Author Topic: Liquidity, Liquidity, Liquidity  (Read 18266 times)

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Offline Geneko

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Here is another idea. Dex MM bot. Maybe it was already discussed but I couldn't find any similar topic.

Suppose we define worker with 300K BTS available funds. The duration of a worker could be time limited.
I know daily limit is around 300K BTS but it could be increased. Purpose of mm bit is to provide liquidity for basic MPA assets (bitUSD, BitCNY, bitBTC, BitSilver, bitGold, bitEur).

According to my calculations average daily volume on all mentioned assets are about 11k usd. Suppose we collect funds on a workers account and wait for the pool to be filled with 6M bts. Now we would have enough collateral to create all daily volume of trading. Then we activate a MM bot with a purpose of adding liquidity. Limitations are that all accumulated BTS funds from worker, never leave account. Only those BTS from selling short could be used for buying MPAs.   Lets assume spread is 2%. Now everybody who wants to buy or sell should beat 2% spread on feed price.

What would happen? Thoughts?

Offline tonyk

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,obvious resolution here would be to provide incentive for shorter in from of transaction fee, that would compensate for those two inbalances. All other possible measures only rectify or reduce this mayor one. It would make mmbots unprofitable? I doubt.

"obvious resolution here would be to provide incentive for shorter in from of transaction fee"

Hmmm. My theoretical explanations (9-12 mo. ago) have been long proven by actual real life.... occurrences. ...
aka Meager "transaction fees" cannot, no where enough offset actual risks taken by the short position holders....
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline bitAndy

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I think we've got to get the word out in a concerted marketing effort, especially once echo comes online and focus on getting some userability feedback.

I cant believe we're now down near 30th on cmc and our mkt cap is almost under 10m.

What is echo? We've been under $10m in the past but back then we were sitting about 10-15 on CMC; there's more money in crypto now so we've been pushed down the pack. Maybe that makes it look like we're in a worse position than we really are.

Offline mike623317

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I think we've got to get the word out in a concerted marketing effort, especially once echo comes online and focus on getting some userability feedback.

I cant believe we're now down near 30th on cmc and our mkt cap is almost under 10m.

Offline tbone

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You are NOT properly stating the alleged "imbalances".  The fact is, the required collateral is less than 200% (175% in bitshares.org/wallet, and a little more in the OL wallet).  And what do you do after borrowing (let's say butUSD, for example)?  You short it.  So you're selling it to someone for 100% face value.  So now your collateral goes from 175% to 75%.  Which means you actually have NET LEVERAGE when shorting BitAssets.  So there really is no imbalance with collateral. 



This is correct. Although 75% MCR is bit higher than other exchanges require for shorting (polonoex requires 40% initial, 20% maintanence collateral). It may be safe to have high collateral initially, but as market spins up, we need to assess posibility  of reducing MCR to be competitive.

 Yes, good point!


Offline yvv

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You are NOT properly stating the alleged "imbalances".  The fact is, the required collateral is less than 200% (175% in bitshares.org/wallet, and a little more in the OL wallet).  And what do you do after borrowing (let's say butUSD, for example)?  You short it.  So you're selling it to someone for 100% face value.  So now your collateral goes from 175% to 75%.  Which means you actually have NET LEVERAGE when shorting BitAssets.  So there really is no imbalance with collateral. 



This is correct. Although 75% MCR is bit higher than other exchanges require for shorting (polonoex requires 40% initial, 20% maintanence collateral). It may be safe to have high collateral initially, but as market spins up, we need to assess posibility  of reducing MCR to be competitive.

Offline Geneko

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You are NOT properly stating the alleged "imbalances". 
Sorry! English is not my native language.
The fact is, the required collateral is less than 200% (175% in bitshares.org/wallet, and a little more in the OL wallet).  And what do you do after borrowing (let's say butUSD, for example)?  You short it.  So you're selling it to someone for 100% face value.  So now your collateral goes from 175% to 75%.  Which means you actually have NET LEVERAGE when shorting BitAssets.  So there really is no imbalance with collateral. 
I mean practical use case. If you would open position with 175% collateral you would be margin called immediately, you need to add extra collateral to compensate for possible market swing. Please check out for actual shorter accounts collateral. I doubt you will find any account with less collateral to debt ratio of 230%.

