Author Topic: Incentivising Liquidity  (Read 4118 times)

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Offline bytemaster

Incentivising Liquidity
« on: December 02, 2015, 09:58:46 pm »
I have two basic proposals for incentivising liquidity:

Proposal 1: Maker / Taker

Add an asset flag that allows issuers to only charge fees to the Taker (the new order being placed) and not the Maker (the open order on the books).  Currently both sides are charged.  The Taker is the one that pays for liquidity.

Proposal 2:  Share Market fees with Maker

The default model is to just give the Maker what the Taker paid, but this model does not generate any leverage. At most it gives the Maker an incentive proportional to the market fee. We would like to amplify the incentive for Market Makers early on when the risk is the highest by reallocating future revenue to current Makers.   Under this model, there would be huge incentive to be a Maker on day 1 and no incentive to be a maker on day 1000 (other than not paying the market fee).

In effect, the long-term success of a market depends upon it getting bootstrapped and we should give the "makers" a share of the long-term success proportional to their contribution to liquidity.

Every time a Maker's open order is matched, they receive MAKER_SHARES equal to SIZE_OF_ORDER * RATE  where RATE starts out at 1 and decays to 0 with a half life of 1 year.  The supply of MAKER_SHARES will grow proportional to volume until the RATE hits 0 after (4 years).
MAKER_SHARES will only be awarded for orders that sit on the books for at least X minutes (to prevent trading against yourself).

MAKER_SHARES will automatically be purchased back from the market with the market fees earned on the asset.  MAKER_SHARES will thus represent a stake in the future success of an individual market and they can only be earned by providing visible liquidity.

To maximize the number of MAKER_SHARES you earn you want to do the following:

1. Place orders that sit on the books for at least X minutes if they get filled instantly (less than X min) we will assume you are trading against yourself to "MINE" "MAKER_SHARES".
2. Buy back and resell as often as possible.

Whoever performs this service ends up "owning" a large share of the BitAsset market and they deserve it. BitShares benefits because it is earning fees from every trade in the system just like it always did.

Failure to pay for liquidity early on is like a company that wants to grow without hiring developers or marketers. We must provide profit motives for the services we want to see.
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Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline tonyk

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Re: Incentivising Liquidity
« Reply #1 on: December 02, 2015, 10:20:19 pm »
I see now. So did the fake volume bot on OL led to any increases to the real volume?

A good , and already tested, tool to have for the upcoming MAKER_SHARES anyway, but just curious.

Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline luckybit

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Re: Incentivising Liquidity
« Reply #2 on: December 02, 2015, 10:21:38 pm »
Brilliant idea worth considering.
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Offline monsterer

Re: Incentivising Liquidity
« Reply #3 on: December 02, 2015, 10:24:08 pm »
1. Place orders that sit on the books for at least X minutes if they get filled instantly (less than X min) we will assume you are trading against yourself to "MINE" "MAKER_SHARES".

Then the optimal strategy is to wait X+n minutes and then trade with yourself?
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Offline Ander

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Re: Incentivising Liquidity
« Reply #4 on: December 02, 2015, 10:27:03 pm »
1. Place orders that sit on the books for at least X minutes if they get filled instantly (less than X min) we will assume you are trading against yourself to "MINE" "MAKER_SHARES".

Then the optimal strategy is to wait X+n minutes and then trade with yourself?
Correct. :P
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Offline bytemaster

Re: Incentivising Liquidity
« Reply #5 on: December 02, 2015, 10:30:05 pm »
1. Place orders that sit on the books for at least X minutes if they get filled instantly (less than X min) we will assume you are trading against yourself to "MINE" "MAKER_SHARES".

Then the optimal strategy is to wait X+n minutes and then trade with yourself?

Yes, but during those X minutes the price can move and someone else can take you up on your order.  It may not even be relevant because trading with yourself has costs and you are not guaranteed to match yourself.
For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline roadscape

Re: Incentivising Liquidity
« Reply #6 on: December 02, 2015, 10:39:02 pm »
Great idea... and if we ever come to have easy-to-use market maker bots built into the wallet, this could allow massive crowd-sourced liquidity.
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Offline Zapply

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Offline botfund

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Re: Incentivising Liquidity
« Reply #8 on: December 03, 2015, 01:40:49 am »
I think we should support percentage based trade fee and split it to maker% and taker% which can be set by committee. maker%+taker% >= 0. You can set maker% = -0.05% and taker% = 0.1%. This way maker can share fee with the network.

Offline tonyk

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Re: Incentivising Liquidity
« Reply #9 on: December 03, 2015, 01:49:55 am »
As I said, I am not overly exited for this but what is the price tag on this, anyway?

Also some more clarity on what exact fees will be used for this buyback, will be appreciated. One example for a bitAsset and one for UIA should take only several minutes to write but will help a lot, I think. Thanks.
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline fuzzy

Re: Incentivising Liquidity
« Reply #10 on: December 03, 2015, 02:18:34 am »
Great idea... and if we ever come to have easy-to-use market maker bots built into the wallet, this could allow massive crowd-sourced liquidity.

BAM!
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You get two for that one...
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Offline btstip

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Re: Incentivising Liquidity
« Reply #11 on: December 03, 2015, 02:19:44 am »
Hey fuzzy, here are the results of your tips...
Curious about BtsTip? Visit us at http://sharebits.io and start tipping BTS on https://bitsharestalk.org/ today!
Created by hybridd

Offline tbone

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Re: Incentivising Liquidity
« Reply #12 on: December 03, 2015, 03:20:44 am »
1. Place orders that sit on the books for at least X minutes if they get filled instantly (less than X min) we will assume you are trading against yourself to "MINE" "MAKER_SHARES".

Then the optimal strategy is to wait X+n minutes and then trade with yourself?

Yes, but during those X minutes the price can move and someone else can take you up on your order.  It may not even be relevant because trading with yourself has costs and you are not guaranteed to match yourself.

I think both proposals have merits.  I like proposal #1 because it can't be gamed and makers will still be rewarded when someone takes their bid or offer within X minutes.  I would combine it with %-based fees (which we need anyway) so makers get rewarded based on share volume, not trade volume.  The only drawback is that the incentives are limited to the fees paid by the taker and we may want to offer larger incentives at the start.  In which case we'd have to look at proposal #2 or something else if we can't set the taker fee high enough to reward makers as much as necessary in the critical early stages.

Offline Chronos

Re: Incentivising Liquidity
« Reply #13 on: December 03, 2015, 03:29:53 am »
I think we should support percentage based trade fee and split it to maker% and taker% which can be set by committee. maker%+taker% >= 0. You can set maker% = -0.05% and taker% = 0.1%. This way maker can share fee with the network.
This is a simpler way to do the same thing.

  • NEGATIVE_MAKER_FEE = cash in the pocket of makers
  • MAKER_SHARES = more complexity and rules to accomplish the same result

I also think that liquidity would be helped by allowing orders to be placed relative to the price feed.

EDIT: Just to be clear, I'm saying that MAKER_SHARES aren't needed because a negative maker fee solves the same problem much more simply.
« Last Edit: December 03, 2015, 05:48:11 am by Chronos »

Offline theredpill

Re: Incentivising Liquidity
« Reply #14 on: December 03, 2015, 05:36:35 am »
#1 Yes let's do it ASAP

#2 Not sure because of complexity, risk of gamming