Author Topic: Incentivising Liquidity  (Read 6988 times)

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Tuck Fheman

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I keep saying it and will say it again.

We need relative orders that allow orders to be placed in relation to the feed price and then move with it.

Until then, there's metaexchange.

Offline lil_jay890

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I keep saying it and will say it again.

We need relative orders that allow orders to be placed in relation to the feed price and then move with it.

I don't think trailing orders would make that big of a difference... Plus I think those are handled by the broker in traditional markets. I don't think there is a trailing stop that can be put directly on the exchanges.

Offline JonnyB

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I keep saying it and will say it again.

We need relative orders that allow orders to be placed in relation to the feed price and then move with it.
I run the @bitshares twitter handle
twitter.com/bitshares

Offline Chronos

I'm thinking give the incentive only to the short-seller-maker to reduce the premium and compensate for the added risk inherent with the short side in bitshares.
Clever idea, but how do you identify whether a maker is also a short seller? Any short position may be unrelated to a given trade.

Offline Helikopterben

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The way market makers work in regular markets is that they are obligated to sell/buy at a certain price and usually it is a minimum of 1000 shares.

If they choose to sell 1000 shares as 25.50 they must keep those on the order books until their 1000 shares are gone.  What they will do is put a bid in just above the current bid, say at 25.46.  If someone sells them 1000 shares at their bid, they pocket the 4 cent spread because they will be immediately able to sell into their 1000 share sell order.

Why would someone do this you ask?  Why would they obligate themselves to sell at a certain price?  The reason is that they get commissions from the brokers that use them to fill their orders.  This is why if BTS has market makers, they should be compensated by the trading fees.  Hence we should use option 1.

Yes market makers in traditional markets often get rebates. 

http://www.investopedia.com/articles/active-trading/042414/what-makertaker-fees-mean-you.asp
Quote
The maker-taker plan harks back to 1997, when Island Electronic Communications Network creator Joshua Levine designed a pricing model aimed to give providers an incentive to trade in markets with narrow spreads. Under this scenario, makers would receive a $0.002/share rebate and takers would pay a $0.003/share fee, and the exchange would keep the $0.001/share difference. By the mid-2000s, rebate capture strategies had emerged as a staple of market incentive features, with payments ranging from 20 to 30 cents for every 100 shares traded.

I'm thinking give the incentive only to the short-seller-maker to reduce the premium and compensate for the added risk inherent with the short side in bitshares.

Offline cass

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I am also in favor of #1 simply because BTS is already too complex for many traders .. let's don't make their profit calculations worse

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Offline Chronos

Option 1 is a negative maker fee. It seems it has some community support.

Now we need specifics. How about 0.2% rebate for makers, and 0.2% fee for takers? Do you think that's too little, or too much? It makes sense to me that the maker rebate would be exactly counterbalanced by an equivalently-sized taker fee, in order to prevent abuse via self-trades.

Offline lil_jay890

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The way market makers work in regular markets is that they are obligated to sell/buy at a certain price and usually it is a minimum of 1000 shares.

If they choose to sell 1000 shares as 25.50 they must keep those on the order books until their 1000 shares are gone.  What they will do is put a bid in just above the current bid, say at 25.46.  If someone sells them 1000 shares at their bid, they pocket the 4 cent spread because they will be immediately able to sell into their 1000 share sell order.

Why would someone do this you ask?  Why would they obligate themselves to sell at a certain price?  The reason is that they get commissions from the brokers that use them to fill their orders.  This is why if BTS has market makers, they should be compensated by the trading fees.  Hence we should use option 1.

Offline botfund

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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.
I really like this to be implemented and negative maker fee to improve the liquidity. I saw it worked especially near the fill price.
Regarding to the implementation, I know it's simpler if you allow both assets as fee. In this way you just match the orders like there's no fee. Then just subtract the fee from the received assets. Let's take BTS:USD as an example. If the taker is selling 10000 BTS and taker fee is 0.1% and the price is 0.05. Before fee subtract, it's 500 USD. After subtract, he gets 499.5USD and 0.5USD will be collected as fee. You'll have the same simple calculation even when maker's fee is >0, =0 or <0. That's why most exchanges use this simple rule and keep both assets as profit.
If BTA as fee is impacting the architecture, we may need the fee pool to turn it into BTS but that will be not so elegant. I think it's good to allow profit to be BTA. Anyway normally BTS and BTA fees will be likely to be similar in value.

[edit]: in the example, if maker's fee >0, it should be on BTS and USD if maker fee<0.
« Last Edit: December 03, 2015, 02:26:10 pm by botfund »

Offline Empirical1.2

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In favour of No.1

(Kraken seems to only offer 0% maker fees for very high volume, so no maker fees for every maker would be very positive.)

Not in favour of No.2

It seems complicated & commits BTS to an approach which might not work for an extended period of time.

What about a negative fee system, funded by a worker proposal applied to just one market, such as BitGold, for a limited time period to evaluate the impact it has on bootstrapping liquidity?

Example:

Define a specific range that we would like to see BitGold trading in and reward makers within that range.

We could have a set hourly budget which rolls over if it's not fully claimed thus ensuring at some point makers will be incentivised to offer liquidity in that market.

The budget could also start out small and increase depending on results. It then also gives us the option to remove it, whether it's successful/unsuccessful and also then apply it to other BitAssets having tried it on just one market at a much lower cost.

Because of BTS volatility, I also think relative orders are very important if that's possible to give people confidence to leave orders on the books.
« Last Edit: December 03, 2015, 09:51:22 am by Empirical1.2 »
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Offline xeroc

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I am also in favor of #1 simply because BTS is already too complex for many traders .. let's don't make their profit calculations worse

Offline merivercap

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I would do #1.  It's common in traditional and bitcoin exchanges.

Bitfinex:
https://www.bitfinex.com/pages/fees
BitCash - http://www.bitcash.org 
Beta: bitCash Wallet / p2p Gateway: (https://m.bitcash.org)
Beta: bitCash Trade (https://trade.bitcash.org)

Offline theredpill

#1 Yes let's do it ASAP

#2 Not sure because of complexity, risk of gamming

Offline Chronos

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 tbone

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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.