I was also not a fan of NuBits and think it will at some time come unstuck but the volume is pretty good and I was impressed that they paid out over $400 000 in dividends to shareholders over the last year representing a 25% yield to NuShares shareholders.
[...]
Do any people who follow NuBits more know how much the market makers need to be subsidized?
So far the track record of Nu is ok for the first year. February 2015 and the months after that were bad because Nu lost a lot of money due to exchange defaults. Back then the liquidity providing was done with funds that Nu owned and handed over to custodians to provide the market with liquidity.
This model has been reworked and now Nu pays for market makers who provide liquidity with their own funds.
The average monthly revenue for market makers is approximately 7%. That seems big, but apart from the exchange default risk it needs to compensate BTC volatility (the main trading pair is still NBT/BTC, although USD/NBT and CNY/NBT are available as well).
These 7% are paid by Nu up to a maximum volume (some tens of thousands USD value each side all exchanges combined, Poloniex has the biggest volume:
https://alix.coinerella.com/walls/?).
A dutch auction model kicks in if the liquidity volume is above that threshold and reduces the effective interest.
This is speaking of the so-called ALP (automated liquidity pool) where a custodian operates a server software and liquidity providers provide funds with ALP clients. They stay in full control over the funds as the ALP client puts orders via exchange API and reports them to the ALP server, which credits them each minute. The money never leaves the exchange account of the liquidity provider (unless stolen, etc.; it might just get converted of the orders get filled)
A second way to provide liquidity is via MLP (managed liquidity pool). In this version a liquidity provider uses NuBot to place orders. The funds are under direct control of the NuBot operator.
For more information on liquidity providing have a look here:
http://docs.nubits.com/liquidity-pools/There are a lot of changes on the road map.
The ALP and MLP software are currently being merged and will in the future be based on NuBot (
https://bitbucket.org/JordanLeePeershares/nubottrading/src/master/docs/SETUP.md).
The reward scheme will be changed to a fixed compensation scheme where x NBT are paid per side and liquidity providers fight over the compensation. That is expected to have some advantages over the dutch auction model as it makes providing liquidity especially attractive (in terms of interest) if the order sizes on the book are small for whatever reason.
This is expected to help the money flow between the different tiers (of Nu's tiered liquidity model), different exchanges, because it incentivizes tracking wall sizes to put orders preferred at exchanges with low order volume.
The motion regarding the tiered liquidity model:
https://discuss.nubits.com/t/finalized-evolution-of-liquidity-operations/618An interpretation of it:
https://discuss.nubits.com/t/interpretation-of-the-liquidity-tiers-a-waterfall-model-triggers-metrics-and-actions/2914The begining of the ALP:
https://discuss.nubits.com/t/trust-less-liquidity-pool/1686 (back then called "trustless liquidity pool")
This might sound confusing, has a lot of links and I bet I used some words that are not really self-explanatory. Sorry for that. But the liquidity providing is a quite complex area if you are interested in the inner workings and one of Nu's important functions.
If you just want to make some money providing liquidity, it can be as easy as sending funds to the major MLP "Nulagoon" (
http://nulagoon.com/lqpools.html) or downloading and configuring an ALP client.
If you have questions that are not answered here (because I think not too many from the Nu community are frequently here), feel free to ask at
https://discuss.nubits.com/!