Author Topic: Subsidizing Market Liquidity  (Read 73661 times)

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Offline Empirical1.2

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* to be qualify for reward, the price should be within say 3% of feed price

Thoughts?

 +5% I agree. This liquidity measure would cost a lot of money everyday, so it has to bring in outside new money everyday.

Therefore the question is what spread will entice new outside users to use BitUSD? Anything outside that range isn't useful anyway.

Also the potential to game the system should be significantly reduced by this as well.




If you want to take the island burn the boats

Offline Zapply

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found no reason to support this.
users trade because they need to trade, because the need to get something by selling something else.
so the key point is to creat the real demand.
to reward the trading activity will distorte the encouragement,and make the system more complex with no necessity.

Offline sudo

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found no reason to support this.
users trade because they need to trade, because the need to get something by selling something else.
so they key point is to creat the real demand.
to reward the trading activity will distorte the encouragement,and make the system more complex with no necessity.
+5% +5% +5% +5%

Offline bitcrab

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found no reason to support this.
users trade because they need to trade, because the need to get something by selling something else.
so the key point is to creat the real demand.
to reward the trading activity will distorte the encouragement,and make the system more complex with no necessity.
« Last Edit: February 21, 2016, 04:38:09 am by bitcrab »
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Offline abit

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It's not too good if one winner wins all prizes.
Some improvements:
* to be qualify for reward, the price should be within say 3% of feed price
* when distributing the reward, weight by for example duration*quantity but not by quantity only (what if a whale places orders every block? so a minimum duration is needed? if 10 minutes is too long, how about 1 minute?)
* weight by log(quantity) instead of quantity so smaller participants will earn relatively more rewards than whales (decreasing edge effect). (but what if a whale places thousands of orders?)

Thoughts?

//update: edited the 2nd rule

3% of feed price  - it should be set by market forces, not by comitee. too small and it wont work,
too big and it is useless.

why small participants should earn more ? give more to the poor ?
It's a double-edged sword.
If we are not sure whether it will benefit the system, we need to limit the possibility of harming the system to lowest.
We need to encourage whales to do good things, discourage whales to do bad things, although it's free to do anything in a free market.
Last time when the committee placed more than 5K$ of bitusd onto the market with 8% premium, the orders were eaten in minutes. Some whales don't want the system has liquidity.
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Offline jtme

It's not too good if one winner wins all prizes.
Some improvements:
* to be qualify for reward, the price should be within say 3% of feed price
* when distributing the reward, weight by for example duration*quantity but not by quantity only (what if a whale places orders every block? so a minimum duration is needed? if 10 minutes is too long, how about 1 minute?)
* weight by log(quantity) instead of quantity so smaller participants will earn relatively more rewards than whales (decreasing edge effect). (but what if a whale places thousands of orders?)

Thoughts?

//update: edited the 2nd rule

3% of feed price  - it should be set by market forces, not by comitee. too small and it wont work,
too big and it is useless.

why small participants should earn more ? give more to the poor ?

Offline cylonmaker2053

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It's not too good if one winner wins all prizes.
Some improvements:
* to be qualify for reward, the price should be within say 3% of feed price
* when distributing the reward, weight by for example duration*quantity but not by quantity only (what if a whale places orders every block? so a minimum duration is needed? if 10 minutes is too long, how about 1 minute?)
* weight by log(quantity) instead of quantity so smaller participants will earn relatively more rewards than whales (decreasing edge effect). (but what if a whale places thousands of orders?)

Thoughts?

//update: edited the 2nd rule

very good ideas. i like the log weighting, not too excited about any time duration requirement since we could have far more active markets in the future (which we should all plan for now), and i def like the radius from feed price concept to encourage higher value liquidity on the margin.  +5%
I also think time duration requirement is not so important. Longer duration means more risks, shorter duration + higher frequency would be more acceptable by market makers.

//update:
In regards to " radius from feed price concept", how about change my first rule to: the closer to feed price, the higher weight of reward?

yes, definitely think there should be higher weighting for reward the closer the orders are to being useful, but i think useful is often divergent from price feed; i'd say weighting should be based on radius to bid/ask midpoint.

