Liquidity Pool Discussion

[Empirical1.2]

I'm all for really seeing how it works out.  But I would hate to overpay with more yield than is necessary to incentivize the behavior we seek.   Also, let's assume we do 10% and it works great.  Do you think that would be sustainable going forward?  Do you not think 5% would do the trick? 

Also, I'm sure we won't get the full desired results (or support for this to begin with) without liquidity measures done in conjunction.  So the question is, how much will the liquidity incentives cost and will we be able to add that to the tab?  And let's not forget that there will also be some dev costs.

agreed, which is why we should treat everything as a limited experiment with a priori criteria to test, then adjust after results indicate some path, test again, adjust, etc. no one knows which set of incentives in either structure or magnitude will work for us, so we might as well just get going with the experiments...

I imagine very little yield would be needed going forward as BM says...

If the largest banks can achieve deposits of over $1 trillion dollars with no meaningful interest, how many deposits could BitShares attract and what would that mean for the value of the bank?

However as a catalyst, which the market will be aware may only be short term, I prefer experimenting with the larger amount. You could see $1 million being created fairly easily without having a major impact on BTS on exchanges and on the market but it's hard to see $2 million+ being created at this valuation (35-40% of all BTS) without seeing a lot of BTS rapidly removed from exchanges, increased BitUSD (BTS) demand & other positive effects. (Especially as we also have price stable alternatives like MKR currently launching.)

But yes, seeing what liquidity measures cost is key as well as taking into consideration the difficulty of getting yield approved by shareholders.

[cylonmaker2053]

I'm all for really seeing how it works out.  But I would hate to overpay with more yield than is necessary to incentivize the behavior we seek.   Also, let's assume we do 10% and it works great.  Do you think that would be sustainable going forward?  Do you not think 5% would do the trick? 

Also, I'm sure we won't get the full desired results (or support for this to begin with) without liquidity measures done in conjunction.  So the question is, how much will the liquidity incentives cost and will we be able to add that to the tab?  And let's not forget that there will also be some dev costs.

agreed, which is why we should treat everything as a limited experiment with a priori criteria to test, then adjust after results indicate some path, test again, adjust, etc. no one knows which set of incentives in either structure or magnitude will work for us, so we might as well just get going with the experiments...

[yvv]

The liquidity problem is trivial. Most of us do not understand a crap in how to do market making. Guys, who do understand how to do market making, do not have enough funds to do market making. The solution is: contact people who are trusted by society, and who can run a smart market making bot, and lend them money. Problem solved.

Isn't that what we are trying to achieve here. It's a pool where anyone can send money to.

 

[tbone]

wow, $120k in yield payments to bitUSD short sellers in 6 months? is that just an estimate of what 2% APR on borrowed funds would entail? i thought the proposed experiment was 2%?

interesting point re: NuBits. still, i'd rather start with wider upper and lower bounds around a single smartcoin to experiment; something like 20% spread would be a good starting point IMO, but i'm a fan of experimenting and adjusting based on results.

I think a 20% spread on fixed settlement ranges would be OK but not on the spread in which we subsidized liquidity. If the spread was very much wider than 0.99 - 1.01 the majority of the time, I don't think BitUSD would be very appealing to the man on the street but I also agree with experimenting and adjusting results. (If we have a liquidity pool and there is excess demand at 1.01 we would either raise the interest to attract more BitUSD to the pool like the implementation in the OP or raise it to 1.02 and so on. You could also have daily limits.)

Regards the yield, the poll was for diluting BTS at a rate of 2% a year for 6 months. (Or as some prefer to say, using 30% of the  daily worker budget https://bitshares.org/technology/stakeholder-approved-project-funding/ ) Of course you could yield harvest and provided total BitUSD was < 1/2 CAP of BTS your return would be greater than the % BTS was being diluted, so basically it's a cost every sharholder can at least mitigate. 

wow, $120k in yield payments to bitUSD short sellers in 6 months?

