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General Discussion / Re: Subsidizing Market Liquidity
« on: March 07, 2016, 10:00:25 pm »@tbone
what about this?Has anyone worried about "self trading" sat down and attempted to strategize how they would do this in a market with at least two market makers competing for the reward?
Assume a market with a price of 1:1 and a spread of 5% on both sides.
Alice places an order at .95 and must wait 10 minutes before she qualifies for a reward.
After 9 minutes, Bob places his order at .95001.
Alice is now unable to match herself without buying out Bob first.
Not wanting to let Bob grab the liquidity reward, Alice moves her order to .95002 and the clock resets for 10 more minutes.
This back and forth will continue until the spread is greatly reduced. The narrower the spread, the riskier the market making becomes. Who is going to place a huge wall at the top off the book?
Any rewards paid do not cover 100% of market risks which means market makers will still have to maintain a reasonable spread and there will be MANY orders in front of them.
Go ahead and attempt to name a strategy that works to abuse the rewards in light of market competition.
Lastly assume a 3rd actor, someone who knows market makers are attempting to pump fake volume just to get a reward. This actor will place their orders just in front of the market maker just to collect the spread on the market makers "back and forth" selling.
One problem is that in the early days there very well might only be 1 market maker in a given market, so that's a problem. Also, multiple market makers may collude rather than competing, so they might stay out of each other's way, hit each other's bids and asks, etc. So that's another problem. But we can turn these into non-issues by NOT rewarding people for trading, and instead only rewarding them for providing liquidity i.e. placing orders on the book.
Obviously we do want trades to occur...but beyond getting orders onto the books to begin with, that means incentivizing takers, NOT makers. When it comes to incentivizing takers, just having liquidity is a start by itself (no one wants to trade an illiquid market). But we need to further incentivize takers by giving them more good reasons to be on the DEX to begin with. @Empirical1.2's yield harvesting idea will help with this by attracting attention and new users and giving current shareholders a very good reason to be on the DEX.
Being first or early to offer trading of high interest currencies such as LISK will also attract users and attention. Offering lower trading fees for a trial period could help. Having stealth (coming soon) will help. Having a hosted web wallet (coming soon) will help. Having 2FA (coming soon) will help. Having real BTC on the DEX (i.e. Bitcoin sidechain) would be a big help. And marketing our features/benefits would help a lot, too, of course.
We just need to get going with these things.