Author Topic: Radical ideas for liquidity  (Read 11340 times)

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Offline CoinHoarder

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Re: Radical ideas for liquidity
« Reply #75 on: February 02, 2016, 04:36:53 am »
What about making liquidty pools just like NBT has?

I think the answer could be paying users to risk their own bts rather than risking the networks bts directly. 

Lets say a third party set up a program to promote liquidity.  You could register an account with them, and then your trades would be watched.  An algorithm would decide how much each of your trades/positions helped liquidity.  You would then get a monthly payout to the top n liquidity supporters paid for from a worker proposal.

The dilution is low and known.  The risk is held by the traders, and they are compensated for that through the worker proposal.
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This is how liquidity pools in Nubits works... users front their own funds for the operations. I think we should seriously consider this avenue as well. However, Nushares still dilutes their shareholders to provide sufficient incentive to liquidity pools. Bitshares would have to endure "real negative dilution" to make that work, but it still may be less risky for BTS shareholders to have users front the funds used in the liquidity operations. They will of course need something in return to front those funds and take that risk, thus "real negative dilution" would have to occur. I am also not sure exactly how many people would be willing to front funds for this. I suppose Nubits hasn't had any trouble with this (finding people willing to take the risks), so maybe it is not a big deal.

Another option is using the liquidity pool to fund my proposal rather than dilution. Over time, assuming the liquidity operations are profitable, the amount of liquidity it is able to provide will grow.

There are a few good ideas floating around regarding liquidity. I think most of the ideas are not true long term solutions, but I have read a handful of solid ideas that would actually have some sort of effect on long term liquidity operations. There are actually so many decent ideas that it is challenging to find which would work best. I am going to continue to improve on my idea in the meantime (because I am biased  :P). After I feel like I cannot improve on my idea any more, then I will proceed look at the other ideas and write a similar paper on each. I see liquidity as being Bitshares number one problem right now, so I will continue to work towards having a liquid DEX.
« Last Edit: February 02, 2016, 04:42:46 am by CoinHoarder »
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Offline Empirical1.2

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Re: Radical ideas for liquidity
« Reply #76 on: February 02, 2016, 04:49:14 am »
I am making the following edits to the proposal:
Cons:
2.   Forced settlements need to be disabled, and instead autonomous buy side support needs to be implemented. If this proposal is enacted, the demand for forced settlement will increase (based on a statistical assumption.) This will force other shorts, that will certainly have less collateral, to be force settled. To solve this, I suggest we disable forced settlements, and instead set a buy side peg to provide buy support on the markets. The buy side peg percentage and amount can be the same as the sell side for the sake of convenience, or it can be set separately for the sake of having more control over the liquidity operation.
3.   Market making operations cannot be guaranteed to be profitable. On the off chance that the market making operations are unprofitable, Bitshares has the potential to have endured actual “negative dilution.”

Along with miscellaneous edits having to do with those changes.

 +5% I've been advocating using BTS as a limited internal market maker for a while.

https://bitsharestalk.org/index.php/topic,14349.msg186859.html#msg186859

I believe the market maker would need limits to stop it losing a lot of money in heavily trending markets.
(Put a maximum it can sell/buy per day, or a maximum it can sell at a certain price in a day.)
 
« Last Edit: February 02, 2016, 04:58:12 am by Empirical1.2 »
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Offline CoinHoarder

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Re: Radical ideas for liquidity
« Reply #77 on: February 02, 2016, 04:52:00 am »
What about making liquidty pools just like NBT has?
How you encourage people put BTS in the liquidty pools?
What is the rules?

Nushares dilutes their shareholders to incentive people to risk their own money to provide liquidity. A majority of the risks of the liquidity operation fall upon the individual users, but the Nushares network has to dilute shareholders to pay for people to take those risks which provides their liquidity.

Oppositely, with my design, the Bitshares network takes the risks that liquidity providers do in Nubits/Nushares. However, Bitshares pays nothing for this liquidity (it uses "neutral dilution"), and only pays if the liquidity operations are unprofitable.

I am honestly not sure which design is best. In Nubits/Nushares you have high costs and have little risk, but in my solution you have high risk but no cost.
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Offline puppies

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Re: Radical ideas for liquidity
« Reply #78 on: February 02, 2016, 04:58:09 am »
[member=16778]CoinHoarder[/member] what do you see that your proposal can do that providing a worker proposal to the committee-account or committee-trade which allowed that account to short bitassets and sell at a certain rate above the peg?
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Offline CoinHoarder

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Re: Radical ideas for liquidity
« Reply #79 on: February 02, 2016, 05:13:04 am »
I've posted the reason above but you didn't quote it.
I am still confused as to exactly how the vulnerability you are claiming would work. Please elaborate or explain it differently. I have a strong suspicion that the kind of market manipulation you are mentioning can be done even if my proposal was never implemented.

on the opposite bitUSD is NOT fully backed, especially when huge amount of them are created via dilution

