Subsidizing Market Liquidity

[Zapply]

Providing yield on USD doesn't work because of yield harvesting, people would create USD and sit on it until the rate of return approached 0.

[tonyk]

I found an irony.

BM created the DEX and want to improve its liquidity. But he doesn't use the DEX.

http://cryptofresh.com/b/3577692

There is no irony. You just have to be in the 'right' mindset. The mindset of truly believing 'Dilution is Good'. Very Good indeed.
Repeat to your self: Dilution is Good', 'Dilution is Good', 'Dilution is Good'...check your self and see if you believe it (if not keep repeating)...'Dilution is Good'...

You believe it now? Good!
It is easy to see how you can pay your way into liquidity [no need to do it yourself, mind you]; by diluting the shares of an entity that has negative fees.
Where can this possibly go wrong in this house of cards and self-chained multiplication effects: Liquidity providers are happy to provide liquidity, after being paid; Shareholders are double happy - new found liquidity plus ALL the benefits of dilution!

The point is 'using it yourself' is they old way to do stuff,the old way where 2+2 equals 4 (5 the most); when you do not do it yourself but use the power of dilution and other multiplication tricks  2+0 equals at least 7 (often way more)!

[clayop]

I found an irony.

BM created the DEX and want to improve its liquidity. But he doesn't use the DEX.

http://cryptofresh.com/b/3577692

[tonyk]

I agree that 10 minutes is too low. The lower the volume the more time the limit should be. During the mumble the period of time that was mentioned was 24h, dunno the origin of these 10 min now.

24h is the max limit.The idea is - you do not get a reward for placing an order way from the price and it gets filled after 1week because the market moved.
10min is the min it must stay on the books - this is to prevent* self filling the order just to get the reward.

*This is the hope at least. With whale size orders the theory fails though.

[yvv]

TRANSPARENT and SIMPLE are big pluses. Who would voluntarily crowdfund a market making pool?

I would, if it is done the right way.

[cylonmaker2053]

it'd be nice to incorporate a "distance to last executed trade price" in the weighting scheme for claiming fees. Someone throwing up generally useless open orders that happen to get executed somewhere way in the future probably shouldn't get a disproportionate claim to fees for that trade simply bc the order was open for a long time. i know this adds maybe a big layer of complexity, but an issue that should maybe be considered (and rejected if too complex compared to its value).

[Akado]

Are MAKER's counter-cheating measures and  fair-distribution algoes gone? Reading the OP this seems to be the case.

If all that is left is matched order size (after 10 min wait), I can get 50% to 80% of this dilution with a stake of 1% of BTS.

And the worst is not that I will get all this dilution, the worst is:
- it will be fake volume, exiting for just a few minutes every day;
- it will be about as far from the peg as it is now
- because of that, shorts will be willing to short as much as now.

I agree that 10 minutes is too low. The lower the volume the more time the limit should be. During the mumble the period of time that was mentioned was 24h, dunno the origin of these 10 min now.

[cylonmaker2053]

If you want to boost liquidity, it is much more transparent and easy to organize pooled market making through crowd funding. Issue a market making token, sell it, and give the funds to experienced market maker. Let market maker to keep 50% of profit, and distribute another 50% among token holders. No need in hard fork.

TRANSPARENT and SIMPLE are big pluses. Who would voluntarily crowdfund a market making pool? I can maybe see something like this taking places as a big hoorah lets-support-the-community one-off measure, but we'd be better off structuring a for-profit sustainable approach. Some sort of fee diversion into a market making pool that rewards the right incentives, limits cheating, etc.

[yvv]

If you want to boost liquidity, it is much more transparent and easy to organize pooled market making through crowd funding. Issue a market making token, sell it, and give the funds to experienced market maker. Let market maker to keep 50% of profit, and distribute another 50% among token holders. No need in hard fork.

[tonyk]

Are MAKER's counter-cheating measures and  fair-distribution algoes gone? Reading the OP this seems to be the case.

If all that is left is matched order size (after 10 min wait), I can get 50% to 80% of this dilution with a stake of 1% of BTS.

And the worst is not that I will get all this dilution, the worst is:
- it will be fake volume, exiting for just a few minutes every day;
- it will be about as far from the peg as it is now
- because of that, shorts will be willing to short as much as now.

[Akado]

I see. My doubt remains in these two options:

1. Using dilution like you mentioned as a mean to provide yield. Issue with harvesting. However it provides a bigger chance of USD creation and all advantages that come from that. Dilution, higher chance of succeeding.
2. Not using dilution for that since there are periods of increased demand for USD and periods of stagnation. USD is created more "organically" so to speak, however we would first need for one of those periods (probably summer with the BTC halving) and has lower chances of people creating more USD. However doesn't dilute. No dilution, higher risk of failure.

It's just a matter of seeing which one brings more benefits. I personally think yield is very attractive for other people. It would certainly bring older pre-merger members back. But at the same time I think with enough liquidity, demand will grow naturally so there is really no need to try and force it.

