Author Topic: Market Maker Incentivization Worker Proposal ($300)  (Read 20481 times)

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Offline bitsharesbrazil

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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.u

So when people suggest "simple" rules they are not really getting the result they want.
now I understand why bytemaster was feedup n told a f######### you all.....people can not understand things that will.shift our game for for a couple. a few bucks......even tbis way bytemaster could have part of his job funded n with some expectations.for.the future if it grows.....

Hope bytemaster can rebuy all bts pretty n make a retun aka jobs
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Offline bytemaster

Is this just for UIAs or smartcoins also?

Any asset has the potential to enable this feature.
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Offline theredpill

I hate to repeat myself but I think this is important, this FBA only appeals to BTS people, those who believe that this exchange gonna succeed and collect a lot of fees (few people that probably already invested their money on us), those who don't do not gonna put their real money to provide liquidity on exchange to this FBA.

That make sense?

Offline morpheus

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Is this just for UIAs or smartcoins also?

Offline monsterer

If we assume that the asset issuer only allocates 50% of trading fees to the incentive program then, the MAKER asset would receive 10% of all trading fees.

Where can I vote for the far superior, dilution less alternative proposed by @Chronos?
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Offline bytemaster

If we assume that the asset issuer only allocates 50% of trading fees to the incentive program then, the MAKER asset would receive 10% of all trading fees.
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 Samupaha

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How much of the MSHARES revenue the MAKER owners are getting? I'm I just too blind to see it or isn't it decided yet?

From this thread:
CNX only gets 20% of what is paid to Market Makers.

From worker proposal:
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I have updated the example to state that MAKER owners would receive 10% rather than saying that Cryptonomex will receive 10% of all future market fees.

...but I don't see it in the example.

Offline abit

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Offline clayop

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How this feature is related to the percentage fee on order creation(adjusted market fee)?
And what happens if the order creation fee becomes very low with adjusted market fee?
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Offline Akado

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I think it's worth remembering this passage from the OP proposal:

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It is our belief that the cost of implementing a feature must be less than the present value of a feature. It is the belief of Cryptonomex that this particular feature is worth much more than the cost to implement it and therefore Cryptonomex will be implementing it speculatively in exchange for a cut of all MSHARES for all assets that use this feature to improve their liquidity.

The OP is very complicated, so cryptonomix gets rewarded for implementing it by taking a cut of the MSHARES. Fair enough, but is this clouding their ability to judge the counter proposal objectively?

BMs opinion will eventually get some people to vote it, but this could be solved by simply doing two worker proposals, the one who gets voted in first or has more % of approval is done,
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Offline monsterer

I think it's worth remembering this passage from the OP proposal:

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It is our belief that the cost of implementing a feature must be less than the present value of a feature. It is the belief of Cryptonomex that this particular feature is worth much more than the cost to implement it and therefore Cryptonomex will be implementing it speculatively in exchange for a cut of all MSHARES for all assets that use this feature to improve their liquidity.

The OP is very complicated, so cryptonomix gets rewarded for implementing it by taking a cut of the MSHARES. Fair enough, but is this clouding their ability to judge the counter proposal objectively?
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Offline Empirical1.2

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What about going with option 1 for a set period of time, and if it doesn't work (as you think it won't), then go with your OP?

Yeah, I'm not a big trader & I'm heavily in favour of anything that could add liquidity, I'm also excited that BM is really focusing on directing himself to this end but the historically reckless manner in which BTS consistently throws itself into long term obligations that have thus far proved unsuccessful is cause for concern.

Throwing away the fastest growing crypto-currency in the world on the back of this thinking for one...

Suppose we had Bitcoin level inflation (10% per year)... and we put that toward the referral system...  at today's valuation that would buy 30,000 users per year... at the valuation it would quickly grow to $600,000,000 it could buy 300,000 users per year....

Yes... this would be game changing... yes... inflation in this case would yield a net gain for shareholders.

:o

Having said that, provided we weren't committed to implementing this solution on critical BitAssets like BitUSD and BitGold and could trial it on a less critical or privatized BitAsset or UIA first to guage its efficacy then I would be in favour of it.
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Offline monsterer

What about going with option 1 for a set period of time, and if it doesn't work (as you think it won't), then go with your OP?
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Offline fav

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alright, can we start to get things done now? there's too much talk and little action, I'd like to see a worker soon.

remember: done is better than perfect