Imo BitUSD can be considered as fully backed if there hasn't been unlimited BTS diluted to create them.
I don't agree with these statements. Are diluted BTS tokens not fungible? Are they not able to be used in a way that any other BTS token could be? Developers seemingly have been selling, trading and transferring diluted BTS tokens with no issues. Why is an IPO-created BTS token any more valuable (or different) than a dilution-created BTS (especially a "neutral-dilution-created BTS token")? I posit that if the price is not directly affected by the dilution, then you can't claim that the SmartCoins' aren't fully backed. SmartCoins' inherently have the possibility of becoming "under collateralized" with or without my proposal. Either way, the price will need to drop substantially for that to happen. I don't see the difference as far as SmartCoin collateralized by "diluted BTS" or "natural BTS", but I think you may have a point about market manipulation and I am still thinking it over.
« Last Edit: February 02, 2016, 05:18:47 am by CoinHoarder »
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Offline CoinHoarder

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Re: Radical ideas for liquidity
« Reply #80 on: February 02, 2016, 05:16:57 am »
[member=16778]CoinHoarder[/member] what do you see that your proposal can do that providing a worker proposal to the committee-account or committee-trade which allowed that account to short bitassets and sell at a certain rate above the peg?

Nothing to be honest (other than automation and security of the funds used.) It may be much cheaper to simply do it that way.
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Offline puppies

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Re: Radical ideas for liquidity
« Reply #81 on: February 02, 2016, 05:27:00 am »
[member=16778]CoinHoarder[/member] what do you see that your proposal can do that providing a worker proposal to the committee-account or committee-trade which allowed that account to short bitassets and sell at a certain rate above the peg?

Nothing to be honest (other than automation and security of the funds used.) It may be much cheaper to simply do it that way.

My only point is that if there is consensus that this is what we should do, we can do it right now.  There is.no reason to wait six months or so for it to be developed.

On a side note have you thought about what would happen if rather than locking up 6x or whatever high amount you locked up a low amount say 2x.  That way any increase in settling would be taken up by the same assets created.  It would also act as an exit strategy for the network.  I haven't done nearly enough thinking about all the possible downsides.  Just thought I would bring it up.
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Offline abit

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Re: Radical ideas for liquidity
« Reply #82 on: February 02, 2016, 07:35:30 am »
I think the answer could be paying users to risk their own bts rather than risking the networks bts directly. 

Lets say a third party set up a program to promote liquidity.  You could register an account with them, and then your trades would be watched.  An algorithm would decide how much each of your trades/positions helped liquidity.  You would then get a monthly payout to the top n liquidity supporters paid for from a worker proposal.

The dilution is low and known.  The risk is held by the traders, and they are compensated for that through the worker proposal.
"compensate from worker proposal" should not cover all the losses and should not be high, otherwise the system may be seen as "printing unlimited money" and let someone game the system.

IMO the answer is MAKER, maybe.
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Re: Radical ideas for liquidity
« Reply #83 on: February 02, 2016, 07:39:31 am »
Two points Id like to note.

- Settlement can be discouraged by asking for a percentage fee (1-2%) (this will move the peg AROUND parity. Flat fee for settlement can also be increase which has some negative effects on pred. markets

- the volume of the dex can certainly be addes as source for the price feed. Its about time now
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Offline puppies

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Re: Radical ideas for liquidity
« Reply #84 on: February 02, 2016, 08:10:37 am »
I think the answer could be paying users to risk their own bts rather than risking the networks bts directly. 

Lets say a third party set up a program to promote liquidity.  You could register an account with them, and then your trades would be watched.  An algorithm would decide how much each of your trades/positions helped liquidity.  You would then get a monthly payout to the top n liquidity supporters paid for from a worker proposal.

The dilution is low and known.  The risk is held by the traders, and they are compensated for that through the worker proposal.
"compensate from worker proposal" should not cover all the losses and should not be high, otherwise the system may be seen as "printing unlimited money" and let someone game the system.

IMO the answer is MAKER, maybe.

I agree.  We should not subsidize the losses of bad traders.  The idea is to get more people trading closer to the peg.  A bad trader will lose more than they get from this system and give up. 
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Offline Empirical1.2

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Re: Radical ideas for liquidity
« Reply #85 on: February 02, 2016, 01:55:55 pm »
- Settlement can be discouraged by asking for a percentage fee (1-2%) (this will move the peg AROUND parity. Flat fee for settlement can also be increase which has some negative effects on pred. markets

 +5%

-The idea that BitUSD was always worth a dollar was good but in practice I think the market would prefer BitAssets to trade around the peg rather than above the peg.

- I think forced settlement at 100% even with the delay can perhaps be manipulated by altering BTS price on external markets.

JohnnyBitcoin previously exploited transwiser via forced settlement & perhaps still has a forced settlement edge given how keen he is on maximising  forced settlement, max daily settlement & was also keen to buy $10k BitUSD recently just above feed? https://bitsharestalk.org/index.php/topic,21096.msg273365.html#msg273365

- I think an actual 1-2% fee could be good as it could then be used to incentivize shorts/other who are the ones that seem the most reluctant to come close to the peg atm.






