ALPs will buy them and we will increase park rates or perform an auction. Good, the world keeps turning. To pay 0.34%/day on them is a terrible idea. That’s why I say an MLP should never be less balanced than the sum of all ALP’s.
I think we need to know in real time the exact buy and sell side liquidities provided by NuLagoon in order before considering such a draft.
So could someone give the exact buy/sell side liquidity given by NuLagoon currently?
Just look at your client. NuLagoon is tier 1 through 3 while ALPs are the unknown tier. I think you’ll fine there is something like 4x more ask than bid in NuLagoon. Basically, if NuLagoon represented our peg we would be flipping out right now for park rates and nbt burns.
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Isn’t balancing supposed to occur?
That’s what this thread is about. We’re all confused as to why NuLagoon isn’t balanced and why we are funding such an unbalanced operation with so much money.
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The only balancing I can find in that motion is from tier 1 to 2 to 3, not from sell to buy side. Asymmetric rewards or fixed cost rewards appear to be necessary for balancing. Honestly, I’d rather see fixed cost rewards so we can pin NuLagoon down to a particular amount of NBT/month.
If NuLagoon cannot be balanced then it is worse than current ALPs and we should stop funding it.
NuLagoon is balancing lliquidity at tier 1 and 2 network-wide Detail can be found at The improvements in the operation of NuLagoon
.
If Nulagoon try to balance its own buy and sell from tier 123, all the other tllps will be completely unbalanced, obviously not good for the whole Nunetwork.
Why exactly is that worse for the Nu network than having NuLagoon be completely unbalanced? I can’t help but disagree with your fundamental premise.
If we need to raise park rates or do a burn, we will know via the ALPs being unbalanced. Do we need to do a burn specifically for nulagoon? That seems like a highly inefficient (and potentially corrupt and centralized) way to go about this.
If it’s such an obvious statement then why do I think it’s completely wrong?
I didn’t want to bring this up, but what NuLagoon is doing right now is very much an attack vector on the network by storing large amounts of nbt so shareholders feel like they can make more then threatening to drop them all on the peg all at once. Carry out your attack, we will prevail. We certainly will not give in to intimidation attempts.
Henry, help me understand this balancing operation and the value of it more. You have done tremendous work and service with NuLagoon, but the present situation at a minimum is unclear, but further may be interpreted as a risk to the network.
If NuLagoon is balancing tier 1 and tier 2 network-wide, I interpret that to mean that in my Nu client, I should see approximately equal amounts on buy and sell columns in the Liquidity view in the client. At the moment of writing this I see Buy-Tier1 = $6.7k, Buy-Tier2 = $1, Sell-Tier1 = $13k, Sell-Tier2 = $10k which is not balanced.
If NuLagoon is presently mostly buy-side, then the only way for Nu to balance in isolation is to sell, which is downward pressure on the peg. Nu would recover from any dump, for sure, but this does feel like a shareholder-funded Sword of Damocles.
I propose that as standard practice, a liquidity provider should have a goal to be balanced buy and sell where possible, but if there is a need to choose, bias on the side of creating upward pressure on the peg than downward pressure.
If all LP’s take this approach, then there should be balance. Any unbalanced LP can be identified and asked to account / explain their situation.
There may be other actors in the marketplace that aren’t reporting liquidity (as they were never shareholder-approved). This does pose the question: should the network react to those actors or ignore it? My immediate thinking is to “ignore but explore”, as any data shown on an exchange may be manipulated.
Please tell me where I am wrong …
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Can you clarify why you think so?Since NuLagoon and other pools are independent from each other, I do not see how it could be the case.
We need more buy side liquidity from NuLagoon, I think. So an addendum motion that balances the overall liquidity provided by NuLagoon between buy and sell sides is necessary, I feel.
