Mod’s gateways prove that we are in emergency situations constantly. We need a buffer between T4 and T1+2. That buffer is T3. This is a T3 proposal. Is that not clear enough?
Can you not see that the situation is dire?
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I’m wondering why we need additional T3 funds when we have a way dealing with it although ‘less convenient" through NuLagoon Tube and it is not used at all as far as I know. Is Nagalims’ T3 proposal more convenient than the gateways? I don’t think so, and I believe it is more work/overhead for operations.
The lower the hoops and loops for rebalancing the better. If that can be done without further T3 (outside NuLagoon) then why not? Maybe we should even revisit the T3 maintained by NuLagoon. My apologies if I annoy people to challenge status quo, but I think it is time to rethink this.
Maybe we should use the automatic gateways for normal operations instead of only emergencies. I’m interested to hear why that is not a good alternative. I imagine that we need a few more operators though and revisit MoD’s terms of reference. This maybe a lot simpler and therefore more cost effective.
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Mod set up the gateways for emergencies. No one has set up gateways for normal operations because it has no incentive. If Nu Lagoon solves all our problems, why are we still abusing the gateways that were specifically designed for dire situations? If gateways work so well, why is no one willing to set more up? Think about the incentives and design a robust, scalable structure. That thought process led me to this grant.
The main differences between this and Nu Lagoon is are that a) there is no trade between T3 and t4, rather it is just a trusted refilling making for automatic consensus with no need for a price feed and b) it is scalable and decentralized by having many trusted operators.
There are a lot of other things to say, but Mod was on point: what’s the alternative? Using shareholder funds on-exchange got us into a lot of trouble a year ago, perhaps shareholders have forgot that lesson.
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Even if you think exchange default is a low risk, there is still another question: what are the downsides to this motion? I offer fully collateralized liquidity operations that deal directly, smoothly, and fairly with T4. Why would shareholders not want that?
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Clearly not and that therefore I challenged that in my post.
The gateways are a robust design imo and work with existing tooling. Nothing is needed to develop. My reason is the uncertainty/risks of directly trading with funds which are not mine in the US (Poloniex). The legal/tax/administrative consequences of that are not clear to me. If someone can assure me that that would be no problem and easy to administer, I’m fine to setup such gateways for a relative small fee given that they are automatic. I’m sure we can convince a few others if it was that simple.
It is the way Shareholder funds are managed. Would Shareholders be more comfortable to transfer that risk to custodians at a fee? Maybe to a certain extent for a low fee. However I don’t see a problem/huge risk when small amounts are released across several exchanges to spread the risk. The amounts MoD is managing now on just one exchange and the way it works. The issue is that we only have one gateway operator and one exchange as arbitrage doesn’t appear to work well, that is a risk indeed which we need to solve.
I am blown away that you don’t see the risks associated with gateways. I will enumerate them, putting the way in which this proposal alleviates that risk in {}. I will try to put most important first, but I do intend to be thorough.
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Exchange Default. If the exchange is hacked, we lose all funds in the gateway. This is very reminiscent of ktm and jmiller’s operations that cost shareholders so much money. The only other Nu service that has this risk to shareholders is the share buyback process.
{No funds are held on exchange} -
Gateway operator could run with the funds. There is no incentive other than reputation to follow through.
{Operation is collateralized} -
Gateway operator could sell to themselves at a discount. Without access to the exchange’s records, shareholders have no way to tell if they’re being had.
{Operator is required to submit a list of transaction prices with a time stamp} -
Exchange could freeze funds. Exchanges are sometimes subject to KYC and AML laws.
{Funds aren’t held on exchange} -
Gateway operator could falsely submit liquidity data. Without exchange records, no one really knows how much liquidity the gateway holds but the operator.
{Liquidity is verifiable on the blockchain} -
T4 signers could overfund the gateway, requiring them to fund the other gateway as well, generating more risk and loss for the whole network.
{Liquidity is only replenished when it is used} -
Gateway operator demands compensation.
{Operation pays for itself using a trading fee mechanism} -
Bot malfunction or price feed manipulation.
{No bots or hard-coded price feeds are used} -
Only works on one exchange, so custodians pay withdrawal fees
{Trades happen off-exchange}
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I do see most of those risks and they are not only gateway related, but it is good to have them nicely spelled out. Thanks for that. But are you saying that your proposal solves all this and at no fee? I don’t think that is sustainable, if possible at all. At best a subset of those risks can be covered and at a cost of overheads or fees.
I’m still struggling why trusting and paying a number of custodians with manual handling of T3 funds, collateralised or not, would be better/less risk than having automatic gateways with no overheads even though there might be some risk left. Maybe we need to compare the risks and costs between the gateways and the custodian proposal to get a clear overview of the value vs remaining risks and costs of the T3 custodian. Or if anyone has a better idea, I’m open to get a better understanding of this.
