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Offline Rune

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Automatic market making when we get relative orders?
« on: January 11, 2015, 01:42:06 AM »

I recall bytemaster writing about automatic market making to help enforce the peg and increase liquidity. I guess it's not something that has been officially decided to go ahead with yet, but I really hope we'll end up seeing it for 1.0, when we have btc gateways and light client (since these things are still nothing without liquidity).

To give an example of how it could be done extremely easily with relative orders, the blockchain could create 10-50 million new BTS per bitasset in a hard fork. This BTS would be put in special blockchain-owned accounts that is used for automatic market making of the respective bitasset following a very simple scheme: All BTS it holds are put as relative bitasset buy orders at 3% below the feed and all bitassets are put as sell orders exactly at the feed (I assume sell orders always execute before short orders, otherwise it should be one unit of precision below the feed). This can be done for all active bitasset markets, making all of them instantly liquid at 3% spread, even the less popular ones like NZD or TRY.

This would make it a lot easier for users to get back out of bitassets whenever they want, and seeing the large buy walls on the decentralized exchange will have a big psychological effect on people, making them feel more comfortable buying into our bitassets. As liquidity picks up the blockchain spread could be lowered to 2% (matching bitreserve) or even less.

The best part about a system like this is that it wouldn't cost us anything (assuming we set the automatic spread conservatively to ensure it cannot be gamed). Even though new BTS has to be printed, this BTS will only ever be used for market making and will never enter circulation, so there will be no negative effect on the price. Since the blockchain will earn the spread from market making it would even accumulate more BTS in these permanently locked accounts, giving a net profit to all BTS holders as supply is reduced!

Offline alt

Re: Automatic market making when we get relative orders?
« Reply #1 on: January 11, 2015, 02:01:19 AM »
it's very danger, you must be careful to avoid price control attack.
there are 20* 10 million BTS to run this market making.
If I have 10 million BTS at btc38, I think it's not difficult to  control the price +-10%

Offline Troglodactyl

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Re: Automatic market making when we get relative orders?
« Reply #2 on: January 11, 2015, 05:35:31 AM »
This is a bad idea, because if it was a good idea it would be profitable for anyone to do and thus there would be no need for it.

Offline toast

Re: Automatic market making when we get relative orders?
« Reply #3 on: January 11, 2015, 05:38:31 AM »
This is a bad idea. Read the discussions on blockchain mm to see why.

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Offline fluxer555

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Re: Automatic market making when we get relative orders?
« Reply #4 on: January 11, 2015, 05:40:06 AM »
This also has a negative effect on the price because there is less 'real' BTS locked in collateral. The more BTS there is locked in collateral, the higher the price of BTS is driven, due to less BTS in circulation.

 

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