I am sorry to let you feel unclear. Let me clarify current liquidity info and operations in more details:
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All the unknown tier liquidity info showed in your Nu client at the moment is tier 1 liquidity, which placed at the order books of exchanges. -
All the tier2 fund are also placed at exchanges and fully controlled by the NuBot, and could be automatically promoted into order book in one or two minutes. -
Fund tier 1 and tier 2 are all placed at exchanges and are available immediately or in a very short time. NuLagoon try to balance the total amount of BTC (buy side) at tier 1, 2 and the amount of NBT (sell side) at tier 1,2 Nu network-wide. They all subject to the exchange default risk. -
Current tier1 buy is: 52k, tier2 buy is: 0, total is 52k. tier1 sell is: 56k , tier2 sell is 10k, total sell is: 66k. Because the buy side (52k) and sell side (66k) is only unbalanced by ((66-52)/2)/(66+52) = 5.9%, which is less than 10%, so NuLagoon don’t need to take any action now. -
If NuLagoon try to balance its own buy and sell from tier 123 (7k buy, 44k sell), then about (44-7)/2-7 = 15k NBT have to sell to the market, more specifically, these NBT have to sell to other tllp pools, as a result, other tllp pools will be unbalanced and funds placed on exchanges will be completely unbalanced. (buy side will become 52 – 15 = 37k, sell side will become 66 + 15 = 80k)
That’s why I said It is not fair to say the sell side is redundant on the NuLagoon. The fact is that the sell side is redundant on the Nu network-wide. NuLagoon is only passively managing the fund, all the orders are automatically placed by the NuBot. NuLagoon passively holds lots of NBT because NuLagoon acts on the behalf of the Nu network. NuLagoon shouldn’t be punished for this.
The sum of all buy and sell side volumes of all LP is the same - no matter how you distribute the volumes across the different operations.
You can only lower the sell side of one pool by selling it to another pool - leaving this pool with smaller buy side and increased sell side.
NuLagoon ended up having a big sell side, because of balancing the buy/sell side with other participants.
It might look strange that NuLagoon has such a big sell side.
But seriously - what shall NuLagoon do with it?
To whom shall NuLagoon sell it (except for other LPs)?
As long as the demand for NBT stays on this level, the sell side stays as high as it is.
You can toggle the volume between tier 1, 2 and 3, but you will never get rid of NBT unless someone buys it.
If there’s consensus that the sell side is too big, it needs to be lowered.
But how to find consensus and based on what formula?
Why not relying on the market instead?
There’s a tool for removing NBT in excess of market need. A tool which can do that in an efficient, public, decentralized, verifiable way and it could put another item on list of things Nu did achieve:
seeded auctions!
Promote seeded auctions from “proof of concept” to “production”.
Let the market balance the buy and sell side.
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I agree the seeded auction is something Nu needed very much. But we need more active participants in that auction market. Maybe NuLagoon could do some help. We will think more about it.
NuLagoon is not responsible for balancing the whole network. MLPs need to strive to be balanced at all times. ALPs should be the absolute first line of defense and should be the first thing to go unbalanced. If the open market does not feel the peg asymmetry, the shareholders will not know to take any action.
An MLP not being balanced defeats the whole purpose of having an MLP and simply turns NuLagoon into a liability. You said you’d have to sell 15 kNBT on the open market to balance. Fine. Just do it somewhat slowly over a few different pools on different exchanges. That’s basically something you should be doing on a regular basis.
I really am not keen on continuing to pay for an unbalanced MLP. I would vote for the OP or any other motion reducing NuLagoon funding, given the responses we’ve gotten in this thread. It seems that ALPs are simply easier to balance buy and sell side as we have concepts of targets and fixed cost pools. NuLagoon simply sticks funds in a NuBot and walks away. We deserve better management from our MLPs.
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I think this is not completely fair. NuLagoon did create the different pools, does the accounting etc.
As long as the compensation per provided liquidity volume is on a fair level (comparing ALP with MLP), LPs can decide where to put their funds depending on the work they want to invest.
If the part of the compensation an MLP claims for the management is too high, other MLPs or ALPs become more attractive in the (potential) LP’s eyes.
I’m not in favor of the motion, because I don’t consider it fair to leave NuLagoon with reduced compensation and making them pay the price for keeping a lot of sell side volume.
To provide an incentive to balance the buy and sell side I’d favour capping the compensation on one or either side.
What about paying only compensation up to, say 55%, of the total pool volume per side?