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Which points do you have problems with? The way the proposal deals with each risk is explained in {}.
What overhead is there in this proposal? All funds used will be put directly into T3 or T4 liquidity.
The sustainability is in the 0.3% fee, like NuLagoonTube is playing with. 0.2% goes to the trusted custodian, 0.1% to Nu. The Txn volumes are verifiable, giving a clear reward to the custodian for playing nice.
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IMO @Nagalim missed one important point of T3 in the list – FLOT should not be a daily job to micromanage T1-2 liquidity. FLOT operations should be no more than once a week. Daily balancing of T1-2 should be T3’s responsibility.
This T3 proposal makes it a routine, quasi-predictable job for FLOT to refill T3, with no shareholder’s fund going into exchanges. This is very good.
If @masterOfDisaster feel that the gateway is being abused, he should curb the use of it, for the benefit of himself, the FLOT, and Nu.
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I can reiterate each point if that would help:
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Funds in T3 are held in single-signer wallets, presumably backed up and only the trusted custodian has the private key. This risk devolves into point 2.
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If the operator runs with the funds because of personal insolvency or getting hacked or whatever, there is collateral. It’s not the best mechanism in the world, but just try collateralizing a gateway: the use of a fixed band of liquidity held in a T3 custodial address makes collateralization much easier, reducing it to a problem of estimating the value of the collateral rather than trying to guess how much money will be in the gateway. Also, good luck getting people to collateralize a gateway without any incentive.
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The price feed is basically the custodian’s best judgement. The record they submit can be checked via the blockchains (all transactions are public because that’s the state of crypto folks) and cross checked with a record of the BTC price on popular exchanges. If the custodian is bending the prices some curious investigator (or a future software) may discover their ploy and oust them. This risk will prevent such actions.
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The custodian is trusted by the customer/custodian to receive the funds first in a trade.
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The BTC and NBT addresses hold x BTC and y NBT on the blockchain, 100% verifiable.
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This is a passive liquidity source that asks for more from T4, rather than being active where T4 needs to be triggered by a threshold.
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Charging a trading fee gives the T3 trusted custodian an incentive path already.
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Trades are manual and with a minimum volume, so manipulation or malfunction will be rare.
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Trades can be done directly to exchange addresses, or wallets, or whatever you want.
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That helps 
Re 1 and 2 Collateral is required either way, gateway or T3. The collateral would be the same as what would be trusted to a T3 custodian. An agreements with a a gateway would be up to say 10k, collateral would be at least 10k or more with both gateway or your T3 proposal. In both situations an incentive will need to be paid which wouldn’t differ from each other. However the gateway operation can be automatic so require less overhead and therefore lower cost.
Re 3 This is a risk with any T1/T2 operations which have to take place anyway. I think you are shifting the risk to another LP taking care of the T1 and T2 when provided from T3. Overall the Shareholders are still exposed to the same risk or more as they also have to trust and compensate you.
Re 4 This is a real risk which can be mitigated by feed dripping the gateway instead of dropping large amounts on it. This can be done with a simple triggering script and a wallet used by T4 which releases a certain amount every hour or every day till empty.
Re 5 Alix would make that clear or just looking at the actual order books. This risk is relatively well mitigated and once caught such operator wouldn’t be trusted again ever. And I believe there is not much value for an operator to do so assuming they are trusted to a limited amount.
Re 6 See 4 scripts and a wallet
Re 7 Not sure if I understand this. Why wouldn’t a gateway operator be able to have a trading fee mechanism. E.g. just a bit of spread.
Re 8 This is relative small risk. Nu is relying on many bots. Hard-coded price feeds in NuBot? Not sure what you are referring to. Only price determination would come from T4/FLOT, but that wouldn’t change with both methods.
Re 9 It still needs to be distributed to T1 and T2. I fail to see why this is different.
This is an interesting point as FLOT is apparently set up with T3 in mind. So a gateway would indeed require some adjustments to FLOT’s role. I still think it is possible to have a gateway with a bot which is drip fed by a wallet with script so that the wallet only needs to be topped up e.g. once a week by FLOT. That way T1-T3 liquidity can be in control of one custodian. Ideally you need more custodians to take this role.
Just re-iterating my point, I think the T3 layer as proposed is too complicated (overheads and costs) without taking away a lot of risks by automating it as described above. The same may apply to the T3 role NuLagoon takes, but I need to think about that a bit more as I don’t have all the data e.g. risks and costs on how that works at hand.