Not to short seller but to BitUSD yield or a combo of BitUSD yield and BitUSD shorts.
(If we added yield we would also probably lower forced settlement which would also be a positive for shorts.)

I think using 30% of available worker funds might be a bit much considering we still need to fund liquidity, not to mention we don't want to crowd out other development.  And don't forget, some here would rather we stagnate and die on the vine as long as we don't spend any money.  So we'll have somewhat of head wind on this by default. 

However, looking at the numbers, you mentioned $120k total yield over 6 months equating to 10% APR on $1.2M.  Correct me if I'm wrong, but 10% APR on $1.2M over 6 months would only be $60k, which would be $10k per month, no?  And based on current prices, our worker budget is ~$60k/month.  So if my math is correct we would be looking at only about ~17% of total budget for workers.  Am I missing something?

You are correct the numbers I mentioned in that particular reply were wrong. 120k over 6 months would be the equivalent of 10% yield on $2.4 million.

We could certainly use a lower amount, I'd certainly still support it, though if you look at the poll only 3.5% of voters were in favour of 1% instead. Personally I'm in favour of using the higher amount as I'd like to see where the market finds the BTS to create that much BitUSD... (I think we'd see a lot of positive effects very rapidly.)

I'm all for really seeing how it works out.  But I would hate to overpay with more yield than is necessary to incentivize the behavior we seek.   Also, let's assume we do 10% and it works great.  Do you think that would be sustainable going forward?  Do you not think 5% would do the trick? 

Also, I'm sure we won't get the full desired results (or support for this to begin with) without liquidity measures done in conjunction.  So the question is, how much will the liquidity incentives cost and will we be able to add that to the tab?  And let's not forget that there will also be some dev costs. 

[Empirical1.2]

wow, $120k in yield payments to bitUSD short sellers in 6 months? is that just an estimate of what 2% APR on borrowed funds would entail? i thought the proposed experiment was 2%?

interesting point re: NuBits. still, i'd rather start with wider upper and lower bounds around a single smartcoin to experiment; something like 20% spread would be a good starting point IMO, but i'm a fan of experimenting and adjusting based on results.

I think a 20% spread on fixed settlement ranges would be OK but not on the spread in which we subsidized liquidity. If the spread was very much wider than 0.99 - 1.01 the majority of the time, I don't think BitUSD would be very appealing to the man on the street but I also agree with experimenting and adjusting results. (If we have a liquidity pool and there is excess demand at 1.01 we would either raise the interest to attract more BitUSD to the pool like the implementation in the OP or raise it to 1.02 and so on. You could also have daily limits.)

Regards the yield, the poll was for diluting BTS at a rate of 2% a year for 6 months. (Or as some prefer to say, using 30% of the  daily worker budget https://bitshares.org/technology/stakeholder-approved-project-funding/ ) Of course you could yield harvest and provided total BitUSD was < 1/2 CAP of BTS your return would be greater than the % BTS was being diluted, so basically it's a cost every sharholder can at least mitigate. 

wow, $120k in yield payments to bitUSD short sellers in 6 months?

Not to short seller but to BitUSD yield or a combo of BitUSD yield and BitUSD shorts.
(If we added yield we would also probably lower forced settlement which would also be a positive for shorts.)

I think using 30% of available worker funds might be a bit much considering we still need to fund liquidity, not to mention we don't want to crowd out other development.  And don't forget, some here would rather we stagnate and die on the vine as long as we don't spend any money.  So we'll have somewhat of head wind on this by default. 

However, looking at the numbers, you mentioned $120k total yield over 6 months equating to 10% APR on $1.2M.  Correct me if I'm wrong, but 10% APR on $1.2M over 6 months would only be $60k, which would be $10k per month, no?  And based on current prices, our worker budget is ~$60k/month.  So if my math is correct we would be looking at only about ~17% of total budget for workers.  Am I missing something?

You are correct the numbers I mentioned in that particular reply were wrong. 120k over 6 months would be the equivalent of 10% yield on $2.4 million.

