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.
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.
I’m going to turn this question back to you. How will this motion impact Pool A, C and D?
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?
All the three pool will be impacted according to your interpretation of the motion.
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.
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.
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.
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.
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.
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.
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.
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).
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:
If you missed the discussion, I urge you to have a look here:
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
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?
I doubt the power is that great and it shouldn’t be the case. I don’t think it is a good idea to support this motion. I agree with MoD here. The route to fixed costs is a better one and therefore I will support Nagalims motion to experiment with fixed price instead.
However I still have an uneasy feeling about our current liquidity costs. That is clearly not sustainable given the current network utilisation. Will certainly revisit this motion when other attempts to reduce liquidity cost are delayed or fail in the next 2 months.
Which is a good idea.
Nu continuously needs to track costs and strive for more efficiency.
Accounting is still one of the rather blind spots of Nu.
I hope that the liquidity costs are reduced by that time. This hope is based on fixed cost compensation being tested, ALP integration in NuBot is being prepared, the parametric order book is almost here - just to name a few major improvements that help reducing liquidity costs.
Nu will soon pay less money for the liquidity that has a small offset and some more money for liquidity with some more offset. The peg will be safe, arbitrage risk for LPs is reduced, the liquidity costs will decline.
Add competition for the fixed cost compensation to the equation and you have Nu’s liquidity situation in a way better shape than it is now.
After that has been accomplished it’ time to get seeded auctions running to tie tier 6 down to tier 1 to 3.
There’s a lot of work to do, but all is moving in the right direction.
NuLagoon will be one of the competitors for liquidity compensation soon, which I consider more fair than just cutting down costs by reducing compensation for sell side liquidity at NuLagoon…
If NuLagoon works efficient enough - in relation to the market - everything is fine.
If not, it will have a hard time, but by more efficient market participants and not by a business partner which dictates new conditions.
Since Nulagoon’s operators can control exactly how much fund is exposed to BTC volatility, it is in a better position to improve its service by implementing an insurance for its customer liquidity providers. MLPs can have many advantage over ALPs.
Because this is not close to passing and is no longer receiving additional support, it is reasonable to unpin it, especially since there are so many other pinned topics.
I still think this motion is a good idea. In light of the powerful affect our first share buyback in the amount of $2500 had on share price, we can understand the importance of holding down costs.
It has been criticised because it would make the peg somewhat asymmetrical. There are other factors already at play that make the peg asymmetrical. A preference to avoid the volatility and additional risk of BTC appears to be causing the sell side (where NuBits are used) to be favoured at the current time. Therefore, a counter measure would increase liquidity wall symmetry. While fixed cost liquidity is an exciting innovation that is likely to reduce liquidity costs soon, we have every reason to pursue as many cost cutting measures as practical.