Author Topic: The DAC as a limited internal market maker  (Read 4641 times)

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Offline luckybit

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They aren't here yet so let's not act like they'll be here before we have Turing complete scripting.

If the DACs are here already then they can provide liquidity to each other.

There is an advantage to a blockchain with its own internal market maker - speed. A blockchain market maker can react with 0 latency to market changes, whereas MM bots will always lag.

Yeah but then you cannot spread risk and benefit from the decentralization. Load balancing isn't just about speed but about risk. If one node goes down another node can take on the load of the node that went down until the new load can be brought back up.

This minimizes the downtime of any node in the network. Typically this applies to virtual machines but I don't see why it couldn't to a certain extent apply to blockchains. I don't see why our transactions for example should only execute on one blockchain when any blockchain which can meet our order could in theory take our order.

Also we have ACCT and aren't even using it. What is the reason not to use the feature if it's already built in?

I suppose the way to answer this question is to do some tests, some simulation where we have different test chains which attempt to do it with ACCT. If an internal bot is proven to be more efficient and more reliable then use the internal bot but I think the internal bot wouldn't be long term more reliable.

« Last Edit: April 17, 2015, 08:46:56 am by luckybit »
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Offline monsterer

They aren't here yet so let's not act like they'll be here before we have Turing complete scripting.

If the DACs are here already then they can provide liquidity to each other.

There is an advantage to a blockchain with its own internal market maker - speed. A blockchain market maker can react with 0 latency to market changes, whereas MM bots will always lag.
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Offline luckybit

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This was discussed before, and the conclusion was if you can spot an opportunity in MM then you should take it and make some money yourself.

Dont worry MM bots are coming.
They aren't here yet so let's not act like they'll be here before we have Turing complete scripting.

If the DACs are here already then they can provide liquidity to each other.
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Offline luckybit

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Wouldn't it be useful if the blockchain was a market maker on the internal markets? (But with a conservative daily limit and maximum total exposure limit to mitigate the risks we were worried about previously.)

Why just the Bitshares blockchain? Why not allot ACCT so that Bitshares Music and other blockchains can be market maker for profit and then let the DAC turn the profits into dividends for their chain.

This way all blockchains can interconnect and load balance.
https://en.wikipedia.org/wiki/Load_balancing_%28computing%29
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Offline monsterer

https://changemoney.org/ for BitReserve their success is all about measuring BitAsset growth and adoption and I think the market is judging BTS by the growth and popularity of BitAssets too. We already have enough users to have much higher BitAsset CAP's and therefore a much higher valuation but we need to make them more attractive so I'm open to any mechanisms that do that even if it's at the expense of BTS holders via dilution.

Having a market maker inside the DAC is not a bad idea, but it does need to perform optimally, or it will be exploited. This needs an expert in the field to look at the problem, really.
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Offline Empirical1.2

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It can just have a very wide spread, one that would have proved profitable to date.  Even if it loses money or has to stop once it reaches a certain inventory limit, it could be a net value gain for the DAC if it provides confidence to BitAsset users that there is liquidity. (Imagine if some of the value the DAC is leaking on the merger was directed to subsidising BitAsset liquidity for 20 months instead.)

It doesn't work like unfortunately. If you have a very wide spread, your orders don't get filled and you end up taking on more inventory risk. If the DAC looses too much money, it could also be drained completely by exploiting any weakness (where it doesn't perform optimally).

Thanks for the replies. I was thinking that there would be daily limits, so we could intervene if it was being exploited. That said I don't know much about this stuff other than I think liquidity may have to be artificially provided/incentivised/subsidised at the early stages in some manner.

https://changemoney.org/ for BitReserve their success is all about measuring BitAsset growth and adoption and I think the market is judging BTS by the growth and popularity of BitAssets too. We already have enough users to have much higher BitAsset CAP's and therefore a much higher valuation but we need to make them more attractive so I'm open to any mechanisms that do that even if it's at the expense of BTS holders via dilution. (Though I'm not a fan of using dilution for the merger or for most marketing initiatives at this stage, other than minebitshares.)
« Last Edit: April 16, 2015, 10:51:09 am by Empirical1.2 »
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Offline monsterer

It can just have a very wide spread, one that would have proved profitable to date.  Even if it loses money or has to stop once it reaches a certain inventory limit, it could be a net value gain for the DAC if it provides confidence to BitAsset users that there is liquidity. (Imagine if some of the value the DAC is leaking on the merger was directed to subsidising BitAsset liquidity for 20 months instead.)