What I am talking here are two things. Fear and Greed. Obviously fear prevail in bitUSD case.

Your reasoning is ok. But obviously it is different then peoples perception.
At the end my opinion is irrelevant here. What we need is testing. I may be right or wrong. But only real life tests could prove one or another.

Offline Chris4210

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Great timing and great tutorial Jonny. Please RSVP for the BitShares Liquidity contest here https://bitsharestalk.org/index.php/topic,23769.0.html
Vote Chris4210 for Committee Member http://bit.ly/1WKC03B! | www.Payger.com - Payments + Messenger | www.BitShareshub.io - Community based fanpage for the BitShares Blockchain

Offline tbone

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Lets not complicate, lets dive in for simplicity.
Adding liquidity is not a task or a goal. It is consequence of joining two interest parties, that make honest deal.
Who are those interest parties? Is there a balance of risk/reward between two parties.

One interest party is known and it is the one that wants to use convenience of bitUSD. Has no additional risk when buying except that of significant price drop. But since it is relatively stable you could only expect to lose gain if price of crypto goes high, fast.
The other party has to provide at least two times the value (BTS lightwallet actually recommends 2,3:1), and expose it self to a price fluctuation risk that is disproportional to possible reword.

There are two equitation that needs balance here:
two_times_value vs one_time_value
high_fluctuation_risk vs none

,obvious resolution here would be to provide incentive for shorter in from of transaction fee, that would compensate for those two inbalances. All other possible measures only rectify or reduce this mayor one. It would make mmbots unprofitable? I doubt.

You are NOT properly stating the alleged "imbalances".  The fact is, the required collateral is less than 200% (175% in bitshares.org/wallet, and a little more in the OL wallet).  And what do you do after borrowing (let's say butUSD, for example)?  You short it.  So you're selling it to someone for 100% face value.  So now your collateral goes from 175% to 75%.  Which means you actually have NET LEVERAGE when shorting BitAssets.  So there really is no imbalance with collateral. 

The rest of your post points I already addressed below.  As a BitAsset shorter, you can be rewarded by proposed liquidity rewards just like anyone else adding liquidity to the market (incuding proper marker makers).  Between 1. the leverage, 2. the liquidity rewards, and 3. having more liquidity on the books thanks to market makers (enabling you to get out of your position when you want to), there would be MORE than enough incentive to short BitAssets.   So there's no reason to introduce the kind of market distortion you're proposing. 



Offline Geneko

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Lets not complicate, lets dive in for simplicity.
Adding liquidity is not a task or a goal. It is consequence of joining two interest parties, that make honest deal.
Who are those interest parties? Is there a balance of risk/reward between two parties.

One interest party is known and it is the one that wants to use convenience of bitUSD. Has no additional risk when buying except that of significant price drop. But since it is relatively stable you could only expect to lose gain if price of crypto goes high, fast.
The other party has to provide at least two times the value (BTS lightwallet actually recommends 2,3:1), and expose it self to a price fluctuation risk that is disproportional to possible reword.

There are two equitation that needs balance here:
two_times_value vs one_time_value
high_fluctuation_risk vs none

,obvious resolution here would be to provide incentive for shorter in from of transaction fee, that would compensate for those two inbalances. All other possible measures only rectify or reduce this mayor one. It would make mmbots unprofitable? I doubt.

Offline yvv

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Quote
5) Bots -- I would love to see even better, easier-to-use bot options.  btsbots is a really nice step in the right direction, but the interface is not very intuitive.  And there's no way to manage the balancing of your inventory within some constraints.  If you're not careful, you could end up with all of your funds in just one of the assets you're trying to provide liquidity to.  As discussed in #4 above, this is not as big of a deal in a 1:1 market  like bitUSD : USDT.   But you still probably don't want to end up so imbalanced like that.  So for the sake of making it easier for people to provide liquidity to ALL markets, I hope btsbots continues to improve. 

