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:
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.
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.
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.
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.
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.
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.
Why is so little nothing of the discussion reflected in the motion?
Capping the sell side at 0.08% is less elegant and less fair than other approaches.
It will lead to offloading the sell side to ALPs to pile up BTC at the buy side.
Capping the sell side at 0.08% will likely cause unbalanced liquidity (moving BTC from ALP to NuLagoon).
Why should NSR holders want that?
I firmly disagree with
if done this way (capping at 0.08% per day)
What’s wrong with this approach?
I strongly encourage you to create your own motion.
Truth to be told, I am not in a stage where I can vote for the OP’s motion since I have not grasped the extent of the issue.
Writing your own motion will create a separate thread but will spark its own discussion that I will closely follow personally.
@masterOfDisaster I would also like to hash a different motion. Perhaps we can come to similar conclusions? I think we need to assume @Henry will resist this, so it’s best if we create something that explicitly states a method of accounting that is simple. I was thinking “if sell or buy side alone exceed 75% of the total liquidity provided in a 1 month period, the monthly reward will be limited to 4,000 nbt instead of the allotted 5,000. If a single side exceeds 90% of the total liquidity only 3,000 nbt will be awarded to NuLagoon for the full month of operation.”
I would prefer continuing the discussion here instead of creating another motion.
But as it now no longer is a draft and instead hashed and up for voting, there might be no other option left - unless the NSR holders are fine with this motion.
I see significant drawbacks in the current version that I tried to outline before and would like to find a solution that is fair for both NuLagoon and Nu - some proposals for different versions are already in this thread.
The solution should be a viable combination of easy accounting for NuLagoon and effective liquidity steering by Nu.
Expect another draft for a motion to reflect this to follow.
edit
It seems that there’s no reference created (at the post from which is linked) when replying as a linked topic.
I announced another draft to follow.
Here it is:
I’m glad you are doing that. It may be a better idea, although I don’t know yet. It could only improve things.
Thank you for your vote of confidence. I can’t foresee the outcome of the other motion, but from the ideas I gathered in this thread, I sincerely hope that the community finds an improved solution which serves both Nu and NuLagoon better than restricting the sell side compensation.
Holding off on voting for this. Like to evaluate this further including the discussion started here
Generally speaking, buy side liquidity is more important than sell side liquidity. Therefore buy side liquidity should be more rewarded that sell side liquidity whether it is ALP or MLP. I believe this is the case of all ALPs. Isn’t that the case of NuLagoon?
Is it chiefly caused by NuLagoon?