[Withdrawn] Motion to lower compensation for NuLagoon sell side

[assistant]

Hi @cryptog

Here are the details for the Motion Vote on 5a37c1d4abadffbded0ebbdfedb40cbfa68a49ef:

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##5a37c1d4abadffbded0ebbdfedb40cbfa68a49ef
Blocks: 2393 (23.930000%)
Share Days: 896623257 (26.520183%)

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[cryptog]

@assistant motion vote 5a37c1d4abadffbded0ebbdfedb40cbfa68a49ef

[assistant]

Hi @cryptog

Here are the details for the Motion Vote on 5a37c1d4abadffbded0ebbdfedb40cbfa68a49ef:

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##5a37c1d4abadffbded0ebbdfedb40cbfa68a49ef
Blocks: 2617 (26.170000%)
Share Days: 982228115 (28.335588%)

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[JordanLee]

We will be forced to stop NuLagoon operation at 1 Nov if this motion pass.

Because fund are shared by POOL A C D, all three pools are affected, we can not implement the calculation before 1 Nov, The only choice is to stop NuLagoon operation at 1 Nov.

I was surprised to read this, and I am unable to understand why the only choice would be to cease operations. It is possible there has been a misunderstanding of the motion content. When it states compensation will be lowered for sell side liquidity, this refers to pool users that place NuBits in the pool. It does not refer to pool users who place BTC in the pool which gets converted to NuBits while in the pool in the course of providing liquidity. So, for the purpose of determining compensation levels, it doesn’t matter whether the funds are NuBits or BTC at a certain point in time. It only matters what side the funds entered the pool.

It appears to me that implementation of this motion will be very easy and straight forward. In terms of operating procedures, it will only change the number used to calculate a new NAV. @henry, have I misunderstood something? Why do you say you would have to cease operations?

This motion only has 26.5% support, although it appears it is rising to the low 40’s. It appears some shareholders haven’t voted for it with the expectation that an alternative would be offered by @masterOfDisaster. That hasn’t happened, and the thread opened to discuss alternatives is now inactive (for 7 days). I’m concerned shareholders are making the perfect the enemy of the good. This motion isn’t perfect, as additional improvements in how pools such as NuLagoon are run can be imagined. It is good, though. It is a simple method that will bring significant savings to shareholders. Let’s pass this, and then think about how to iteratively create additional improvements. We are at risk of accomplishing nothing by trying to accomplish too much at once. Successful projects are built iteratively, not all at once.

[Nagalim]

An alternative was offered. Henry came to consensus with the other shareholders and proposed a motion. I’m completely unclear about your concerns with that motion, as it seems to attain exactly what was desired without imposing an artificial buy/sell asymmetry.

[henry]

it doesn’t matter whether the funds are NuBits or BTC at a certain point in time. It only matters what side the funds entered the pool.

I have to admit I was not clear about this by reading the original content of the motion. I believe most of the community members also missed this during the discussion.

In one of my response, I mentioned that It won’t work as expected neither to incentive pool participants to provide equal size of NBT/BTC when they initially provide fund.

[Draft] Motion to increase the control by Nu over NuLagoon buy/sell side

Can we set the balancing goal at 50% each side for fund deposit?

How about forget about tracking fund movement as time goes by. We just provide incentive to let pool participants provide equal size of NBT/BTC when they initially provide fund.

I am afraid that won’t work neither. Because participants is free to convert their fund between BTC and NBT. In the example above, if someone want to participate LP2 with NBT and find the compensation is higher for BTC, he will sell NBT for BTC before participation, that sell will causing the unbalance for LP1 or LP2 itself, and need further action and cost to take care of.

@JordanLee, will you respond to the following questions?

1. Do you agree that It won’t work to incentive pool participants to provide equal size of NBT/BTC when they initially provide fund.
2. Why the fee rate should be lowered so sharply, (1/4 of the current rate)
3. Why you said the cap will only impact Pool A operations.

Thank you.

[JordanLee]

An alternative was offered. Henry came to consensus with the other shareholders and proposed a motion. I’m completely unclear about your concerns with that motion, as it seems to attain exactly what was desired without imposing an artificial buy/sell asymmetry.

The purpose of this motion is to reduce the cost of liquidity both in terms of the cost per dollar of liquidity and total network wide liquidity costs. Henry’s motion doesn’t lower liquidity costs at all. Therefore, I regard his motion as unrelated to this one.

I’m concerned that perhaps there is a lack of understanding among shareholders about the critical importance of reducing liquidity costs. Right now the costs are many times what is sustainable long term. There are many methods known to reduce these costs, the most important of which is B&C Exchange in the medium to short term. The viability of our network depends on the credibility of the claim that liquidity costs can be dramatically lowered from their current levels. It is OK if it takes a number of years to arrive at a cheap and truly sustainable cost, but we must make consistent progress on this. To date, costs have continued to climb.

