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Offline starspirit

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Why are market-makers reluctant to make a tighter market?
« on: October 14, 2014, 11:59:38 PM »

In the Nubits thread, member Chronos points out the difference in current buy-side liquidity between Nubits and BitUSD, here:
https://bitsharestalk.org/index.php?topic=9057.285;topicseen

Any discussion on Nubits v BitUSD can stay in that thread - my interest in this post is liquidity in BitUSD. I know there's been talk in other threads about running market-making bots, and I'm thinking about trying it myself at some point, but they do not appear to be very active based on current spreads and liquidity. What are currently the biggest barriers to current and would-be market-makers?

Offline Mysto

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Re: Why are market-makers reluctant to make a tighter market?
« Reply #1 on: October 15, 2014, 12:07:51 AM »
I don't think they are reluctant, I think it has to do with the fact that there is low demand for bitUSD right now. It's easy to get in but not so easy to get out. I think the only solution is to create demand for bitUSD through merchant adoption. The best mm bots can do right now is create artificial volume.

Offline starspirit

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Re: Why are market-makers reluctant to make a tighter market?
« Reply #2 on: October 15, 2014, 12:15:15 AM »
I don't think they are reluctant, I think it has to do with the fact that there is low demand for bitUSD right now. It's easy to get in but not so easy to get out. I think the only solution is to create demand for bitUSD through merchant adoption. The best mm bots can do right now is create artificial volume.
Is it a catch-22 though? Low demand because there is low liquidity?

Offline Riverhead

Re: Why are market-makers reluctant to make a tighter market?
« Reply #3 on: October 15, 2014, 12:16:12 AM »
So far the only real users are those that are really bullish on BTSX so they are reluctant to go long bitUSD. The speculative appreciation of BTSX is far greater than the expected yield on bitUSD.

When BTSX has its first big spike to $0.10 or $0.50 I think we'll see a lot of people selling some BTSX to take some profits and hedge a bubble.

Offline tonyk

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Re: Why are market-makers reluctant to make a tighter market?
« Reply #4 on: October 15, 2014, 12:16:42 AM »
In the Nubits thread, member Chronos points out the difference in current buy-side liquidity between Nubits and BitUSD, here:
https://bitsharestalk.org/index.php?topic=9057.285;topicseen

Just as a side note - he is not a member - he is an aggressive NuBits promoter!

As for the main question - with the new market engine/next release, there should be [hopefully] significant improvements on the market depth and spread. The real market depth will come with the actual usefulness and adoption of bitUSD though.

And I know you did not ask but NuBits has artificial peg/liquidity/depth provided by people specifically paid to do just that.
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline biophil

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Re: Why are market-makers reluctant to make a tighter market?
« Reply #5 on: October 15, 2014, 12:17:40 AM »
I don't think they are reluctant, I think it has to do with the fact that there is low demand for bitUSD right now. It's easy to get in but not so easy to get out. I think the only solution is to create demand for bitUSD through merchant adoption. The best mm bots can do right now is create artificial volume.

Well, I'm reluctant because if I decided to play market maker and added a bunch of buy-side liquidity, I'd end up with a great big pile of bitUSD and nobody to sell it to. The fact that nobody is buying bitUSD near the peg is evidence that there isn't much money to be made playing market-maker.

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Offline Mysto

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Re: Why are market-makers reluctant to make a tighter market?
« Reply #6 on: October 15, 2014, 12:52:53 AM »
I don't think they are reluctant, I think it has to do with the fact that there is low demand for bitUSD right now. It's easy to get in but not so easy to get out. I think the only solution is to create demand for bitUSD through merchant adoption. The best mm bots can do right now is create artificial volume.
Is it a catch-22 though? Low demand because there is low liquidity?
No, I think there is low liquidity because of low demand. I don't think adding more liquidity will increase demand very much. The only way I think bitUSD demand will go up is if you can use it to buy goods and services.

So far the only real users are those that are really bullish on BTSX so they are reluctant to go long bitUSD. The speculative appreciation of BTSX is far greater than the expected yield on bitUSD.

When BTSX has its first big spike to $0.10 or $0.50 I think we'll see a lot of people selling some BTSX to take some profits and hedge a bubble.

Yes but that will be temporary.


Well, I'm reluctant because if I decided to play market maker and added a bunch of buy-side liquidity, I'd end up with a great big pile of bitUSD and nobody to sell it to. The fact that nobody is buying bitUSD near the peg is evidence that there isn't much money to be made playing market-maker.

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Yea I guess that would make one reluctant.

Offline toast

Re: Why are market-makers reluctant to make a tighter market?
« Reply #7 on: October 15, 2014, 01:00:34 AM »
"There isn't enough demand for bitUSD" as an explanation for insufficient liquidity would be a signal that the peg was already broken!

