What about exchange loss risk? (liquidity provided on NBT/BTC and BTC goes down for example)
I feel most of the cost goes in there.
It is because the exchange rarely defaults but BTC going down is a reality.
For example, here the provider lost 2600 NBT more or less on BTC going down.
What about exchange loss risk? (liquidity provided on NBT/BTC and BTC goes down for example)
This can be economically addressed by shorting BTC using OKCoin futures market or Bitfinex (on margin if desired). I spent a bit of time looking into it. Both markets are very liqui, and pricing is quite economical. So, by owning BTC that is used for liquidity provision, you are necessarily going long BTC. You can negate your exposure to price changes by going short in an equivalent amount. This is not a novel thing to do. For instance, farmers and oil producers do it all the time to ensure they can predict the price they will receive for their product. So, you can do that if you wish. @muchgusto mentioned he is a BTC bull at these prices and isn’t interested in hedging. So, it is an individual choice. Liquidity providers can do whatever they like in this regard.
No. You still don’t understand the design of liquidity operations. I suggest you read the whitepaper to come to an understanding. Liquidity operations as described there DO NOT REQUIRE LPCs TO BE TRUSTED WITH FUNDS.
If anyone attempts this, I would highly recommend using Okcoin futures over Bitfinex. Don’t get me wrong, Bitfinex is a very good exchange with good liquidity but the margin interest rate adds up fast. I don’t like holding shorts there for more than a day or so. Okcoin futures are a flat fee per contract, at a very reasonable rate. Just note that you’ll probably want to use the 3 month contract to avoid weekly contract expiration. Expiration is not a big deal, just something to be aware of.
I think @cryptog might be referring to what I wrote here
Well I was referring to the situation in which shareholders need to grant the reward in NBTs to custodians once the proposal is voted. It is the case of my proposal.
In that case you need to give the reward upfront, thus entrusting the funds to the custodian.
This is ok as long as the amount requested is relatively low but I understand of course that we do not need to trust the custodian if the custodian is fine with being paid once the operations are completed.
In my proposal, I guess I should have asked for 1NBT as a reward upfront and then asked the shareholders to pay me the remaining at the end of the operations.
Sorry, I misunderstood.
I believe we should stop asking for LP within this inner circle and make a public “call for liquidity providers” blog post and advertise it properly
Right. @tomjoad is currently preparing infographics for general marketing efforts. Maybe we should also make one for custodians, which explains the basic concept and the required steps to execute this task. Right now you still need to read into the forum, the nubot and ideally the whitepaper to fulfill this role although all the required information for an LP could be summarized on one page.
i read somewhere that providing liquidity would be something like mining bitcoin, so next thought was, why not make liquidity providing pools? where it is easy to just deposit coins, and get some expected return, the pool could even return in nubits possibly, and spread their liquidity among different exchanges maybe , i know it is also controversial because it introduces centralization, maybe there should be two or three pools from start, idk, it is still complicated to manage this i guess, but maybe it can be done, and pool operators can emerge , just my two nubitcents
Pools could be a step into the right direction; liquidity providing mustn’t end at pools.
But I guess that the fees for being a pool member could be somewhat different from mining pools. Another aspect that will hinder wide-spread adoption of pools is the need to trust the pool with money.
So I think and hope that pools can play a role, but it will be hard for them to dominate the liquidity market.
It all depends on the fee that will be paid for liquidity providing long-term, once this business is standardized.
This is in my opinion still the main reason: standardization.
I’m not saying that we need a blue print and everybody has to follow that precisely.
But I for one didn’t know what it’s required to be a LPC in enough detail to make a decision for providing a proposal - even if I had the funds (and I read as much as I can here in the forum and consider myself familiar with big parts of the Nu network).
- where do you host the NuBot (I guess a server; if hosted at home: does it work if you have an internet access with changing IP address; besides I wouldn’t want to trust a server with hosting the bot…)?
- how much effort is the operation of it?
- what happens if a malfunction of the NuBot leads to loss of money?
- is there a monitoring of the NuBot (e.g. an email being sent it if shuts down)?
- what other (manual) activities are required?
I think it will bring a lot LPC in the game if there’s a checklist and a kind of guide how to do it.
Just like @creon said: you need to dig deep for the information you need to become LPC or even make an educated guess whether or not you can/want to be one.
If it’s easy enough, there will be way more LPCs than now.
The entry seems to be the main problem.
We need to make it more convenient.
Say it would be not very much effort maintaining it; installing a NuBot could be done like installing an application on your PC, configuring some parameters and that’s it.
That would attract some LPCs.
Currently it seems to be complicated; so complicated that a lot of compensation for the LPC seems to be appropriate - otherwise they wouldn’t get any votes.
what about a p2pool
Every custodian is free to implement this pool idea right now. The custodian just offers some interest on coins borrowed by customers (through a personal contract, maybe multisig to reduce risk) and use these funds to support the liquidity as promised in the grant proposal. Its a way to share risk that is perfectly possible in the current system.
