Author Topic: Market Maker Incentivization Worker Proposal ($300)  (Read 10955 times)

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Offline BunkerChainLabs-DataSecurityNode

Re: Market Maker Incentivization Worker Proposal ($300)
« Reply #30 on: December 09, 2015, 02:55:28 am »
Awesome!

Very excited to have more features for BitShares to grow and increase profitability.

This is a great step forward.
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Offline carpet ride

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Re: Market Maker Incentivization Worker Proposal ($300)
« Reply #31 on: December 09, 2015, 03:28:37 am »
Very cool feature.

One question though.  What does CNX need to make this a success? 

Let's say a big BTC market maker became interested and wanted to partner with CNX on this feature .. would that add value?  Or maybe I should rephrase .. will this feature incent CNX to actively pursue market makers
« Last Edit: December 09, 2015, 03:36:57 am by carpet ride »
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Offline vegolino

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Re: Market Maker Incentivization Worker Proposal ($300)
« Reply #33 on: December 10, 2015, 01:12:34 am »
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.

How is this proposal better than a negative 0.2% maker fee, which would also reward makers according to the volume they generate, and be much, much less complex?

Nobody has commented on Chorons's idea to achieve the same goal but in a simpler way.
Is there any flaw in his reasoning?

Offline theredpill

Re: Market Maker Incentivization Worker Proposal ($300)
« Reply #34 on: December 10, 2015, 01:22:34 am »
This is not the same because the first ones will earn more then the last ones, the more simple equivalent way could be to get a dillution that is deacaing until 0 to pay the maker (then the network get all fees later that will pay this dilution)

Offline theredpill

Re: Market Maker Incentivization Worker Proposal ($300)
« Reply #35 on: December 10, 2015, 01:33:38 am »
How about that: each 10 block or so pay some BTS to the first order of the book (proportional of the size of the order) of each asset we want to bootstrap :-)
« Last Edit: December 10, 2015, 01:39:13 am by theredpill »

Offline theredpill

Re: Market Maker Incentivization Worker Proposal ($300)
« Reply #36 on: December 10, 2015, 02:00:16 am »
And also make fees 0 to every maker and get the borrow cost to 0 too.

Would be interesting to see the fight for the first row of the book.

Cheers! lol

[member=19219]clayop[/member] about the borrow fee, can I make something?

Offline theredpill

Re: Market Maker Incentivization Worker Proposal ($300)
« Reply #37 on: December 10, 2015, 02:20:40 am »
What would be the recomended minimal anti-spam fee for the borrow case? We should do this now, this do not depend of any development. Just get voted. I been seeing other plataforms caming out with lots of money to buy liquidity

Offline clayop

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Re: Market Maker Incentivization Worker Proposal ($300)
« Reply #38 on: December 10, 2015, 02:41:14 am »
And also make fees 0 to every maker and get the borrow cost to 0 too.

Would be interesting to see the fight for the first row of the book.

Cheers! lol

[member=19219]clayop[/member] about the borrow fee, can I make something?

zero fee may encourage spam attacks. So based on ElMato's calculation, 1 BTS fee is reasonable. :)
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Offline bytemaster

Re: Market Maker Incentivization Worker Proposal ($300)
« Reply #39 on: December 10, 2015, 03:40:32 pm »
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.

How is this proposal better than a negative 0.2% maker fee, which would also reward makers according to the volume they generate, and be much, much less complex?

Nobody has commented on Chorons's idea to achieve the same goal but in a simpler way.
Is there any flaw in his reasoning?

I didn't comment on it because I addressed it directly multiple times.  First in the early discussions, then on mumble, and lastly in the ticket linked from the OP. 

Paying a negative fee immediately from the buyer who pays a positive fee is nothing more than shifting the price.  It is a meaningless change.

Also, the present value of future fees is much greater than the value of current fees.  We therefore transfer value from the future into the present.  Future liquidity incentive requirements are less than initial requirements. 

Those that have proposed simply paying interest to the first order on the book start to get the idea. The question is, where does the interest come from, who funds it?  If you want to do more than simply shift the price, then you will need to bring in outside funding.  I am bringing in the outside funding from future fees in the same market.  You all are suggesting bringing in that funding by diluting current BTS holders.   Furthermore, that solution does little to help out UIA issuers which want to improve their own liquidity and raise money to do so.  My monetizing future fees it helps UIA issuers to fund their liquidity without actually issuing a security.
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Offline botfund

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Re: Market Maker Incentivization Worker Proposal ($300)
« Reply #40 on: December 10, 2015, 07:15:38 pm »
Paying a negative fee immediately from the buyer who pays a positive fee is nothing more than shifting the price.  It is a meaningless change.
Taker pays the fee to both maker and the network. It's more than shifting price because it encourages makers thus improving the liquidity.

Also, the present value of future fees is much greater than the value of current fees.  We therefore transfer value from the future into the present.  Future liquidity incentive requirements are less than initial requirements. 
Maker% and taker% can be set as parameters. This can be addressed by tuning the parameters as time goes and can even be set both to positive values when we don't need to encourage makers.

Those that have proposed simply paying interest to the first order on the book start to get the idea. The question is, where does the interest come from, who funds it?  If you want to do more than simply shift the price, then you will need to bring in outside funding.  I am bringing in the outside funding from future fees in the same market.  You all are suggesting bringing in that funding by diluting current BTS holders.   Furthermore, that solution does little to help out UIA issuers which want to improve their own liquidity and raise money to do so.  My monetizing future fees it helps UIA issuers to fund their liquidity without actually issuing a security.
If the taker is the buyer of BTS on BTS/USD, he pays the fee using BTS by getting less received BTS.
If the taker is the seller of BTS on BTS/USD, he pays the fee using USD by getting less received USD. The maker and the network will get USD and the network can use the USD as a fee pool to fund possible interest as BTS1 or to the first order on the book. This can also be used to further encourage makers in a time sensitive way like you proposed.

