What's your experience with LP?

Liquidity Pools
#1

Hello,

I would like to know everyone’s experience with liquidity pools. How’s it like, problems you have encountered, things to look out for, if it brings a steady income. I know it also has it’s own downsides as exchanges can go away with the funds.

Do some pools have some kind of limit on how much nubits for example, can a user contribute with? Would it be good or bad to contribute with 2, 3, 4 or even 5k nubits? Assuming the liquidity pair stays relatively stable and an exchange wouldn’t disappear with your funds, would it be safe to have those quantities on the pool? For example on B&C or when CCDEK runs on top of BTS?

Disclaimer:
I own and support BitShares. However, I’ve been always kind of fascinated by this community and the project. I currently don’t hold anything Nu related as I’m expecting the bts price to raise with 2.0 but I’m waiting for that to get some profits here. This will be the 2nd project I would support. Also, CCDEK will run on top of BTS so users have the priv keys to their own funds, this could be extremely good for Liquidity Pools right? I only wished both communities could get along better, it’s really a shame they end up in useless arguments.

Nu projects are pretty interesting to me, the only reason I’m not invested is because I dont have the money atm but I look forward to it once I have the opportunity!

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#2

You can start getting some hints (though it is a bit old) with my experience.

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#3

It’s very profitable! Bter’s cny pool, for instance, pays out ~70%/year with almost no volatility. There is room for a few kNBT still, so get in while the getting’s good. I expect we will be reducing rates in the months to come, especially with B&C.

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#4

@cryptog thanks for sharing!

@Nagalim I see. Only problem is I don’t trust bter.

Another question: does a smaller spread mean less profit but is also less risky? does bigger spread mean bigger profit and more risk? Or are those not related at all?

#5

Spread is somewhat regulated. We’re still developing more complicated methods of liquidity provision (we call that development the ‘parametric orderbook’). Currently, you are rewarded if your orders are within a certain tolerated spread. You don’t get paid more for using a tighter spread.

What we’ve experienced is that liquidity providers (LPs) tend to just use whatever default parameters the pool operator puts in the bot. So no one is really messing around with spread very much (at least nowhere near as much as I would like).

#6

Are those 70% per yer, the average or only for a specific LP? And for how long have these been running with such results? Sorry for the amount of questions but I’m a noob here, just started to read some stuff regarding LPs. I thought a LP could also have negative results? Is it always resulting in profit and not at a loss?

#7

Volatility is something we are very aware of. Each pool pays a different amount and has a different target, based on the contracts between the shareholders and the individual pool operator. The cny pool has been operating several months now and the LPs basically have seen nothing but profit. On a btc pair the situation is quite different and the reward tends to be greater (LP’s have loss due to volatility).

Fiat pools, particularly a pool like NBT/USD on CCEDK is basically all profit for the LP. Well, at least until an exchange gets hacked again.

If you haven’t seen this yet, check it out:
https://raw.nupool.net/nubits/

#8

Hi

These risks have been analysed. For example exchange default risk has been estimated here. Exchange rate (volatility) risks have been discussed in many many threads.

My experience as an LP has been mostly very good. The only minor issue is that I believe CCEDK’s API (failing to register the liquidity I provide) causes a loss of 10% in interest.

Currently every pool has a “target” above which liquidity is not compensated. You can see how the ALPs are doing at https://raw.nupool.net/nubits/ . Nulagoon is a manually operated pool not listed there.

#9

my first experience with trustless LP is very very good! 6-9% interest every month is very profitable
and i can take the risk of an exchange failure. I just need a very good server to run my bots 24/7 without corruptions :wink:

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#10

I’ve been an LP for a good 2 months now providing liquidity at the BTC/NBT pair on 2 exchanges, currently over these 2 months I’ve ran a net loss of roughly 6,5%. Hedging is a huge problem for anyone providing liquidity on BTC/NBT and I feel is grossly underestimated on these forums. I’m probably going to stop providing BTC/NBT liquidity and transfer some of it to fiat/NBT pairs (which are much safer and more reliable) and some of it into other projects.

9% a month may seem like a lot but from my experience it hasn’t even covered hedging and transaction risks, let alone exchange default. My advice would be to try out fiat/NBT pairs and stay away from BTC/NBT.

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#11

In short: easy money at some risk.
If you are aware that there’s no big reward without risk, you’ll find LP being interesting :wink:

#12

My experience has been a lot of risk for a net loss, no easy money…

#13

No one coming out in my insurance thread, i almost tried to buy put option and sell Nu shareholder a proof of concept crash insurance.

#14

In that case, how can NuBit can become a hedging instrument against bitcoin’s volatility? I suspect that most NBT users use NuBit to hedge against bitcoin’s volality as this Japanese user…
We need to really clarify the common vision for Nu. If we run away from NBT/BTC, we are not aligned with JL’s vision for NuBit.
This really needs to be clarified quickly.

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#15

By offering NBT/USD and let users convert from BTC via the BTC/USD pair first.
I once supposed to keep the tier 2 funds in USD and make the pool do the proxying, but that would be more useful for NuLagoon than for ALPs (at least there would have to be some rework at ALP software) and NuLagoon didn’t seem to be interested in it.
Offering only NBT/USD and let the user do it is always an option at exchanges having NBT/USD and BTC/USD with volume.
B&C will obvoliously be different - at least in the beginning :wink:
Who says you need a NBT/BTC pair to trade BTC for NBT? :wink:

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#16

Increasing SAF and lowering target (or using fixed cost) on btc pools would do a lot to avoid abandoning btc pools entirely. If we have a small amount of consistent liquidity, that should be good enough for btc pairs. It’s the fiat pairs we want to have a lot of liquidity on.

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#17

exactly! merchants would need the fiat/NBT pair more than anything else!
but for now we have to make nubit famous as a stable crypto and thus we should sustain some losses
with NBT/BTC pair :wink:

#18

That is a good point. But most exchanges do not deal with FIAT.