@irritant I don’t see how p2p pools could work since you need to have one node with the exchange access.
“Minting pools” don’t work if you’re assuming that individuals would use a multi-signature address because you cannot mint with them. For the wallet to be able to submit a block to the network (and receive the reward) it has to be able to automatically sign the transaction that it submits. Currently this isn’t possible if the address’s private key is split between multiple holders.
@Ben Its not about PoS or minting, the idea is just that a custodian is free to balance risks by using external investors. “Pool” is a misleading word here.
I only mentioned multisignature addresses because they can be used to provide these investors with more security, since otherwise they have to trust the custodian with their money blindly (which maybe ok depending on the reputation of the custodian). Of course then investors have to be available to sign the corresponding transaction if access to their funds is required.
I think the idea of putting together some small chunks of liquidity to create a big pool of liquidity is a great one.
You can host a NuBot instance anywhere that you can run Java. A static IP is not a necessity (as long as the API request/response loop can reach the bot). While testing I’ve run NuBot locally (on OSX and Linux, but it also works on Windows), within a VM on my desktop, and remotely on AWS, DigitalOcean, and Azure (it will also work on other VPS).
I know that @KTm uses a cloud service to host at least part of her infrastruture, so it’s already “battle tested” using remote servers. As long as you employ good security practices, and maintain backups, you should be fine.
This is a very hard question to accurately answer, it really will depend on how you structure your operations. If you are offering an NBT/fiat pair as a liquidity provider (and aren’t offering dividends or have other operational needs that can’t currently be automated) it won’t be more than a few (2 or 3) hours a week to review how the operations are going and to adjust as needed.
NuBot and its related services are also getting easier to operate every day as the set of tools available to a custodian get better and better.
There’s no reasonable way for the team to offer a warranty on performance, so any losses incurred would be the responsibility of the custodian. If you are operating on a NBT/USD pair, it should be exceedingly difficult to lose anything due to bot malfunction if you configure it correctly. Any time you move to an environment where exchange rates come into play (NBT/crypto, NBT/non-usd-fiat), you introduce variables.
I don’t remember offhand if NuBot sends an email when it shuts down and I know it isn’t always possible to send a message if it was (e.g., if the computer it is running on goes down, the bot won’t “know” and can’t send a message), but it does have an emailer function so it is possible. External steps can be taken to set up services that will automatically restart the bot if certain strings of text are discovered in the log files, so automation is definitely possible.
Manual steps that may be required for a custodian’s operations:
- Setting up the exchange account(s) that NuBot (or NuBots) is/are connected to,
- Setting up NuBot on the hardware you intend to run it on,
- Other automation or configuration development that you want to do other than the default configuration,
- Reporting on operations (if it’s part of your agreement with shareholders). This is getting easier with the tools we are developing, but in some cases, you may prefer to manually prepare the reports.
- Dividend distribution (acquiring the peercoins, processing the distribution, etc.).
We need to make it more convenient, to a point. The tools and services to support a custodian can always be improved and we’re spending a lot of time each week doing exactly this. What we don’t necessarily want to do is to make it “stupidly easy” – every custodian in operation is a benefit and a risk to the Nu network. We need to balance the needs of NBT and NSR holders, custodians, and the larger community to best ensure due diligence on all sides.
At the most fundamental level, that is all that you need to do. NuBot doesn’t need to be compiled from source (there are binaries available) and it doesn’t actually even need to be installed (it can just be launched from the command line after customizing the options.json configuration file).
I consider the large compensation requests that we’re seeing to be a by-product of this being a new technology. This is a period of price discovery for prospective custodians. They are taking risks and want to make sure that they are adequately compensated for those risks. Until more LPCs have actually served it’s hard to point to a rate and say “that’s too high” or “that’s not high enough for the risk” because we really don’t know. The structure of how a custodian operates is entirely up to them.
For example: A LPC operating on a NBT/USD market could bring $10k in USD to the table, buy 5k NBT from an existing market, and then start to offer dual-side liquidity with a spread of $0.01 over the exchange commission if they so chose to. They don’t need to ask for compensation to do this, the risk is effectively limited to exchange default, and their profits would be generated from the spread.
Now, is that worth it to a custodian to do that? Maybe not for $10k worth of liquidity, but it may be if the base liquidity is higher with a corresponding increasing in volume. If you trust the exchange, the risks may be even lower, so for that custodian bringing $10k in liquidity it could be that they are happy requesting 2.5% to 10% in NSR or NBT to provide the service – the more LPCs vying for compensation, the more competitive the bids will become until a market develops.
My mistake. I conflated your comment with an earlier one that I read on the forum that was describing pooling NSR.
Pooled liquidity offerings is certainly an option, but so are multitudes of small LPCs.