Offline Chronos

Re: Market Maker Incentivization Worker Proposal ($300)
« Reply #41 on: December 10, 2015, 10:04:37 pm »
Paying a negative fee immediately from the buyer who pays a positive fee is nothing more than shifting the price.  It is a meaningless change.
I disagree that it is meaningless. It rewards makers, which rewards providing liquidity (by definition). Liquidity is orders on the books. The 0.2% taker fee penalizes order taking, which also helps liquidity (by definition, taking orders will reduce liquidity).

Consider this thought experiment: what if the maker fee were negative 25%? People would bring the spread to nearly nothing, in an attempt to earn this huge bonus. That would make for much deeper liquidity, but few traders would fill orders because of the taker fee. So, the sweet spot is somewhere less than 25% rebate.  :)

Another thought experiment: what if maker fee were positive 25%, to be paid to the taker? The spread would become enormous, as traders tried to avoid getting filled.

Conclusion: you can influence the spread, and total liquidity, by adjusting this parameter.

The corresponding taker fee could be offset by somewhat reducing the order placement fee, if desired.
« Last Edit: December 10, 2015, 10:12:47 pm by Chronos »

Offline monsterer

Re: Market Maker Incentivization Worker Proposal ($300)
« Reply #42 on: December 10, 2015, 10:28:48 pm »
[member=5]bytemaster[/member] I think you should reconsider [member=22994]Chronos[/member] suggestion - it is much more elegant than the OP.
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Offline bytemaster

Re: Market Maker Incentivization Worker Proposal ($300)
« Reply #43 on: December 10, 2015, 10:53:16 pm »
Quote
Quote
Paying a negative fee immediately from the buyer who pays a positive fee is nothing more than shifting the price.  It is a meaningless change.
Taker pays the fee to both maker and the network. It's more than shifting price because it encourages makers thus improving the liquidity.

Sometimes it helps me to imagine an extreme case to get a better feel for what is happening on the smaller scales.  So what follows is my own thought experiment.

Lets try the experiment with a 20% taker fee just to be outrageous.  Lets have the maker fee be -20%.    Under such a market, those who demand liquidity take a 20% loss and those who provide it get a 20% gain. The trader would view such a market similar to a market with a 20% spread. They would be hesitant to buy such an asset because they know they will take an instant 36% loss if they are the taker on both sides. (.8 in and .8 out).  This means that someone looking to get in-or-out of such a market with the least loss would have to be a maker for one of the two trades in which case they take a 4% loss (.8*1.2=.96).  Those who are willing to "wait" on both sides of the trade can profit by 44% (1.2*1.2).   Hence the negative maker fee encourages users to wait (which is the opposite of liquidity).  You create "lines" on both side of the order book of people who want to exit their position. I suspect you would see very narrow spreads with steep walls.  This market would have the appearance of good liquidity, but the underlying reality is that 'day traders' view it as a market with a 20% spread.

So in this extreme case the takers (aka traders) end up paying for their liquidity TODAY the same way they would pay for their liquidity without the 20/-20 maker/taker rule: via a large spread.  Market makers end up making the same profits they would if they had a 20% spread between their buy and sell walls. The only thing the negative maker fee is doing under this model is enforcing a minimal spread that makers can provide, in other words price-fixing the market maker fee.    Instead of market makers competing to reduce spread, they are competing to be the first in line of a "virtual" 0 spread.   Because no value is moving through time all this price fixing is doing is creating shortages (of takers) and gas lines (those waiting to exit on both sides of the book). 

So it is clear that if we set the maker/taker fees to be greater than the natural spreads that things break down.  Our real goal is to reduce spreads, not enforce a minimum spread with steep cliffs of liquidity on either side of that minimum spread.

So this means that we want to maximize maker rewards without increasing the cost to the taker.  So lets look at another extreme market:

1. Suppose that takers paid a 0.1% fee
2. Suppose that makers earned 20% bonus from someone else (ie: the network).

In this market there would be huge walls of liquidity as people compete to get a 44% return every time they turn over.  This 44% return completely eliminates almost all market volatility risk.  Traders/takers see an effective spread of just 0.1% which means they feel very comfortable buying the asset because they know they can turn around and sell it instantly with only a 0.2% loss.  Assuming there was no limit on the 20% bonus, then people would start trading against themselves.   Obviously you would have to mitigate this self trading by making the reward based upon how long the order was on the books before getting filled.  This is the situation we really want to create.

So the question becomes how do you compensate makers today without making todays traders (takers) pay for it.  My proposal has tomorrows takers pay today's makers by paying for market making today, but not tomorrow.

The proposal here says you give them 0.1% today + a cut of the net present value of all future fees.

The cost of providing liquidity on early on is much more expensive than the cost of providing the same liquidity in a mature market.
Under this model you gain more liquidity from makers early on (when it costs the most) without actually decreasing liquidity available in the future (when it costs less).  If you set the decay curve properly you can end up with "constant liquidity" equal to the average liquidity over the entire life of the market.  Over a long enough time horizon this means that you should get almost as much liquidity in year 1 as you do in year 30 if market makers believe in the future of a given market.

So when people suggest "simple" rules they are not really getting the result they want. 


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Offline Chronos

Re: Market Maker Incentivization Worker Proposal ($300)
« Reply #44 on: December 10, 2015, 11:06:51 pm »
Fascinating. Bytemaster is right. Negative maker fees really do just shift the price, technically speaking. The psychological effect may be to increase liquidity, as makers feel that they are getting a bonus, but it's not mathematically provable as I first thought.