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.
This is great idea.
Pools where anyone can invest and “lock” their BTC (or PPC) for some time and gain interest. We just need to think of decent mechanism to automate this and make it safe and attractive for investors.
For example @cryptog founds a pool and pushes with motion. Motion states that 100 BTC of liquidity will be provided for 30 days with reward of 5 BTC (or equivalent of NBT). It will start as soon 100 BTC are collected. Now peers place their BTC into this pool and lock them for 30 days. Reward is split among all investors of pool.
This also make sense as risk management strategy. It is far less risky to have your funds invested 5 in such pools over 5 exchanges than to be LPC yourself.
If one exchange fails, gets hacked, bot fails or whatever happens you can loose only 1/5 of your total funds.
Nice example, @peerchemist .
As Jordan Lee stated [here],
It was my expectation that liquidity provision would be comparable in some ways to Bitcoin mining.
In other words, offering the liquidity is the missing link in cryptos.
You are rewarded not for securing the blockchain but for securing the peg since the security of the blockchain is basically secured by voting from the shareholders and this is basically cost free.
Securing the peg is not riskless and therefore costs. It does not cost energy but costs risk, as mining costs energy.
Also, the counterpart of bitcoin’s mining pool to reduce variance would be nubits’s liquidity pool to reduce risk.
: Decentralized liquidity without counterparty risk not yet implemented
yes something like that, it could start from get go even i think, when the proposal includes percentages (variable) instead of static amount, and payout every x period, when such proposal is elected it would run for ever (?) , i guess it would work with some kind of sub contracts, where pool users can choose between different periods to lock their funds and different rates, because else how do they take out their coins? when they agree beforehand it is easiest
maybe pools can compete with different interest rates, but it has to be set in the proposal, and cant be changed after that, unless there is voted about it? thinking about it, maybe the proposal thing can be skipped, because you agree with it by depositing your coins, or disagree by dont doing that, only thing what needs to be elected is the interest rates, or the nubits that need to be created with the custodian vote, idk , (the ownership of the pool can even be split among poolshares with automated div payouts and all , hmm hmm maybe this is not such a bad idea, maybe it makes things just more complicated actually )
some pools that can provide higher interest when they operate at only one exchange (more risk), and other pools that are operating at multiple exchanges pay out less , idk , many things is possible, the nightmare scenario would be actually that there is one dominating pool which is very noob friendly and getting a monopoly able to offer the best rates etc… maybe think about this some more first
Difficulty of being an LPC.
- Can’t get through with exchange. (difficulty of adding a trade pair as an individual)
- Knowledge of operating Nubot? (maybe a video/illustrated tutorial?)
The question of the hypothetical liquidity pool monopolization is a very interesting one.
At first glance, my guess is that such pools do not offer a comparable incentivization to centralization than bitcoin mining pools.
We know that for the latter, the more you get together with other miners, the more you decrease variance, the higher your reward.
For the former, big pools won’t be less expensive to operate than small pools in terms of electricity or the difference seems to be negligible.
However, we should take a look at the risks, not the energy cost.
So one big liquidity pool will be less risky than a small one?
It could be argue that the answer to this question is yes because a bigger pool has more resources probably than a smaller one to maintain a high security.
So in that case a big pool is less risky than a small pool. So more rewards should be given to you if you participate into a small liquidity provider pool.
So here centralization decreases the reward.
In the end we could see a zoology of liquidity provider pools, big, small, medium size, each providing a certain type of risk profile, fitting different users’ psyche.
been thinking about if the one big pool is such a big risk after all, since the network is secured by the shareholders, it wouldnt threaten the network, the pool can be a point of failure, but they can run make redundant services and make sure they are always online/reliable, and if their service is not appreciated other will emerge , all in the meanwhile the network is secured by some other guys (nushareholders)
A big pool can be a bigger risk for the peg than lots of small pools or an even bigger number of individual LPCs can be.
The risk originates from pool software failing, pool operator failing, pool being target of attacks and a different kind of threat: pools being abused to scam people undermining the trust in the pool concept. That’s not only bad for the reputation of the Nu network, but can harm the liquidity as well.
While I think that pools will emerge and they can be a stepping stone to more liquidity, Nu should ultimately obtain liquidity from a big amount of LPCs.
I’ve read in [another proposal draft] 1 that the NuBot can be run on a RaspberryPi on an internet access at home.
I’ll have a look into that