We could certainly use a lower amount, I'd certainly still support it, though if you look at the poll only 3.5% of voters were in favour of 1% instead. Personally I'm in favour of using the higher amount as I'd like to see where the market finds the BTS to create that much BitUSD... (I think we'd see a lot of positive effects very rapidly.)

[tbone]

wow, $120k in yield payments to bitUSD short sellers in 6 months? is that just an estimate of what 2% APR on borrowed funds would entail? i thought the proposed experiment was 2%?

interesting point re: NuBits. still, i'd rather start with wider upper and lower bounds around a single smartcoin to experiment; something like 20% spread would be a good starting point IMO, but i'm a fan of experimenting and adjusting based on results.

I think a 20% spread on fixed settlement ranges would be OK but not on the spread in which we subsidized liquidity. If the spread was very much wider than 0.99 - 1.01 the majority of the time, I don't think BitUSD would be very appealing to the man on the street but I also agree with experimenting and adjusting results. (If we have a liquidity pool and there is excess demand at 1.01 we would either raise the interest to attract more BitUSD to the pool like the implementation in the OP or raise it to 1.02 and so on. You could also have daily limits.)

Regards the yield, the poll was for diluting BTS at a rate of 2% a year for 6 months. (Or as some prefer to say, using 30% of the  daily worker budget https://bitshares.org/technology/stakeholder-approved-project-funding/ ) Of course you could yield harvest and provided total BitUSD was < 1/2 CAP of BTS your return would be greater than the % BTS was being diluted, so basically it's a cost every sharholder can at least mitigate. 

wow, $120k in yield payments to bitUSD short sellers in 6 months?

Not to short seller but to BitUSD yield or a combo of BitUSD yield and BitUSD shorts.
(If we added yield we would also probably lower forced settlement which would also be a positive for shorts.)

I think using 30% of available worker funds might be a bit much considering we still need to fund liquidity, not to mention we don't want to crowd out other development.  And don't forget, some here would rather we stagnate and die on the vine as long as we don't spend any money.  So we'll have somewhat of head wind on this by default. 

However, looking at the numbers, you mentioned $120k total yield over 6 months equating to 10% APR on $1.2M.  Correct me if I'm wrong, but 10% APR on $1.2M over 6 months would only be $60k, which would be $10k per month, no?  And based on current prices, our worker budget is ~$60k/month.  So if my math is correct we would be looking at only about ~17% of total budget for workers.  Am I missing something?

[cylonmaker2053]

I think a 20% spread on fixed settlement ranges would be OK but not on the spread in which we subsidized liquidity. If the spread was very much wider than 0.99 - 1.01 the majority of the time, I don't think BitUSD would be very appealing to the man on the street but I also agree with experimenting and adjusting results. (If we have a liquidity pool and there is excess demand at 1.01 we would either raise the interest to attract more BitUSD to the pool like the implementation in the OP or raise it to 1.02 and so on. You could also have daily limits.)

Regards the yield, the poll was for diluting BTS at a rate of 2% a year for 6 months. (Or as some prefer to say, using 30% of the  daily worker budget https://bitshares.org/technology/stakeholder-approved-project-funding/ ) Of course you could yield harvest and provided total BitUSD was < 1/2 CAP of BTS your return would be greater than the % BTS was being diluted, so basically it's a cost every sharholder can at least mitigate. 

wow, $120k in yield payments to bitUSD short sellers in 6 months?

Not to short seller but to BitUSD yield or a combo of BitUSD yield and BitUSD shorts.
(If we added yield we would also probably lower forced settlement which would also be a positive for shorts.)

gotcha, cool thx for the clarifications. i'd support experimenting with BOTH yield to short sellers, as well as yield to smartcoin holders; perhaps implementing the experiments sequentially to learn more. a simultaneous experiment would make it difficult to disentangle the effects.

[Empirical1.2]

i'm also in the market making business for our USD, BTC, and SILVER markets and so i'm viewing these ideas from that perspective.