It doesn't work like unfortunately. If you have a very wide spread, your orders don't get filled and you end up taking on more inventory risk. If the DAC looses too much money, it could also be drained completely by exploiting any weakness (where it doesn't perform optimally).
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Offline Empirical1.2

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(Edit: The DAC could also stop if a total inventory limit was reached but in the process of getting to that may have provided enough liquidity to get the markets going.)

There is a better way of saying what you mean, which is: the DAC market maker must perform optimally - that is, make the right pricing and inventory choices under all market conditions and participants, informed or not.

I'm not hot on this stuff, but I think I'm saying the DAC market maker doesn't have to perform optimally at all.

It can just have a very wide spread, one that would have proved profitable to date.  Even if it loses money or has to stop once it reaches a certain inventory limit, it could be a net value gain for the DAC if it provides confidence to BitAsset users that there is liquidity. (Imagine if some of the value the DAC is leaking on the merger was directed to subsidising BitAsset liquidity for 20 months instead.)
If you want to take the island burn the boats

Offline monsterer

(Edit: The DAC could also stop if a total inventory limit was reached but in the process of getting to that may have provided enough liquidity to get the markets going.)

There is a better way of saying what you mean, which is: the DAC market maker must perform optimally - that is, make the right pricing and inventory choices under all market conditions and participants, informed or not.
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Offline Empirical1.2

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Market making is extraordinarily hard to get right. Informed traders will pick off your badly placed orders and cause you to gain inventory on one side or the other, which is highly undesirable as it introduces price risk.

Yeah. I mean I don't understand the ins and outs but basically you'll be buying when everyone wants to sell for a reason and vice versa, making you a long term loser unless your spread is very wide.

But there must be a spread that is wide enough to mitigate that risk (combined with a daily limit) right?

(Edit: The DAC could also stop if a total inventory limit was reached but in the process of getting to that may have provided enough liquidity to get the markets going.)
« Last Edit: April 15, 2015, 07:46:13 pm by Empirical1.2 »
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Offline monsterer

Market making is extraordinarily hard to get right. Informed traders will pick off your badly placed orders and cause you to gain inventory on one side or the other, which is highly undesirable as it introduces price risk.
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Offline Empirical1.2

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2 months later and I don't really see the bots/any meaningful liquidity.  I would use BitAssets more if there was strong buy & sell walls either side.

Would BTS have lost money to date, acting as a market maker at 0.95 & 1.05 with a maximum daily limit?

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Offline Methodise

I will be bringing liquidity as soon as possible.
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Offline yellowecho

Ok cool. I realised we'd dismissed it before but I thought it was because of the risk to the DAC and that MM would step in. I have yet to see many market makers and I think we can reduce the risk.

If people are confident the Bots are coming, great, because that will make a huge difference to BitAsset growth and our share price because we'll use the internal exchange instead of creating BTS selling pressure.

I agree and bots are already here (from Alt and Rune) and more are in the works.
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Offline Empirical1.2

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This was discussed before, and the conclusion was if you can spot an opportunity in MM then you should take it and make some money yourself.

Dont worry MM bots are coming.

Ok cool. I realised we'd dismissed it before but I thought it was because of the risk to the DAC and that MM would step in. I have yet to see many market makers and I think we can reduce the risk.

For example this last weekend I sold a resonable amount of BTS for BTC but would have been happy to pay a premium for the convenience of using the internal exchange and to avoid adding to BTS selling pressure that would push down the price of my other BTS.

However the Bit-Silver/Gold/BTC markets were dead and I also have no idea if I would be able to sell any of my position at a convenient time.

If people are confident the Bots are coming, great, because that will make a huge difference to BitAsset growth and our share price because we'll use the internal exchange instead of creating BTS selling pressure.
If you want to take the island burn the boats