If the sell side is at 60% of the total pool volume, the buy side is obviously at 40%. The 40% get fully compensated and the 60% sell side only up to 55%.
This reduces the overall compensation of the pool and in the effect the management fee as it’s a share of the compensation.
This creates a direct incentive for the operator to balance (to increase the own compensation) and an indirect incentive, because balancing increases the reward for LP at the pool (possibly leading to more volume and more compensation).
I don’t know how much effort this is, but as there are two accounting days per week, they seem to be the perfect point of time to do this balancing, because at each accounting day it’s clear how much funds NuLagoon manages (after the deposits and withdrawals have been counted) and the type of the funds (buy or sell side funds).
This balancing might lead to unbalanced ALPs.
The balance there can only be restored trading with Nu (NBT for NSR or NSR for NBT) if it is beyond an acceptable level.
Going this way creates an incentive for LPs at ALPs to participate in seeded auctions.
If they end up having to much NBT, they might want to sell them for NSR in a seeded auction.
If they end up having too little NBT, they might want to buy them for NSR.
This could balance the buy and sell side as well as create some more volume at the exchanges.
Buy side BTC get sold for NSR to allow trading them to NBT in a seeded auction.
Sell side NBT get traded to NSR in a seeded auction and maybe exchanged to BTC afterwards.
It creates a kind of waterfall model in Nu’s liquidity (not in terms of tiers, but in terms of Nu and the pools).
MLPs balance their own buy and sell side.
Depending on the market situation this is causing unbalanced buy and sell sides at ALPs.
The LPs might then start trading with Nu to balance again.
This way Nu has another lever to influence the liquidity situation: the ratio between sell and buy side that MLPs are being compensated for will create more or less demand for NBT. This will lead to the actions described above.
If Nu wants to sell NBT to the market, because the demand is rising, all Nu has to do is to increase the reward for sell side compensation at MLPs.
The market will do the rest.
This is for sure no way to react on immediate surges or drops of demand for NBT, but for that Nu has the FSRT (first strategic reserve team) and soon buy and sell side custodian groups.
But it seems to be very well suited to steer the liquidity situation over time.
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What MoD is referring to is the same economic mechanism as a target on ALPs. If Nulagoon institutes that or really any other economic mechanism by which balancing occurs I would definitely be satisfied.
Currently, the economic mechanism on NuLagoon is equivalent to having something like a total target for both buy and sell side. If we instituted something like that on ALP all our pools would fill up with sell side and we would have no room for buy side. That is exactly what happened on NuLagoon. We use LP to become insensitive to small fluctuations in nbt demand, whereas a total target mechanism amplifies the small fluctuations into an asymmetric peg.
Here are some ideas:
Pay a lower rate to the heavy side when unbalanced (MoDs idea)
Pay a flat amount total symmetrically to each side distributed evenly amongst LPs on that side. So if you give out $1 to each side and there’s 100 nbt on one side and 200 nbt on the other, the heavy side gets 0.5% while the light side receives 1%. (Fixed cost)
Have a target amount for buy and sell separately up to which a fixed rate is paid. When liquidity on one side goes above target, enact fixed cost on just that side.
Rate = MaxRate * min(buy,sell) / max(buy,sell)
Some kind of dutch auction mechanism. However, I think this will be impractical to implement.
Make the operator reward linked to how balanced the peg is. Give some leeway for arbitrage and so on, but if one side ever crosses say 75% of the total liquidity we dock operator reward by 25%, then 50% at 90% unbalanced.
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It is true that all liquidity services are redundant, by design. This creates the reliability we need. One important difference between the ALP pools and NuLagoon is that the liquidity is more available in the ALP pools. However, NuLagoon has better persistence properties (it won’t disappear immediately in a crisis like ALP liquidity can). I would love to see this persistence improved, perhaps by having a pool with infrequent opportunities to withdraw. NuLagoon also has more flexibility in where it places tier 1 and tier 2 funds.
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The motion has been hashed and is now being voted on. It looks like it was hashed with @assistant, but it actually wasn’t as the assistant doesn’t seem to be working right now. You will have trouble with the Verify link accordingly.