Offline abit

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It's not too good if one winner wins all prizes.
Some improvements:
* to be qualify for reward, the price should be within say 3% of feed price
* when distributing the reward, weight by for example duration*quantity but not by quantity only (what if a whale places orders every block? so a minimum duration is needed? if 10 minutes is too long, how about 1 minute?)
* weight by log(quantity) instead of quantity so smaller participants will earn relatively more rewards than whales (decreasing edge effect). (but what if a whale places thousands of orders?)

Thoughts?

//update: edited the 2nd rule

very good ideas. i like the log weighting, not too excited about any time duration requirement since we could have far more active markets in the future (which we should all plan for now), and i def like the radius from feed price concept to encourage higher value liquidity on the margin.  +5%
I also think time duration requirement is not so important. Longer duration means more risks, shorter duration + higher frequency would be more acceptable by market makers.

//update:
In regards to " radius from feed price concept", how about change my first rule to: the closer to feed price, the higher weight of reward?
« Last Edit: February 20, 2016, 08:29:11 pm by abit »
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Offline cylonmaker2053

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It's not too good if one winner wins all prizes.
Some improvements:
* to be qualify for reward, the price should be within say 3% of feed price
* when distributing the reward, weight by for example duration*quantity but not by quantity only (what if a whale places orders every block? so a minimum duration is needed? if 10 minutes is too long, how about 1 minute?)
* weight by log(quantity) instead of quantity so smaller participants will earn relatively more rewards than whales (decreasing edge effect). (but what if a whale places thousands of orders?)

Thoughts?

//update: edited the 2nd rule

very good ideas. i like the log weighting, not too excited about any time duration requirement since we could have far more active markets in the future (which we should all plan for now), and i def like the radius from feed price concept to encourage higher value liquidity on the margin.  +5%

Offline abit

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It's not too good if one winner wins all prizes.
Some improvements:
* to be qualify for reward, the price should be within say 3% of feed price
* when distributing the reward, weight by for example duration*quantity but not by quantity only (what if a whale places orders every block? so a minimum duration is needed? if 10 minutes is too long, how about 1 minute?)
* weight by log(quantity) instead of quantity so smaller participants will earn relatively more rewards than whales (decreasing edge effect). (but what if a whale places thousands of orders?)

Thoughts?

//update: edited the 2nd rule
« Last Edit: February 20, 2016, 08:02:36 pm by abit »
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Offline jtme

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.

If this strategy would be profitable for a whale, it is reasonable to expect another whale will
come to compete with this whale.

if CNX wants to implemet it for free, there is no harm to test it on one asset first ... bitUSD
and see if/how it works.
True but I thought we wanted to stimulate meaningful liquidity and not just give some money to the whales. My bad than - mission accomplished:
Grand Plan:
1. feed the whales by dilution - DONE!
2. ?

If two or more whales compete for the reward, they will probably create meaningful liquidity.
Is it better to dilute on this or on development of more features that nobody will eventually use ?
If this works and creates liquidity, it is what everyone here wanted in the first place - liquid bitAssets.


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.

If this strategy would be profitable for a whale, it is reasonable to expect another whale will
come to compete with this whale.

if CNX wants to implemet it for free, there is no harm to test it on one asset first ... bitUSD
and see if/how it works.
True but I thought we wanted to stimulate meaningful liquidity and not just give some money to the whales. My bad than - mission accomplished:
Grand Plan:
1. feed the whales by dilution - DONE!
2. ?
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

chryspano

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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.

You asume that there will be only one whale in town, have you read BM's post?

Offline jtme

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.

If this strategy would be profitable for a whale, it is reasonable to expect another whale will
come to compete with this whale.

if CNX wants to implemet it for free, there is no harm to test it on one asset first ... bitUSD
and see if/how it works.

Offline cylonmaker2053

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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.

i agree that the ability to game fees declines rapidly with the number of market participants, so i don't view as a serious concern at this point. i understand the concept of a time-on-order-book (like the 10 minute idea) is to dissuade gaming the system, but it also cuts higher frequency traders out of the reward mix, especially those providing useful liquidity on the margin. Any timed open order requirement may work fine now to alleviate the gaming risk, but when these markets mature and we have serious global trading competition on the DEX, we'd only be subsidizing people adding low value liquidity at extreme prices from highest bid / lowest ask; those doing the brunt of trading on the margin would be excluded.