You should think of it like, "are the shorts going to gamble even harder before they lock in their current losses?". Now with 30-day rotation on shorts it will be easy to see where the demand at anywhere below $1 comes from.

I think not enough people are comfortable using the existing market-maker bots, probably for good reason. But anyone who buys bitUSD undervalued and keeps a sell wall at the price feed will make the spread * volume every month. As soon as people realize they can compete for this "free" money the spread should narrow significantly.
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Offline starspirit

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Re: Why are market-makers reluctant to make a tighter market?
« Reply #8 on: October 15, 2014, 01:30:49 AM »
"There isn't enough demand for bitUSD" as an explanation for insufficient liquidity would be a signal that the peg was already broken!

You should think of it like, "are the shorts going to gamble even harder before they lock in their current losses?". Now with 30-day rotation on shorts it will be easy to see where the demand at anywhere below $1 comes from.

I think not enough people are comfortable using the existing market-maker bots, probably for good reason. But anyone who buys bitUSD undervalued and keeps a sell wall at the price feed will make the spread * volume every month. As soon as people realize they can compete for this "free" money the spread should narrow significantly.
As I understand it most of the shorts are grandfathered and currently not subject to the 30 day covering, is that right? So it appears we are not in that position for some time. If these were all rolled off, then the market would tighten considerably for the reason you state. At that point would there be anything in the way of market-makers keeping a tight and liquid market?

clout

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Re: Why are market-makers reluctant to make a tighter market?
« Reply #9 on: October 15, 2014, 11:55:02 AM »
I think the new market engine will greatly increase the demand of bitUSD through the yield while also  adding to the market liquidity through the more frequent covering of short positions. What is the time frame for the new market engine launch?

merockstar

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Re: Why are market-makers reluctant to make a tighter market?
« Reply #10 on: October 15, 2014, 12:06:36 PM »
Is there still going to be a market maker profit button?

Offline bytemaster

Re: Why are market-makers reluctant to make a tighter market?
« Reply #11 on: October 15, 2014, 12:07:23 PM »
It all has to do with holding period on bit usd.  If I buy bit usd today and must wait 1 day to sell and btsx goes up 1% then I lose.   Likewise if I buy btsx and hold for a day I lose.   So spread is proportional to holding period and volatility. 

To have a tight peg we need usd to bitusd makers.
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Offline luckybit

Re: Why are market-makers reluctant to make a tighter market?
« Reply #12 on: October 15, 2014, 12:22:26 PM »
I don't think they are reluctant, I think it has to do with the fact that there is low demand for bitUSD right now. It's easy to get in but not so easy to get out. I think the only solution is to create demand for bitUSD through merchant adoption. The best mm bots can do right now is create artificial volume.

Merchant adoption isn't how you create demand. The way to create demand is through payroll. People need to get paid in BitUSD.

If we are going to hire DAC developers they will want to get paid in BitUSD so that alone should be enough to create demand.

It all has to do with holding period on bit usd.  If I buy bit usd today and must wait 1 day to sell and btsx goes up 1% then I lose.   Likewise if I buy btsx and hold for a day I lose.   So spread is proportional to holding period and volatility. 

To have a tight peg we need usd to bitusd makers.

I think because we are in the early stages we put perhaps too much emphasis on BitUSD "adoption" when we should put more emphasis on using BitUSD ourselves. In order to do that we need ways to set up smart contracts or other means so that we can easily pay developers in BitUSD.

I think the future for BitUSD is bright but we have to use it before merchants will care about it. Bitcoin is slow to focus on payroll and paying wages because Bitcoin isn't good for that. BitUSD doesn't have to be slow at that because it's perfect for that.

So instead of focusing on where we can spend BitUSD we should focus on allowing people to earn it through DACs somehow so that more of us have some through earnings. It doesn't make a lot of sense why people would take regular USD out of their bank and buy BitUSD but it does make sense that people would work for BitUSD and then start using it.

I'm I am new to this space, never heard of Bitcoin before and I ask: "How can I earn some BitUSD?" what would I be told?

« Last Edit: October 15, 2014, 12:27:47 PM by luckybit »
https://metaexchange.info | Bitcoin<->Altcoin exchange | Instant | Safe | Low spreads

clout

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Re: Why are market-makers reluctant to make a tighter market?
« Reply #13 on: October 15, 2014, 12:27:44 PM »
It all has to do with holding period on bit usd.  If I buy bit usd today and must wait 1 day to sell and btsx goes up 1% then I lose.   Likewise if I buy btsx and hold for a day I lose.   So spread is proportional to holding period and volatility. 

To have a tight peg we need usd to bitusd makers.

How do we get that operation up and running?

Offline bytemaster

Re: Why are market-makers reluctant to make a tighter market?
« Reply #14 on: October 15, 2014, 12:32:45 PM »
We have several such exchanges opening up.
For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

 

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