What we could do is one step at the time. Do provide the negative fees first. If demand increases we stick with this. If we want better results, we can discuss yield at that time. Doing everything at the same time might not be a good idea. One thing at the time optimized our chances and also our fund management abilities! We don't waste as many resources that way, we save them and optimize them.

[Empirical1.2]

What about at least putting 1/2 of the proposed dilution towards BitUSD yield? That way you would rapidly increase the BitUSD CAP to >$3.5 million dollars while significantly increasing volume at the same time?

(I would also decrease forced settlement to 98/99%.)

Wouldn't that incentive hoarding instead of trading? I would love yield but if we did that we would be sacrificing potential funds that could be used for liquidity. Didn't Tonyk's method give us yield?

Yeah the exploit for BitUSD yield, is yield-harvesting and hoarding, however the potential exploit for negative fees is 'self-trading'.

I would hate to spend $100 000 over 3 months on negative fees only to find perceived liquidity increases but BitUSD total doesn't increase much.

Whereas 1/2 that, $50 000 over 3 months on yield would at least practically guarantee we'd become the Crypto USD market leader in terms of total BitUSD.

Yield is also a big deal now considering the big thing on the horizon is a cashless economy and negative interest rates well below -1%.
http://www.zerohedge.com/news/2016-02-10/something-very-disturbing-spotted-morgan-stanley-presentation-slide

Well as long as there is liquidity and USD changes hands which is what this idea seems to do, everyone gets access to USD, plus it gives shorts a bit of incentive too? Which could this way incentive USD creation?

It would incentivize USD creation because there would be a lot of demand from longs above the peg.

However yes I also think the main problem with the current way BitUSD is created, in the current market, is actually incentivizing the shorts.

I'm just pointing out with that level of dilution we could create insatiable demand for BitUSD & easily become the market leader, even if it was often in the form of yield harvesting (the yield also wouldn't approach 0 as BM suggests if it was funded by a set percentage of dilution) It's a huge amount of dilution BM is suggesting so by combining the two we get the best of both world's.

[Akado]

Providing yield on USD doesn't work because of yield harvesting, people would create USD and sit on it until the rate of return approached 0.

I forget why the short couldn't pay the long directly, thereby negating the yield harvesting problem?

Monsterer has been insisting on this for a while but I believe it never got much attention. @bytemaster could you give your input on this?

What about at least putting 1/2 of the proposed dilution towards BitUSD yield? That way you would rapidly increase the BitUSD CAP to >$3.5 million dollars while significantly increasing volume at the same time?

(I would also decrease forced settlement to 98/99%.)

Wouldn't that incentive hoarding instead of trading? I would love yield but if we did that we would be sacrificing potential funds that could be used for liquidity. Didn't Tonyk's method give us yield?

Yeah the exploit for BitUSD yield, is yield-harvesting and hoarding, however the potential exploit for negative fees is 'self-trading'.

I would hate to spend $100 000 over 3 months on negative fees only to find perceived liquidity increases but BitUSD total doesn't increase much.

Whereas 1/2 that, $50 000 over 3 months on yield would at least practically guarantee we'd become the Crypto USD market leader in terms of total BitUSD.

Yield is also a big deal now considering the big thing on the horizon is a cashless economy and negative interest rates well below -1%.
http://www.zerohedge.com/news/2016-02-10/something-very-disturbing-spotted-morgan-stanley-presentation-slide

Well as long as there is liquidity and USD changes hands which is what this idea seems to do, everyone gets access to USD, plus it gives shorts a bit of incentive too? Which could this way incentive USD creation?

[Empirical1.2]

Assuming we implement this feature in the BTS / USD market and voters approve workers funding this at a rate of 2.5 BTS / sec (50% of allowed dilution) and the internal exchange had $100,000 of daily volume then users trading on the internal exchange would see a 1% more than they would get by trading off chain. If daily volume was $50,000 then they would see a 2% profit over doing the same trades off-chain. The impact of this should be a major influx of new traders who can make more money trading on the internal exchange than the external exchange. This added liquidity will dramatically tighten the USD / BTS peg and give shorters much more confidence.

That's $365 000 a year of dilution.  That could be  on $7 500 000 worth of BitUSD.

Even with a lot of yield harvesting that would rapidly make BTS the undisputed Crypto USD market leader.

What about at least putting 1/2 of the proposed dilution towards BitUSD yield? That way you would rapidly increase the BitUSD CAP to >$3.5 million dollars while significantly increasing volume at the same time?

Providing yield on USD doesn't work because of yield harvesting, people would create USD and sit on it until the rate of return approached 0.

Yes but it at least creates USD which would make BitUSD the perceived market leader.

There also isn't enough BTS to create $7 300 000 BitUSD, so the rate of return couldn't approach zero or even less than  unless this move also significantly increased the value of BTS?

Edit: Hmm, doesn't diluting BTS at 2.5% to pay yield mathematically guarantee a BitUSD yield of > if 100% collateral is required from the short side as well?

[monsterer]

Providing yield on USD doesn't work because of yield harvesting, people would create USD and sit on it until the rate of return approached 0.

I forget why the short couldn't pay the long directly, thereby negating the yield harvesting problem?