Continuing the discussion from [Passed] LiquidBits term 5 grant - Automatic Liquidity Pool (ALP):
I didn’t want to hijack the LiquidBits thread, but I think discussing this idea is worth making a post.
I know. I’m fully aware of the bad timing.
I trust you believe me when I say that this idea is not to benefit from your trouble and that’s starting with that idea on CCEDK was mainly due to the bad API performance at CCEDK.
I have an idea and trying that on CCEDK just seemed right, because I already used funds in the LiquidBits ALP pool - until I decided to try something new.
Here’s the verbose explanation.
I made the first steps with NuBot on hitBTC and my intention was from the start to expand (my) NuBot activities.
My idea to operate NuBots spawned from this assessment:
- the scheme of the ALP implementation is amazing and it allows people who want to provide liquidity with a very easy entry to that business; the exit is just as easy and the funds stay in the control of the LPs (assuming the exchange plays nicely). LPs need to operate software.
- the scheme of MLP (currently only NuLagoon) is something completely different. LPs can only enter and leave at accounting days, lose control over the funds, but don’t have to care for the operation.
Exit only at accounting days provides Nu with more stable liquidity compared to ALP.
Maybe there’s a place in between the two.
A scheme in which the LP keep the control over the funds and needs to run and maintain software.
Sounds much like running an ALP bot but on top with the hassle of making a grant - which is work for the LP and NSR holders.
Yet I see a reason to do that. I try to help fixing something which ALP with fixed reward schemes aim to fix as well.
This scheme can provide liquidity with more continuity - more than ALPs can offer and even more than can be guaranteed by NuLagoon.
This type of liquidity operation could become a part of the first line of defense for the peg - funds which are contracted to be used for a certain amount of time that will stay on the order books no matter what happens.
ALP fixed reward already is a part of that (although it’s still in beta), because it provides LPs with an incentive to leave funds on the order books in volatile times in which other LPs withdraw their orders. The lesser funds on orders, the higher the reward (in percent) for the remaining funds.
This way ALP fixed reward is a big step towards continuity.
I intend to create another piece of defense: individual, distributed NuBot operations which work independent from any ALP or MLP.
We still don’t have a wiki for all these acronyms (do we?), but I have one more:
PLP - Puddle Liquidity Pool, because the total amount of funds will be low compared with other liquidity operations.
First I thought of YALP - Yet Another Liquidity Pool, but I think there’s potential confusion with ALP.
Having PLP(s) on an exchange stabilizes the liquidity situation in case (technical) problems prevent ALP or MLP from doing the job.
Managing and tracking those PLPs will be more effort (per liquidity volume) than doing the same for ALP and MLP, but I hope that this:
will make the handling easier.
The compensation (in percent) for PLP will be quite high - it should be oriented at the average compensation rates of fixed cost ALPs at the same exchange and pair. In fact it could be derived from the average compensation rate and paid after the PLP liquidity has been provided - assuming there’s a fixed reward ALP at that exchange.
A premium for compensating having the funds locked in the contract seems to be appropriate, because otherwise there’s no reason not to join the ALP.
Operator fees for the PLP are expected to be quite low. The effort for running a PLP is not much higher than running an ALP bot.
On top there’s effort for
- balancing the walls (if part of the contact) and for
- creating grants.; especially if it’s a recurring grant, this effort is limited
Benefit for the LP is a higher compensation (compared to ALP and MLP).
Benefit for Nu is a more reliable liquidity volume in the first line of defense.