Check the options. You can set the max balance for each asset.

Offline tbone

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In my previous post on this thread, I mentioned the liquidity rewards idea that I've been talking about in Telegram.  And Telegram user @LogikGeek asked me a question about it in the chat so I wanted to answer here since it's relevant to this thread.  The question and answer are below.

Logik Geek asked:
Quote
@tbone you have said in the past that bitshares needs to become attractive to traders who short bitusd instead of long term investors because long term bitshares investors creating bitusd depend on the price of bts to rise. By traders did you mean traders who make trades on a time horizon that is so small (next hours to days) that bts is as likely to to up as down during that time, effectively eliminating the effect of long term price trends of bts?

It's not so much the timeframe. It's the fact that they play both sides at all times, buying at the bid and selling at the ask, enabling them to earn the spread.  That's what market makers (like @bitcrab) do.  And if the market trends too much in one direction (creating an imbalance in their inventory) they know how to hedge it.  We need more sophisticated market participants like this and should incentivize them by rewarding anyone who ADDS liquidity to the order book. 

This is NOT to say that the other types of participants are not important.  In fact, attracting market makers would be *great* for the trader types (@JonnyBitcoin, @clayop, etc) who want to short BitAssets into existence, because their biggest fear is being unable to get out of their short position if BTS goes down.  They would not have to worry about this if we had proper market makers who would be sitting on the ASK, giving the BitAsset shorters a way out whenever they need it. These BitAsset shorters would also benefit by earning some of the liquidity rewards, as long as they are ADDING liquidity (by selling BitAssets at the bid), not TAKING liquidity (by selling BitAsets at the ask).

Offline tbone

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1) Focus on BitUSD  -- I agree that we should focus more on bitUSD.  When it comes to the tabs, I would like to see OBITS removed as well.  Actually, in the bitshares wallet OBITS doesn't have it's own tab.

2) Simplify borrowing of BitUSD -- I also agree with the idea of simplifying the borrowing of bitAssets.  And I'm glad @svk added the borrow link.  But keep in mind that it's only showing up in your wallet because you happen to have some bitUSD balance.  Anyone that does not have any bitUSD balance will not see that.  I have some ideas about how to deal with this, but it needs to be part of a broader plan relating to how assets in general should be displayed on the account page of the wallet.  OL has taken a step in the right direction with their new table displaying all assets.  But unfortunately they are only getting it partly right and don't seem to be interested in listening.

3) BitUSD:OPEN.USDT market  --  I am slightly on the fence about this one.  Although I agree with it more than not.  I'm just having a little trouble grasping the utility of this market.   I mean, who will actually USE it.  There's no point if there won't be users.  In other words, outside of market makers and arbitrageurs,  who has USDT and would like to exchange it for bitUSD (or vice versa)?  But yeah, theoretically, there SHOULD be people who want to do this.  So I would be in favor of giving it a try.  And I agree that it's easier for non-sophisticated participants (i.e. non market makers) since the market is 1:1 and can't trend in one direction and create a large and growing imbalance in your inventory (which market makers would ordinarily hedge against).  And even if it did get out of balance, there's no real risk that needs to be hedged.  The only actual risk is ending up with more of the centralized asset than the trustless one, if that's a problem for you.

4) Maker / Taker model  --  I don't  see why this would be very difficult even though it requires a hard fork.  I think we should consider doing it because it just makes sense long term.  Every real exchange offers a maker/taker pricing model.   But in the short term, we really do need more than that to push liquidity.  We need something like the liquidity rewards I've been talking about, which requires no fork (it can be done totally off-chain).