#1 we have a natural supply limit to any smartcoin, which is some function of excess BTS people are willing to lock up in collateral for that particular smartcoin. there's also an upper bound based purely on exchange rate and amount of BTS required per unit of that smartcoin. 1 million bitUSD is far too large a number. we're probably looking at more like 100,000 bitUSD at current BTS valuation and amount people are willing to tie up in collateral.

If we implement the BitUSD yield trial you are in favour of we should see a substantial increase in BitUSD creation. (The trial would pay out circa $120 000 in yield over the following 6 months, which would be the equivalent of 10% p.a on $1.2 million BitUSD for those 6 months, so I believe we'll see at least that amount created.)

#2 juicy spreads are what induce liquidity providers to enter markets. in absence of any support/intervention, simply observing spreads shows us what kind of risk/reward market makers imply for our assets. artificially narrowing this spread (albeit by fixing settlement ranges and thereby reducing some risk) could easily induce market makers to leave the DEX.

I agree that some fixed settlement ranges on either side of the peg but quite far away to reduce some risk would be a positive. (Forced settlement at 1-1 for example actually discourages shorts/liquidity imo.)

However I believe narrowing spreads combined with partially subsidized returns will attract market makers. NuBits for example artificially narrows the spread but pays circa 0.2% a day for a set amount of liquidity on each exchange. The Buy/Sell walls you see on CCDEK for example 'appear' to be achieved for $40 a day.

http://cybnate.github.io/index-liquidbits.html
https://www.ccedk.com/nbt-usd

I imagine we can do the same at a wider spread and achieve similar results. I have messaged the creator of the pool mentioned in the OP and invited him to this thread to hopefully learn more about that and the cost.

wow, $120k in yield payments to bitUSD short sellers in 6 months? is that just an estimate of what 2% APR on borrowed funds would entail? i thought the proposed experiment was 2%?

interesting point re: NuBits. still, i'd rather start with wider upper and lower bounds around a single smartcoin to experiment; something like 20% spread would be a good starting point IMO, but i'm a fan of experimenting and adjusting based on results.

I think a 20% spread on fixed settlement ranges would be OK but not on the spread in which we subsidized liquidity. If the spread was very much wider than 0.99 - 1.01 the majority of the time, I don't think BitUSD would be very appealing to the man on the street but I also agree with experimenting and adjusting results. (If we have a liquidity pool and there is excess demand at 1.01 we would either raise the interest to attract more BitUSD to the pool like the implementation in the OP or raise it to 1.02 and so on. You could also have daily limits.)

Regards the yield, the poll was for diluting BTS at a rate of 2% a year for 6 months. (Or as some prefer to say, using 30% of the  daily worker budget https://bitshares.org/technology/stakeholder-approved-project-funding/ ) Of course you could yield harvest and provided total BitUSD was < 1/2 CAP of BTS your return would be greater than the % BTS was being diluted, so basically it's a cost every sharholder can at least mitigate. 

wow, $120k in yield payments to bitUSD short sellers in 6 months?

Not to short seller but to BitUSD yield or a combo of BitUSD yield and BitUSD shorts.
(If we added yield we would also probably lower forced settlement which would also be a positive for shorts.)

[cylonmaker2053]

i'm also in the market making business for our USD, BTC, and SILVER markets and so i'm viewing these ideas from that perspective.

#1 we have a natural supply limit to any smartcoin, which is some function of excess BTS people are willing to lock up in collateral for that particular smartcoin. there's also an upper bound based purely on exchange rate and amount of BTS required per unit of that smartcoin. 1 million bitUSD is far too large a number. we're probably looking at more like 100,000 bitUSD at current BTS valuation and amount people are willing to tie up in collateral.

