than btc that ‘current price’ really only tells half the picture. Anyway, this would be a price computed by Nu that it suggests auction participants use if they want the ‘going price’. So yes, that would be very helpful, thank you.
I need to ask further questions regarding this. Nu can get a better price than exchanging big amounts at the open market, but the price will still be worse than the best price (market boundary price, if it can be called like this) Nu could get for comparably small amounts, right?
At least that’s my take why this auction is so important and why it offers an incentive to participate:
- both Nu and other participants get better prices than they’d get if they wanted to trade a similar amount at exchanges
- Nu will have a slightly worse price than market boundary price
- other participants will have a slightly better price than market boundary price
In the end both Nu and the rest of the participants are better off participating in the auction than using exchanges.
Even with Nu’s exchange rate being slightly worse than the boundary price it’s better than the exchange rate would have been after Nu had dropped the NBT or NSR at the (thin) market.
As Nu is better off using the auction than exchanges, it has an incentive to participate.
The participants except from Nu have an even better incentive than Nu, because they will not only have a better price than when using exchanges, they will also profit from Nu participating and moving the auction price point.
Each participant can win something and lose only the transaction fee (allow me to ignore the already mentioned risks for now); as long as the participants stay close to the price point no big difference between sent and received NBT, NSR will occur.
Participants far from the price point will exchange NBT and NSR and be happy about the deal - at least they should be
Not necessarily. First off, the strong argument that most NuCrypt holders would rather trust Nu elected officials to handle NuCrypt coins rather than third party exchanges. Secondly, the medium strength argument that there are much smaller fees in this process. Thirdly, the weak argument that a the trade is direct from NSR to NBT the leverage is much tighter than going NSR>BTC>USD>NBT like must be done to make the conversion on open exchanges now.
However, the trump argument is that in this kind of an auction liquidity is almost guaranteed. Because of that, we could easily see whales that are more comfortable trading on this venue than an open exchange. By pushing a bigger seed, we may see more competition arise than we ever would by trying to sell a small amount on an open exchange.
Try putting up a small nsr market order on bter in the middle of the spread and you’ll find it takes a long time to get eaten. Put a big market order and it will get snapped right up. A similar concept applies here, but it is intensified by grouping orders in time and following a different market procedure.
I agree, not only is very volatile, the spread is also wider than usual, so that also bid/asks value are not very helpful. (I’ll open a new thread on this soon).
this would be a price computed by Nu that it suggests auction participants use if they want the ‘going price’
So is a sort of suggestion that will be displayed somewhere during auctions? mmm ok. What if we display more than just one value, with a short explanation? Example :
- 24h weighted average trade price : 0.23400 $
- 24h change +5.34 %
- 24h high (across markets) 0.25 $
- 24h low (across markets) : 0.22 $
- 24h weighted average bid/ask spread : 0.2$
- 24 h volume: 3000$ Top volume : poloniex NSR/BTC
This helps in taking more informed decisions.
That is one of the risks.
Maybe someone can get custodian fee to sell certain amount of NSR and NBT in every auction period at e.g. averaged market prices weighted by volume. It’s basically pegging operation to provide liquidity. The fee is paid for the work and exchange rate / attacker risks.
@desrever Yah, using more stats is kind of where I was headed. This is more than just a display, this is something of a suggestion for the automated bots. Currently, I am intending on releasing an update tonight (I’m going away for a week starting early tomorrow) in which a participant can choose their price from 3 options:
- Nu Suggested NSR/USD price
- Previous Auction Close NSR/NBT price
- Any Static Number (float)
So the Nu suggested price will be somewhat realized by certain bots at certain times, so it is necessary to have a single source. However, I personally think each user should make their own trading bots, so it might be a good idea to supply a basic set of tools and let each person assemble their own concept of what the ‘going rate’ is.
@mhps You’re basically talking about Nu seeding both sides. We can do this if people really want to, but I think it is wasteful and unncessary.