5) Bots -- I would love to see even better, easier-to-use bot options.  btsbots is a really nice step in the right direction, but the interface is not very intuitive.  And there's no way to manage the balancing of your inventory within some constraints.  If you're not careful, you could end up with all of your funds in just one of the assets you're trying to provide liquidity to.  As discussed in #4 above, this is not as big of a deal in a 1:1 market  like bitUSD : USDT.   But you still probably don't want to end up so imbalanced like that.  So for the sake of making it easier for people to provide liquidity to ALL markets, I hope btsbots continues to improve. 

6) Distribute BitUSD  --  You're talking about creating users.  I totally agree with that.  We'll probably start to get more users when Blockpay merchants start coming online.  But we should bolster that and accelerate the user adoption.  Another idea is to have a trading contest focused on bitUSD markets.  See link below as an example.  This would bring in more users, traders in this case.  By the way, users mostly TAKE liquidity.  Which is fine.  We need that kind of market participant.  But it's pointless unless we also have participants that ADD liquidity.  This is partly addressed by your list of suggestions.  But we need a real rewards program that incentivizes proper market makers by rewarding anyone who adds liquidity. 

https://www.fxcm.com/why-fxcm/trading-contest/

Offline JonnyB

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Bitshares is superior to other exchanges because it uses BitUSD which has no human liability and is decentralised.
But this advantage means little if our BitUSD is not available to buy in quantity near the peg.

A liquid asset is cash on hand or an asset that can be readily converted to cash. An asset that can readily be converted into cash is similar to cash itself because the asset can be sold with little impact on its value.


We need to make BitUSD a liquid asset. But how?
 
1.) Focus on BitUSD
We must concentrate trading activity on BitUSD.
There is no point trying to make all our smartcoins liquid assets at the same time as this spreads trades thinly across many markets.
The number of trade tabs on Openledgers GUI has been reduced which is great but the OBITS one still needs to be removed.


2.) Simplify borrowing of BitUSD
Make it more intuitive to borrow BitUSD by adding borrow as an action next to the BitUSD. (update: @svk  has now implemented this)


3.) BitUSD:OPEN.USDT market
The best way to show people BitUSD is worth 1 USD is to create a market where BitUSD trades against a bearer asset that is worth 1 USD.  That would be USDT (see www.tether.to)
Bearer asset = Doesn't need to be kept in a named account.
I am trying to kick start the BitUSD:OPEN.USDT market with $1000 buy and sell walls and a 6% spread. Please take advantage of them or add some orders yourself. This market pair is easy for anyone to be a market maker in because  both assets have the same face value meaning you don't have to trust bot software  because orders don't need updating

 
4.) Maker / Taker model.
This is a model that incentivises people to put up orders for other people to take.
if you take orders off the orderbook you pay more. If you make orders on the order book you pay less. (trade fees)
I personally think at this stage the maker taker model won't help much and will be a lot of effort to implement. there is lower hanging fruit to be had first.

5.)Bots
Bots are bits of software that do automated trading, most trades that happen in the world today are done by bots. These bots are configured by their human owners to do stuff like abitrage or market making. These are essential to liquidity on the dex and their importance is underestimated .
Any coder can create a bot and let others use the software.  @xeroc created a bot in python that is available here:https://github.com/xeroc/stakemachine
But if you're not a developer you can use this web based bot system created by @alt www.btsbots.com
If thats too hard for you see point number 3.) again.
https://bitsharestalk.org/index.php/topic,23457.0.html



6.) Distribute BitUSD

Getting even small amounts of bitUSD in to users hands familiarises them with it and even if they dump it thats still adding trades to the market.
The idea of getting more bitusd out there is a good one and has been discussed many times on this forum. Who to and how is the tricky bit.

As a dividend to shareholders or Lifetime Members: https://bitsharestalk.org/index.php/topic,23706.msg301767.html#msg301767
To pay worker proposals and witnesses: https://bitsharestalk.org/index.php/topic,23028.0.html
Just create Bitusd using from the reserve pool via a worker proposal and then sell at peg: https://bitsharestalk.org/index.php/topic,22935.0.html
I run the @bitshares twitter handle
twitter.com/bitshares