#2 juicy spreads are what induce liquidity providers to enter markets. in absence of any support/intervention, simply observing spreads shows us what kind of risk/reward market makers imply for our assets. artificially narrowing this spread (albeit by fixing settlement ranges and thereby reducing some risk) could easily induce market makers to leave the DEX.

that said, i am in support of some upper and lower range for settlement, as suggested by @JonnyBitcoin in other threads. the range would be something like 20% for starters, though, not 2%. further, everything we try ought to be on a limited experimental basis for a single smartcoin. derive measurable hypotheses, test over a limited range, then advance policies that are proven (conditionally) to work. never stop experimenting...

Good points.
Glad to see we have one more market maker.
By the way what's you opinion about the "Subsidizing Market Liquidity" idea in this post?  https://bitsharestalk.org/index.php/topic,21544.105.html

these were my comments on that thread: https://bitsharestalk.org/index.php/topic,21544.msg280555.html#msg280555

i like the concept, but think a sliding scale should weight more strongly the closer the open order is to either settlement, maybe midpoint btw bid/ask, or maybe even whatever is closest to (or was the) last trade.

[cylonmaker2053]

i'm also in the market making business for our USD, BTC, and SILVER markets and so i'm viewing these ideas from that perspective.

#1 we have a natural supply limit to any smartcoin, which is some function of excess BTS people are willing to lock up in collateral for that particular smartcoin. there's also an upper bound based purely on exchange rate and amount of BTS required per unit of that smartcoin. 1 million bitUSD is far too large a number. we're probably looking at more like 100,000 bitUSD at current BTS valuation and amount people are willing to tie up in collateral.

If we implement the BitUSD yield trial you are in favour of we should see a substantial increase in BitUSD creation. (The trial would pay out circa $120 000 in yield over the following 6 months, which would be the equivalent of 10% p.a on $1.2 million BitUSD for those 6 months, so I believe we'll see at least that amount created.)

#2 juicy spreads are what induce liquidity providers to enter markets. in absence of any support/intervention, simply observing spreads shows us what kind of risk/reward market makers imply for our assets. artificially narrowing this spread (albeit by fixing settlement ranges and thereby reducing some risk) could easily induce market makers to leave the DEX.

I agree that some fixed settlement ranges on either side of the peg but quite far away to reduce some risk would be a positive. (Forced settlement at 1-1 for example actually discourages shorts/liquidity imo.)

However I believe narrowing spreads combined with partially subsidized returns will attract market makers. NuBits for example artificially narrows the spread but pays circa 0.2% a day for a set amount of liquidity on each exchange. The Buy/Sell walls you see on CCDEK for example 'appear' to be achieved for $40 a day.

http://cybnate.github.io/index-liquidbits.html
https://www.ccedk.com/nbt-usd

I imagine we can do the same at a wider spread and achieve similar results. I have messaged the creator of the pool mentioned in the OP and invited him to this thread to hopefully learn more about that and the cost.

wow, $120k in yield payments to bitUSD short sellers in 6 months? is that just an estimate of what 2% APR on borrowed funds would entail? i thought the proposed experiment was 2%?

interesting point re: NuBits. still, i'd rather start with wider upper and lower bounds around a single smartcoin to experiment; something like 20% spread would be a good starting point IMO, but i'm a fan of experimenting and adjusting based on results.

[Akado]

The liquidity problem is trivial. Most of us do not understand a crap in how to do market making. Guys, who do understand how to do market making, do not have enough funds to do market making. The solution is: contact people who are trusted by society, and who can run a smart market making bot, and lend them money. Problem solved.

Isn't that what we are trying to achieve here. It's a pool where anyone can send money to.

[abit]

i'm also in the market making business for our USD, BTC, and SILVER markets and so i'm viewing these ideas from that perspective.

#1 we have a natural supply limit to any smartcoin, which is some function of excess BTS people are willing to lock up in collateral for that particular smartcoin. there's also an upper bound based purely on exchange rate and amount of BTS required per unit of that smartcoin. 1 million bitUSD is far too large a number. we're probably looking at more like 100,000 bitUSD at current BTS valuation and amount people are willing to tie up in collateral.