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Offline JonnyB

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Re: Radical ideas for liquidity
« Reply #86 on: February 02, 2016, 02:23:42 pm »
- Settlement can be discouraged by asking for a percentage fee (1-2%) (this will move the peg AROUND parity. Flat fee for settlement can also be increase which has some negative effects on pred. markets

 +5%

-The idea that BitUSD was always worth a dollar was good but in practice I think the market would prefer BitAssets to trade around the peg rather than above the peg.

- I think forced settlement at 100% even with the delay can perhaps be manipulated by altering BTS price on external markets.

JohnnyBitcoin previously exploited transwiser via forced settlement & perhaps still has a forced settlement edge given how keen he is on maximising  forced settlement, max daily settlement & was also keen to buy $10k BitUSD recently just above feed? https://bitsharestalk.org/index.php/topic,21096.msg273365.html#msg273365

- I think an actual 1-2% fee could be good as it could then be used to incentivize shorts/other who are the ones that seem the most reluctant to come close to the peg atm.

I think you and a few others have a real misunderstanding of force settlement. Force settling is just a guarantee of liquidity at peg. If people are stupid enough to sell smartcoins for less than what they can be settled for then of course I will buy them and settle at profit. Watch my video at thedex.org for a more detailed explanation.
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Offline Empirical1.2

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Re: Radical ideas for liquidity
« Reply #87 on: February 02, 2016, 02:25:57 pm »
- Settlement can be discouraged by asking for a percentage fee (1-2%) (this will move the peg AROUND parity. Flat fee for settlement can also be increase which has some negative effects on pred. markets

 +5%

-The idea that BitUSD was always worth a dollar was good but in practice I think the market would prefer BitAssets to trade around the peg rather than above the peg.

- I think forced settlement at 100% even with the delay can perhaps be manipulated by altering BTS price on external markets.

JohnnyBitcoin previously exploited transwiser via forced settlement & perhaps still has a forced settlement edge given how keen he is on maximising  forced settlement, max daily settlement & was also keen to buy $10k BitUSD recently just above feed? https://bitsharestalk.org/index.php/topic,21096.msg273365.html#msg273365

- I think an actual 1-2% fee could be good as it could then be used to incentivize shorts/other who are the ones that seem the most reluctant to come close to the peg atm.

I think you and a few others have a real misunderstanding of force settlement. Force settling is just a guarantee of liquidity at peg. If people are stupid enough to sell smartcoins for less than what they can be settled for then of course I will buy them and settle at profit. Watch my video at thedex.org for a more detailed explanation.

Weren't you offering to buy the $10k BitUSD in my example for more that it could be force settled at the time?
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Re: Radical ideas for liquidity
« Reply #88 on: February 02, 2016, 03:14:54 pm »
I posted this in another thread but I will post here too, why not use some of the worker funds to pay "interest" to people that would pool their funds(bts and bitUSD) to a bot/pool(whatever) to maintain the peg?

Total witness and worker budget seems to be 130M bts per year (6,5% inflation at 2B cap bts) with 10M of those funds we can pay an anual interest rate of 2% to a Pool value of 500.000.000 bts. I don't know if this rate is too much or too low but we need to take in to account that it is more probable to have looses than profits from the trading bot if we aim for a tight peg.
Quote


https://discuss.nubits.com/t/discussion-liquidity-operations-a-paradigm-shift/3379

Before you scream about inflation, keep in mind that right now we have 12,5% inflation from the merger alone plus a max posible of 6,5% from workers and witness budget, trying to save 0,5%(or whatever) would not be wise imo IF those funds could help maintain the peg.

I don't know if this could work at all, or if its too hard to be implemented, just my thoughts.

Offline CoinHoarder

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Re: Radical ideas for liquidity
« Reply #89 on: February 02, 2016, 03:44:36 pm »
I posted this in another thread but I will post here too, why not use some of the worker funds to pay "interest" to people that would pool their funds(bts and bitUSD) to a bot/pool(whatever) to maintain the peg?

Total witness and worker budget seems to be 130M bts per year (6,5% inflation at 2B cap bts) with 10M of those funds we can pay an anual interest rate of 2% to a Pool value of 500.000.000 bts. I don't know if this rate is too much or too low but we need to take in to account that it is more probable to have looses than profits from the trading bot if we aim for a tight peg.
Quote


https://discuss.nubits.com/t/discussion-liquidity-operations-a-paradigm-shift/3379

Before you scream about inflation, keep in mind that right now we have 12,5% inflation from the merger alone plus a max posible of 6,5% from workers and witness budget, trying to save 0,5%(or whatever) would not be wise imo IF those funds could help maintain the peg.

I don't know if this could work at all, or if its too hard to be implemented, just my thoughts.

FYI- The last time I looked the current going rate liquidity providers get for providing liquidity for Nubits is 8%

Liquidity as Nubuts does it is very complicated and takes many people to enforce the peg. If we were to go this route, then I would suggest making everything happen autonomously. Go over to their forums to the liquidity subforum to find out how big of a clusterfuck liquidity for Nubuts is. We have an advantage here in that we have a DEX on our chain and thus can automate the liquidity operations. People would just need to lock up funds they want to use for liquidity operations, then the committee set the margin (or how tight the peg is).
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