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The Settlement Currency Debate & Decentralized order matching
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Author Topic: The Settlement Currency Debate & Decentralized order matching  (Read 11406 times)

L5Society

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Re: The Settlement Currency Debate & Decentralized order matching
« Reply #20 on: March 24, 2014, 02:39:54 pm »

I agree, lets allow pairs that don't include NXT. I've already put forth my argument in the old BTT thread. It boils down to two things:

1) a large transaction would cause mayhem in the nxt market, artificially creating huge demand then huge sell pressure
2) if we don't get competitive with other decentralized exchanges, nobody will ever use our exchange

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kodtycoon

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Re: The Settlement Currency Debate & Decentralized order matching
« Reply #21 on: March 24, 2014, 03:20:16 pm »

wesley if you are going to be using other currencies to settle trade aswell on the asset exchange may i give you an idea..

when you click "sell" to drop down the sell menu on an asset

Amount
   000
Price
   NXT
Total
   NXT
Fee
   NXT
Sell (000 → NXT)

could you make price a drop down so you click "price" and a drop down shows all the currencies that asset is being sold for..? when you click the preffered asset it chages the order book to all the orders based on the chosen currency? have the default as nxt though..
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wesley

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Re: The Settlement Currency Debate & Decentralized order matching
« Reply #22 on: March 24, 2014, 03:28:44 pm »

@ForrestGump: This feature doesn't currently exist (it's not possible to do), but your suggestion on how to implement it if/when it becomes available are good. I will most certainly do it in such a way. thx.
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landomata

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Re: The Settlement Currency Debate & Decentralized order matching
« Reply #23 on: March 24, 2014, 07:31:06 pm »

Wasn't Nexern working on a orderbook DAC (world first)....I know he has mentioned it multiple times in BTT megathread.

bitcoinpaul

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Re: The Settlement Currency Debate & Decentralized order matching
« Reply #24 on: March 24, 2014, 07:36:49 pm »

Guys, please post your opinions and thoughts on the posts we wrote here:

http://nxtforum.org/index.php?topic=141.msg953#msg953
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kodtycoon

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Re: The Settlement Currency Debate & Decentralized order matching
« Reply #25 on: March 24, 2014, 08:29:36 pm »

@ForrestGump: This feature doesn't currently exist (it's not possible to do), but your suggestion on how to implement it if/when it becomes available are good. I will most certainly do it in such a way. thx.

cool! :D
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ChuckOne

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Re: The Settlement Currency Debate & Decentralized order matching
« Reply #26 on: March 27, 2014, 09:31:09 pm »

[...]
CIYAM says we don't need to worry about this because his AT system will allow arbitrary trading of any one asset for another.
[...]

That is not true. There cannot be any circles in the order graph. So, you will never do arbitrage.
-----------------

Let me structure your thoughts on this:

It comes down to a very basic question:

Do you want arbitrage?

If yes, the current system is not enough.

If no, the current system is fine. Your problem of not having all possible pairs comes down to a simple GUI problem.
« Last Edit: March 27, 2014, 09:33:29 pm by ChuckOne »
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IveBeenBit

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Re: The Settlement Currency Debate & Decentralized order matching
« Reply #27 on: March 28, 2014, 12:19:15 am »

Chuck One, I've read your message a half dozen times and can't figure out what it means and how it relates to anything else in this thread.

Can you rephrase?
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landomata

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Re: The Settlement Currency Debate & Decentralized order matching
« Reply #28 on: March 28, 2014, 01:55:54 pm »

I think "Hedging" should be possible somewhere in this system.

ChuckOne

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Re: The Settlement Currency Debate & Decentralized order matching
« Reply #29 on: March 28, 2014, 11:59:11 pm »

Chuck One, I've read your message a half dozen times and can't figure out what it means and how it relates to anything else in this thread.

Can you rephrase?

Of course.

AE as it is now: You can trade the pairs asset1 <> NXT, asset2 <> NXT, asset3 <> NXT and so on. Your initial post of this thread illustrated that quite clearly.

Orders represent a graph. A trader wanting to get from asset1 (he has some asset1) to asset2 (he want some asset2), simply need to traverse through that order graph: asset1 > NXT > asset2.
In words: sell your asset1 for NXT, buy asset2 by selling your NXT.