#2 juicy spreads are what induce liquidity providers to enter markets. in absence of any support/intervention, simply observing spreads shows us what kind of risk/reward market makers imply for our assets. artificially narrowing this spread (albeit by fixing settlement ranges and thereby reducing some risk) could easily induce market makers to leave the DEX.

that said, i am in support of some upper and lower range for settlement, as suggested by @JonnyBitcoin in other threads. the range would be something like 20% for starters, though, not 2%. further, everything we try ought to be on a limited experimental basis for a single smartcoin. derive measurable hypotheses, test over a limited range, then advance policies that are proven (conditionally) to work. never stop experimenting...

Good points.
Glad to see we have one more market maker.
By the way what's you opinion about the "Subsidizing Market Liquidity" idea in this post?  https://bitsharestalk.org/index.php/topic,21544.105.html

[Empirical1.2]

i'm also in the market making business for our USD, BTC, and SILVER markets and so i'm viewing these ideas from that perspective.

#1 we have a natural supply limit to any smartcoin, which is some function of excess BTS people are willing to lock up in collateral for that particular smartcoin. there's also an upper bound based purely on exchange rate and amount of BTS required per unit of that smartcoin. 1 million bitUSD is far too large a number. we're probably looking at more like 100,000 bitUSD at current BTS valuation and amount people are willing to tie up in collateral.

If we implement the BitUSD yield trial you are in favour of we should see a substantial increase in BitUSD creation. (The trial would pay out circa $120 000 in yield over the following 6 months, which would be the equivalent of 10% p.a on $1.2 million BitUSD for those 6 months, so I believe we'll see at least that amount created.)

#2 juicy spreads are what induce liquidity providers to enter markets. in absence of any support/intervention, simply observing spreads shows us what kind of risk/reward market makers imply for our assets. artificially narrowing this spread (albeit by fixing settlement ranges and thereby reducing some risk) could easily induce market makers to leave the DEX.

I agree that some fixed settlement ranges on either side of the peg but quite far away to reduce some risk would be a positive. (Forced settlement at 1-1 for example actually discourages shorts/liquidity imo.)

However I believe narrowing spreads combined with partially subsidized returns will attract market makers. NuBits for example artificially narrows the spread but pays circa 0.2% a day for a set amount of liquidity on each exchange. The Buy/Sell walls you see on CCDEK for example 'appear' to be achieved for $40 a day.

http://cybnate.github.io/index-liquidbits.html
https://www.ccedk.com/nbt-usd

I imagine we can do the same at a wider spread and achieve similar results. I have messaged the creator of the pool mentioned in the OP and invited him to this thread to hopefully learn more about that and the cost.

[yvv]

The liquidity problem is trivial. Most of us do not understand a crap in how to do market making. Guys, who do understand how to do market making, do not have enough funds to do market making. The solution is: contact people who are trusted by society, and who can run a smart market making bot, and lend them money. Problem solved.

[cylonmaker2053]

i'm also in the market making business for our USD, BTC, and SILVER markets and so i'm viewing these ideas from that perspective.

#1 we have a natural supply limit to any smartcoin, which is some function of excess BTS people are willing to lock up in collateral for that particular smartcoin. there's also an upper bound based purely on exchange rate and amount of BTS required per unit of that smartcoin. 1 million bitUSD is far too large a number. we're probably looking at more like 100,000 bitUSD at current BTS valuation and amount people are willing to tie up in collateral.

#2 juicy spreads are what induce liquidity providers to enter markets. in absence of any support/intervention, simply observing spreads shows us what kind of risk/reward market makers imply for our assets. artificially narrowing this spread (albeit by fixing settlement ranges and thereby reducing some risk) could easily induce market makers to leave the DEX.

that said, i am in support of some upper and lower range for settlement, as suggested by @JonnyBitcoin in other threads. the range would be something like 20% for starters, though, not 2%. further, everything we try ought to be on a limited experimental basis for a single smartcoin. derive measurable hypotheses, test over a limited range, then advance policies that are proven (conditionally) to work. never stop experimenting...