I will definitively re-read the whole thread and study more carefully the proposal, it seems that it is much more important that originally thought.
Trying to word it simple:
there’s too much friction between T4 and the lower tiers.
Bringing money from T4 to T1 (via T3, T2) and vice versa doesn’t work well.
That’s why the Poloniex gateways are used quite often.
This proposal creates a buffer between T1 and T4 (on T3) and makes liquidity provision more reliable and allows the FLOT planning (some) interactions better.
I think I made a mistake not charging any fee for the Poloniex gateways. I thought having them when needed and providing a valuable service would be enough compensation.
Now I realize that this hinders creation of intermediate interfaces and relaying T1 activity on FLOT is easy and cheap, because FLOT members have a fixed compensation.
I feel both the gateways and the FLOT are being abused this way and NSR holders seriously need to think about the consequences of
- the Poloniex gateways not being available and
- FLOT members taking as much time for signing as stated in the terms
for the liquidity situation.
I won’t shut down the gateways without prior notice. But maybe it’s necessary to schedule their end or limit their availability to something like “at maximum once per [appropriate time frame]”.
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I didn’t know the gateway operator needs to put down collaterals. Does @masterOfDisaster ? If yes, the exchange default risk is totally on the operator, also is opportunity cost. I doubt if Nu can find such gateway operator.
Who does the dripping? Not the FLOT I hope. If you find the person, I call this person a T3 custodian.
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No collateral. No compensation.
I thought that under the rare circumstances the gateways get used, the very temporary exchange default risk would be dwarfed by the consequences of not having such gateways.
I couldn’t offer sufficient collateral for the amounts that are exchanged by the gateways and even if I could, I wouldn’t do it for free.
Just “rename” the gateways to T3 and problem is solved 
Seriously, you may propose to operate gateways as a T3 custodian with your terms (fee included).
You just make a draft
That would be way worse for Nu, because of the missing collateral.
If I offer collateral, it will lead close to where @Nagalim’s proposal already was, but without solving the problem of heavy FLOT utilization.
It would still be of inferior quality as T3 instrument.
But this (gateway) has already shown that it is working and NU shareholders are happy with it. (i guess)
Then why not transform it a little.
@Nagalim,
this is also valid for you.
What if we can somehow make T1+T2+T3 working as one?
It is like building up from a working solution, this is what shareholders want to see (i think)
NSR holders are happy, because nothing went pear-shaped so far.
I highly recommend to visit [Withdrawn] T3 Trusted Custodianship @Nagalim
again.
This is critical. A T3 custodian uses less funds over a longer period of time whereas gateways use large amounts of funds over a short time. Therefore, T3 is easily collateralized and gateways aren’t. You can collateralized 10k with a gateway or 2k with a custodian and get similar results. The reason for this is because the gateway realizes that it is in possession of risk and is trying to get rid of it while the T3 custodian is in a steady state.
Bingo. No shareholder funds on-exchange. Shift the risk from Nu to the LPs. This is why we developed the Tier system, and has been our bread and butter since the exchange hacks. Did you not realize this is what we were doing when we created ALPs?
Also, why does the NBT have to get to T1+2 at all? Why can’t the customer just deal directly with the T3 trusted custodian? Thereby, Nu gets 0.1%, the custodian gets 0.2%, the customer gets a happy price and external third party exchanges get 0%. Clearly, if there is demand on exchanges, that customer can turn around and sell at a profit if they want. The point of T3 is to balance the sides using T4, not to force liquidity on exchange.
I thought your argument was that we already had everything we need for gateways to work? Who is doing this triggering script and who owns that wallet? Dare I say, a T3 trusted custodian? What’s their motivation for behaving properly?
How do you distinguish between an order put up by the custodian and an order put up by someone else? You don’t. The custodian will just claim that all those other orders on the books are theirs. Remember, you want to activate the gateways during normal times, not necessarily during peg break events. During normal times, we would have no way of knowing if the gateway is behaving properly because we don’t have exchange records.
Let me know when you actually figure out how to do this magical procedure that is not complicated and has no overhead or costs.
Ok, so you’re saying we pay the gateway operator based on volume. To do that reliably, we’d have to pay them based on how many NBT we deposit and how many get withdrawn. I.e. we’d pay the same thing as for the T3 custodian, therefore the overhead for T3 custodian and gateways will be the same. Also, just so we’re keeping track, this is another thing about the ‘everything works’ gateway process we are changing to make it actually work.
Lol at market manipulation being a small risk.
The difference is that you don’t have to withdraw from exchange to use this service like the gateway does. The trade happens off-exchange, meaning no withdrawal fees.
Literally the only acceptable argument I’ve gotten is that this procedure is ‘too complicated’. Weak.