The ‘Dominant Auction’ risk is only a risk if the seed is small or nonexistant, as is currently the case. If there is a seed, market participation should be a given and stablizers are less important. If you want to seed both sides a small amount to start with, then slowly back off on one side and grow the other till we’re up to speed, I would be down with that.
I am taking the auctions offline indefinitely, please do not send additional funds. When I come back online, I hope to have upgraded auction software, website, upgraded wallet to Nu 2.0 and possibly an upgraded server (I’m having memory issues, the usage seems on par with running a tllp). Possibly upgraded participant software as well, who knows.
Liquidity and thoughts about balancing the ask and bid side
If you had announced to take auctions offline, because of lacking interest I would have been really desperate.
But I’m glad you only took it offline to make some upgrades
I think this type of auction - especially once it has more participation and can be held as seeded auction can do Nu a big favour.
It would be a good way to bring NBT to market once the market needs to be provided with additional liquidity.
If @JordanLee’s projection stays true there will be need for NBT grants:
Having the custodian participate with the granted NBT in a seeded auction would be a direct way to do a NSR buyback with the issued NBT.
It can be assumed that some of the NBT that are distributed by this auction will be used for TLLP operations or NuLagoon and are made available for liquidity this way!
All it requires is some more participation!
…the alternative is to sell the NBT at an exchange at a risk we already know from February this year…
Doing this auction instead is almost free of counterparty risk!
Theoretically, if we used provable burns and performed the auction with wallet software (like how grants are performed) then it truly would be 0 counterparty risk. With this implementation, I am the counterparty risk, as I could walk away with the auction funds at any time (though all participants would of course know when they failed to receive their funds).
As for a custodian participating with granted funds, that is exactly what is meant by “seeded”. The auctions are not meant to be a way for the individual custodian to balance their checkbook (though that is a very useful side effect). The main purpose behind seeded auctions is to balance the entire Nu economy (sell vrs buy side) on a global scale using a pseudo-continuous burn method.
The auctions were taken offline for purely technical reasons and I hope to make many improvements such that forum readers will feel more comfortable participating once it comes back up.
Right. I adjusted the sentence. But in difference to centralized exchanges the auction software runs on a server nobody knows the IP address.
So you are still the counterparty - in case you’d walk away with the funds - but this auction is providing so much less attack vectors than exchanges do that it’s worth developing it further.
The custodian that receives the grant poses a counterparty risk as well. Completely without counterparty risk this is simply not possible. It can be mitigated by spreading the control over funds, but can’t be completely eliminated.
Once BCE is complete, I hope (NBT and NSR) grants can be issued at multi signature addresses.
That would be a big improvement, although I’m not able to say whether that’s possible.
@JordanLee, can grant addresses be NBT or NSR multi signature addresses?
It should be possible to tie the auction to NBT and NSR multi signature addresses though.
Only I’m not sure how to handle the payouts.
A kind of distribution list would have to be created for each auction - pretty much the job your auction software already does.
As the participating transactions are visible in the blockchain it can be verified how the distribution needs to be done.
The reputed signers of the auction addresses would then execute withdrawals to the participants’ addresses.
Am I completely off the track now?
You’re like a train coming in to station. 90% of the auction software is simply analyzing the block chain and finding that distribution list. 5% is the participant software (including price feeds), 1% is updating the website automatically, and 4% is registration (not yet implemented).
Multisig is totally viable, though it would be beyond my skill range. The auction transaction (I.e. derivation of the distribution list) is 100% verifiable using the block chain if we have people register their nsr-nbt link by signing some kind of ledger with their private keys (this does not need to happen on the block chain as there is no concept of order or time).
What I’m getting at is that we could take this beyond multisig and write it into the core protocol. Instead of sending funds to an auction address a participant would do a special burn event. At auction close, all funds on the ‘distribution list’ are created fresh on the block chain at the linked address. At that point the seeding is native (the entire auction becomes a custodial grant event) and must be controlled via voting on the blockchain (which is only 1 additional bit per block).
Sorry - couldn’t resist. Sometimes I play up
Nope. I’m working on logging, but haven’t done anything in a while. My work on the ALP software is really really helping me understand how to code this better.