Author Topic: Subsidizing Market Liquidity  (Read 73659 times)

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Offline tonyk

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What Shentist and abit said.
You do not have to be  first on the orderbook if you are a whale and the reward is anywhere meaningful. You buy the few small orders before yours (say 200-500USD total) and self-fill your 15-20K USD. The daily reward is mostly yours. You can even replace the orders that you bought at the same prices.

If the reward is not meaningful... well it will not have the impact you want, at all.

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

Offline abit

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Has anyone worried about "self trading" sat down and attempted to strategize how they would do this in a market with at least two market makers competing for the reward?

Assume a market with a price of 1:1 and a spread of 5% on both sides.

Alice places an order at .95 and must wait 10 minutes before she qualifies for a reward.
After 9 minutes, Bob places his order at .95001. 
Alice is now unable to match herself without buying out Bob first.
Not wanting to let Bob grab the liquidity reward, Alice moves her order to .95002 and the clock resets for 10 more minutes.

This back and forth will continue until the spread is greatly reduced. The narrower the spread, the riskier the market making becomes. Who is going to place a huge wall at the top off the book?

Any rewards paid do not cover 100% of market risks which means market makers will still have to maintain a reasonable spread and there will be MANY orders in front of them.

Go ahead and attempt to name a strategy that works to abuse the rewards in light of market competition.

Lastly assume a 3rd actor, someone who knows market makers are attempting to pump fake volume just to get a reward. This actor will place their orders just in front of the market maker just to collect the spread on the market makers "back and forth" selling.
Basically I think it's a good idea. If there are fair competitions.
But what will happen when one of the competor has unfair advantage? As tonyk said, If a whale put a wall there, she can easily harvest most of the rewards. Worst assumption is that CNX is such a whale, so no payment for development, but earn much from future rewards via dilution.
//update: Shentist made a good example.
« Last Edit: February 20, 2016, 06:40:11 pm by abit »
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Offline tbone

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maybe we're over complicating this and we should just be thinking in terms of fee discounts for trade frequency. There's no gaming something like that since there'd always be a non-zero transaction fee, and we can reserve fees for creating a kick a$$ bond market.

In that case we could also simply do maker/taker where maker pays zero.  But the point is to further incentivize placing orders on the books by offering a negative fee.  To that end, I think @bytemaster has made some good points about the risk of self-trading perhaps being overblown.  Although I'd like to hear what others think.

I would also like to hear what @bytemaster thinks about the case @Empirical1.2 has been making for splitting the dilution between incentivizing market makers and paying yield to BitUSD holders.  Personally, I find this hybrid approach very compelling and haven't seen any particularly good arguments against it.

Offline Shentist

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Has anyone worried about "self trading" sat down and attempted to strategize how they would do this in a market with at least two market makers competing for the reward?

Assume a market with a price of 1:1 and a spread of 5% on both sides.

Alice places an order at .95 and must wait 10 minutes before she qualifies for a reward.
After 9 minutes, Bob places his order at .95001. 
Alice is now unable to match herself without buying out Bob first.
Not wanting to let Bob grab the liquidity reward, Alice moves her order to .95002 and the clock resets for 10 more minutes.

This back and forth will continue until the spread is greatly reduced. The narrower the spread, the riskier the market making becomes. Who is going to place a huge wall at the top off the book?

Any rewards paid do not cover 100% of market risks which means market makers will still have to maintain a reasonable spread and there will be MANY orders in front of them.

Go ahead and attempt to name a strategy that works to abuse the rewards in light of market competition.

Lastly assume a 3rd actor, someone who knows market makers are attempting to pump fake volume just to get a reward. This actor will place their orders just in front of the market maker just to collect the spread on the market makers "back and forth" selling.

some people are worried that whales can abuse it like

Alice place a sell order of 20.000 bitUSD 8% away from the market. The bitshares exchange has not so many traders yet, so in 10 minutes only 1000 bitUSD is before her. so she will just buy 21.000 bitUSD and get most of the reward today.

Offline cylonmaker2053

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maybe we're over complicating this and we should just be thinking in terms of fee discounts for trade frequency. There's no gaming something like that since there'd always be a non-zero transaction fee, and we can reserve fees for creating a kick a$$ bond market.

Offline bytemaster

Has anyone worried about "self trading" sat down and attempted to strategize how they would do this in a market with at least two market makers competing for the reward?

Assume a market with a price of 1:1 and a spread of 5% on both sides.

Alice places an order at .95 and must wait 10 minutes before she qualifies for a reward.
After 9 minutes, Bob places his order at .95001. 
Alice is now unable to match herself without buying out Bob first.
Not wanting to let Bob grab the liquidity reward, Alice moves her order to .95002 and the clock resets for 10 more minutes.

This back and forth will continue until the spread is greatly reduced. The narrower the spread, the riskier the market making becomes. Who is going to place a huge wall at the top off the book?

Any rewards paid do not cover 100% of market risks which means market makers will still have to maintain a reasonable spread and there will be MANY orders in front of them.