At approximately $184,000 in tier 1, 2 and 3 liquidity, what we have now is excessive. It is time to cut this.

[JordanLee]

1. Do you agree that It won’t work to incentive pool participants to provide equal size of NBT/BTC when they initially provide fund.

I’m not sure I understand this question, because the motion proposes unequal incentives, which is expected to result in much more BTC being in the pool than NBT. This makes sense because off exchange NBT has little value. FSRT and I can always bring plenty of NuBits to tier 1 quickly as needed. Buy side support sitting off exchange does have considerable value as its supply is not nearly so endless.

2. Why the fee rate should be lowered so sharply, (1/4 of the current rate)

See my above paragraph. Paying high premiums for off exchange sell side liquidity just doesn’t make sense, because there is plenty of it available for free or nearly free.

3. Why you said the cap will only impact Pool A operations.

I’m going to turn this question back to you. How will this motion impact Pool A, C and D?

[cryptog]

what we have now is excessive

I agree on that.

[henry]

unequal incentives, which is expected to result in much more BTC being in the pool than NBT

That’s true. But where does those BTC come from?
Image what a NBT depositor will do with this unequal incentives. In order to get a higher expected return, he will sell NBT for BTC by using other LPs service in the market before the deposit. Nothing can stop he doing this as we promise 1 NBT always worth 1 USD.
The effect of this incentive is just to move lots of BTC from other LPs to NuLagoon. Is this situation what you expected?

How will this motion impact Pool A, C and D?

All the three pool will be impacted according to your interpretation of the motion.

[cryptog]

Based on this analysis, I agree on the fact that NuLagoon is offering too much sell side liquidity.
More generally, I think Nu is offering too much sell side liquidity right now, overall.
So I think all liquidity providers (NuLagoon and ALPs) should offer less sell side liquidity.
So this is not only about NuLagoon’s sell side.
But it is true that NuLagoon has Tier2 and Tier3 involved.
Those Tiers are less important than Tier1.
So after further thinking, I think this motion makes sense but we should also reduce the compensation rate of ALPs on the sell side too.

Any flows in my reasoning?

[Nagalim]

Yah, arbitrarily asymmetric reward rates will just cause the network to provide an asymmetric peg. For example, let’s say we always reward buy side at 20% and sell side at 10%. Then the network stabilizes with 50 buy nbt and 25 sell nbt. We think we’re super clever for having a big buy wall now, but what happens when someone sells onto it? Well, the network must seek to keep the 2:1 ratio, so exactly the same switching issue arises, just with some arbitrarily awkward ratio pegged around. The end result is that instead of having a peg that is resistant to price moves in either direction we have a peg that resists price movement well one way but poorly the other direction. For an example of what that looks like, check out bitUSD.

The most efficient answer is to reward both sides in some logically consistent and symmetric manner and balance the network using higher tiers. If the network has too much sell side, we need to perform dilutions or institute park rates. Providing asymmetric peg rates only aesthetically solves the issue and does so in a woefully short lived manner.

[mhps]

So after further thinking, I think this motion makes sense but we should also reduce the compensation rate of ALPs on the sell side too.

Even if Nu reduced compensation rate to 0 on the sell side those nubits will still be in some pools’ sell side, as they have no where else to go.

This has been discussed in the thread @masterOfDisaster started as a result of this thread. Discussion started from @henry here are very good. I hope @JordanLee can join in.

[masterOfDisaster]

The most efficient answer is to reward both sides in some logically consistent and symmetric manner and balance the network using higher tiers. If the network has too much sell side, we need to perform dilutions or institute park rates.

It’s amazing how compact you could outline the future of liquidity providing Nu should strive for!

[Cybnate]

The most efficient answer is to reward both sides in some logically consistent and symmetric manner and balance the network using higher tiers. If the network has too much sell side, we need to perform dilutions or institute park rates. Providing asymmetric peg rates only aesthetically solves the issue and does so in a woefully short lived manner.

Very true, the problem is that the Shareholder resist market driven dilutions. Ideally you would have a capped monetary incentive to burn NuBits when the sell side is too high across the network. When that is the case sell side liquidity should not be compensated and the funds freed up for that can be used to burn chunks of NBT. The challenge is to get this either captured in a motion and provide supporting tools for that.

In the mean time we might have to vote for this motion, although I’m still on the fence but motivated by Jordan’s recommendation to just try make small steps in the right direction even if not perfect. That is better than apathy indeed.

[cryptog]

but what happens when someone sells onto it?

Well it is better to have a bigger buy wall than a smaller buy wall when someone sells onto it, I think.
Since Nu can always create NuBits if needed, I think we should always reward better buy side liquidity.

If the network has too much sell side,

This is the current situation. We have too much buy side too, I feel. But since buy side liquidity is more crucial than sell side liquidity, we should first kill off some parts of the buy side.
Currently, we have 83k (buy) and 99k (sell) for 5k daily volume, so way too much sell liquidity.