Go ahead and attempt to name a strategy that works to abuse the rewards in light of market competition.

Lastly assume a 3rd actor, someone who knows market makers are attempting to pump fake volume just to get a reward. This actor will place their orders just in front of the market maker just to collect the spread on the market makers "back and forth" selling.
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Offline Akado

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I think Shentist's right. We can start with a more conservative approach and if everything goes well, the committee could always change the parameters as long as it feels comfortable and we get the expected results.

Would like to see the committee's opinion on this @alt @bitcrab @Bhuz @abit @cube
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Offline Shentist

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many people don't understand that all numbers are assumptions from bytemaster and the committee will have
the autority to change them.

so if 10 minutes is good etc. can be discusssed and change, how much we spend on something like this is decided via workers who are voted in.

that's leave us to the point

"is this a good idea?"

i think yes, because

- it will attract more "traders" aka users.
- with more traders more "holders" aka users will come etc.

i would just like to have some feature added like "is x% away from peg" as a set we can change. with this we can make it possible that the order has to stay x minutes on the order book but has to be at least x % near the peg. with more minutes on the ordersbooks there is not such a thing then fake liquidity, because some other guy can buy your order up for you, so you have some risks if you trade always against yourself.
« Last Edit: February 20, 2016, 05:54:50 pm by Shentist »

Offline cylonmaker2053

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i see your point now. it still seems like this might lead to gaming of the system but my game theory sucks.

i trust you guys on the math so im on board, however, Empirical brings up a great point being that we could basically bring forward the success of our bond market tomorrow to today simply by using all or half of the proposed funds for this project to pay yield on bitassets

it is a different strategy that would put us more directly in competition with banks and many community.members have left over the years and have experienced disappointment that we have dropped this strategy. We would win them back and more.

here, check out the poll I started and see what the communtiy thinks:

https://bitsharestalk.org/index.php/topic,21549.0.html

anytime we propose spending revenue on projects it is a contentious issue. the fork we are at here is do we want to bring in traders next and incentivise our DEX ?

or do we want to bring in savers and in entivize yield (as an incentive to buy and hold in a market with big spreads)

Just voted in that poll and it looks like i'm the only one in favor of supporting yield on bitassets! One caveat to that poll is that i would remove the word "forever" in the interest payments. i'm all for a bond market with contractual yields in rates and maturity. to keep things simple, however, i think the biggest bang for the buck is in a Bitshares Treasury bond that pays out some % of fees as interest. we could start with a fixed rate product, a variable rate one depending on fees, or whatever. The key, though, is to create something that can reward investors for holding bitassets.

Best to test a prototype, maybe a bitUSD Treasury that pays interest from fees earned in the bitUSD market; the bond should only be available for purchase with bitUSD, as well, which creates circular, and hopefully growing, demand for the market over time. If that works, roll out similar bonds for the other relatively liquid markets. Imagine the PR we could get when we eventually have a Gold Bond that pays bitGOLD investors? There aren't many other places in the world you can go to simultaneously adopt gold price exposure and earn interest!

re: maturity, i'd recommend the prototype bitUSD-denominated debt instrument should be a 30-day bill instead of a longer dated bond. Those can, and should, come later. Right now we want a good mix between offering assets with yield that utilize our underlying bitassets and turnover to keep things as liquid as possible.

Offline Akado

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Diluting  at low price   bts die
bts die   bitAsset die
all die

I'm not saying we must do this, but then what other options do we have? Let's all pray and hope for the best? Maybe that way people will start using BitShares. Sounds like a plan.

base on bitshares   make app
use bitshares RNG 
vote game……

Making apps for BitShares will probably need dilution too, since no one will do them for free unless you find a business who is very interested in BitShares.

The games who could bring more attention are most likely Dice but that seems to have a bad reputation on China so we shouldn't really go that route it seems.

We want volume and liquidity but that isn't free. We can't just snap our fingers and have all we want right. It requires some sacrifice. It might work or it might not work, but sitting and not doing nothing is 100% guaranteed it won't have any positive effect.
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Offline sudo

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Diluting  at low price   bts die
bts die   bitAsset die
all die

I'm not saying we must do this, but then what other options do we have? Let's all pray and hope for the best? Maybe that way people will start using BitShares. Sounds like a plan.

base on bitshares   make app
use bitshares RNG 
vote game……

Offline Akado

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Diluting  at low price   bts die
bts die   bitAsset die
all die

I'm not saying we must do this, but then what other options do we have? Let's all pray and hope for the best? Maybe that way people will start using BitShares. Sounds like a plan.
https://metaexchange.info | Bitcoin<->Altcoin exchange | Instant | Safe | Low spreads

Offline sudo

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Diluting  at low price   bts die
bts die   bitAsset die
all die

Offline Akado

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boost the bitasset moving fast  Improve circulation
make the volume large!!!!!!!!!!

Which is exactly what this is aiming for...
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Offline sudo

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boost the bitasset moving fast  Improve circulation
make the volume large!!!!!!!!!!