In the mean time we might have to vote for this motion

I might too.

[masterOfDisaster]

In the mean time we might have to vote for this motion, although I’m still on the fence but motivated by Jordan’s recommendation to just try make small steps in the right direction even if not perfect. That is better than apathy indeed.

There is no apathy. Fixed cost ALP are in the test phase. They will help determine compensation rates for liquidity providing - you can just read it from the amount of liquidity provided for the fixed compensation.

Nu will soon have an indication about the compensation rates the market demands.

Cutting down compensation on one side of NuLagoon makes trouble for the rest of the liquidity pools, because NuLagoon has an incentive to keep the sell side low and the buy side high if the buy side is getting higher rewarded than the sell side. NuLagoon is incentivized to drain buy liquidity from other liquidity providers if this motion passes.

You are right. Nu needs to develop this:

Ideally you would have a capped monetary incentive to burn NuBits when the sell side is too high across the network. When that is the case sell side liquidity should not be compensated and the funds freed up for that can be used to burn chunks of NBT.

Thanks to the concept of seeded auctions it’s within reach.
Please have a look here: [Passed] Motion to regulate rules of fund management in NuLagoon before you consider voting for this motion.

It’s called a small step in the right direction while all it does is cutting down costs at one MLP at the expense of making trouble for the liquidity situation of all other LPs, e.g. all ALPs.

[masterOfDisaster]

Well it is better to have a bigger buy wall than a smaller buy wall when someone sells onto it, I think.Since Nu can always create NuBits if needed, I think we should always reward better buy side liquidity.

My gut feeling agrees with you.
But my apprehension tells me that having an equal compensation for both sides is better because it will make the market situation more clear.
With equal compensation of buy and sell side Nu will know when to increase or decrease NBT supply:

• if the sell side is lower than the buy side, additional NBT are needed on the market.
• if the sell side is higher than the buy side, NBT need to be removed from the market.

If you compensate buy and sell side differently it will be harder to know when and how to react.
You need a coefficient instead of only a threshold.

Equal compensation of buy and sell side allow Nu to know which side to seed - once seeded auctions are available again.

Nu needs to connect the liquidity “in the wild” with an ongoing adjustment of the NBT supply.
Unequal compensation rates make that more complicated and are only good for short-term reduction of costs.
I’d say Nu shouldn’t afford saving these few costs now.

This is the current situation. We have too much buy side too, I feel.

Be glad that fixed cost pools very easily can adjust the sizes of buy and sell sides by increasing or decreasing the payout (assuming that the compensation rates, which LPs demand, stay the same).

I might too.

The same recommendation I already wrote in @Cybnate’s reply:
Please have a look here: [Passed] Motion to regulate rules of fund management in NuLagoon before you consider voting for this motion.

Both you and @Cybnate have great power: you offer data feeds.
With great power comes great responsibility

[masterOfDisaster]

A call to NSR holders.

In addition to (or instead of…) voting for this motion and dictating a business partner conditions, consider trying something different to reduce costs and improve liquidity service in a more fair and sophisticated way.

Make fixed cost pools a reality!
Vote for this motion:

[Passed] NuPond Term 5 Fixed Cost Motion

A fixed cost pool attempts to fix the minute by minute cost in NBT of liquidity provision, despite the actual liquidity provided. By paying full compensation to any LP willing to provide even the thinnest wall, an FC-ALP incentivizes providers to maintain continual and balanced liquidity provision in order to maximize their personal profit. It also causes direct competition between providers by forcing them to share the reward proportionally to the liquidity they provide. Finally, FC-ALP make…

If you missed the discussion, I urge you to have a look here:

Fixed total payout for liquidity providers to enhance liquidity security and pool operation

This post is to extend disucssions on "Fixed per-minute total interest payout" for liquidity pools here @Nagalim pointed out that I think the rollover money is a result of unfullfilled target. If a fixed per-minute interest is implemented, every pool will have to pay out a fixed amount of interest every month. Pools with less volume will get a proportional greater boost (they pay higher interest) compared with a pool with more volume, if they are granted with the same interest funding by…

[cryptog]

Can the concept of Fixed Cost Liquidity Provision Compensation Scheme help us reduce the oversupply of sell liquidity of NuLagoon and all ALPs in general?

EDIT: I think I already got the answer below

Be glad that fixed cost pools very easily can adjust the sizes of buy and sell sides by increasing or decreasing the payout (assuming that the compensation rates, which LPs demand, stay the same).

But we could do the same (naively?) within the current ALP scheme (Fixed Reward) by decreasing the sell side daily rate reward, couldn’t we? Which would bring back to OP’s motion…

Let me reformulate my question: To which extent it would be much easier and fairer and more transparent in case of Fixed Cost ALP (newly proposed scheme by nagalim) compared to Fixed Reward ALP (current scheme derived by creon) when it comes to adjust the liquidity provided on each side?