So, despite the fact that the underlying core technology does not support trading asset1 <> asset2 DIRECTLY, you as a trader can trade that pair INDIRECTLY. As the process of trading this indirect pair is pre-defined (just the algo I described above), a client could assist you putting the right orders in place.
So, with a capable client, you could simply trade asset1 <> asset2 without ever knowing that NXT does not support that out of the box.

Arbitrage is not possible with this 'workaround' though. Why?
Because in order to do arbitrage you need to traverse that order graph directly: asset1 > asset2 > asset3 > asset1, where the amount of the first asset1 is smaller than the amount of the latter asset1. I hope that makes sense so far as this is the very definition of arbitrage.

One additional aspect you need to understand is: asset1 > asset2 > asset1 would never lead to a gain on the same exchange, because you always sell asset2 with loss. There are simply no orders available that would fit. If they had been available, the AE would have just matched them in the first place.

So, why is arbitrage not possible?
Imagine you want to arbitrage asset1 > asset2 > asset3 > asset1, then you need to insert these indirect trades I told you above. So, the trading route looks like this: asset1 > NXT > asset2 > NXT > asset3 > NXT > asset1. As you can see there are two places where you make losses: NXT > asset2 > NXT and NXT > asset3 > NXT. Each time you do that your amount of NXT will diminish further. Even worse: you can collapse the middle route (because you have NXT two times on the route): asset1 > NXT > asset1. Also in this case you loose asset1.

Conclusion
If you want arbitrage, you need to have orders that represent the need to trade assets directly against each other.
If you do not want arbitrage and just want to trade assets directly against each other, you need a client that does the dirty work for you.
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anon136

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Re: The Settlement Currency Debate & Decentralized order matching
« Reply #30 on: March 29, 2014, 12:09:28 am »

I've come to the conclusion that while the costs probably outweigh the benefits, the cost of arguing about it almost certainly does not. So yea its basically not that big of a deal either way. Not worth the level of debate that we have been having.
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ChuckOne

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Re: The Settlement Currency Debate & Decentralized order matching
« Reply #31 on: March 29, 2014, 12:15:40 am »

I've come to the conclusion that while the costs probably outweigh the benefits, the cost of arguing about it almost certainly does not. So yea its basically not that big of a deal either way. Not worth the level of debate that we have been having.
I think right now the focus is understanding implications of each option, the implied use cases and our intentions. (My intention: I do not care right now; although speculating is fun ;) )
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forkedchain

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Re: The Settlement Currency Debate & Decentralized order matching
« Reply #32 on: March 29, 2014, 01:28:33 am »

Conclusion
If you want arbitrage, you need to have orders that represent the need to trade assets directly against each other.
If you do not want arbitrage and just want to trade assets directly against each other, you need a client that does the dirty work for you.

Heres where it gets tricky, and we really should get our "NXT brain trust" involved here.  Sorry anon136, but really think we should take a very critical look here:

We could take Jerical's stance in that the other decentralized exchanges, by allowing arbitrary pairs and arbitrage, are actually undermining themselves, and not allow direct arbitrary pairs in the core on NXT AE.  If that ends up working out for us, then NXT thrives while the others wither.

Or not.  Ill invite Jerical back in here.

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anon136

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Re: The Settlement Currency Debate & Decentralized order matching
« Reply #33 on: March 29, 2014, 03:12:56 am »

Exactly chuckone. all of these things that people think are ruled out by forcing only nxt crosses can be done client side. Your client can still display a usd/btc cross and even do the whole process of usd->nxt->btc in one transaction. You wouldn't even know that you had passed through nxt. And the advantage that we get out of it is deeper more liquid markets with more accurate prices for almost no trade off.
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jl777

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Re: The Settlement Currency Debate & Decentralized order matching
« Reply #34 on: March 29, 2014, 04:35:51 am »

Exactly chuckone. all of these things that people think are ruled out by forcing only nxt crosses can be done client side. Your client can still display a usd/btc cross and even do the whole process of usd->nxt->btc in one transaction. You wouldn't even know that you had passed through nxt. And the advantage that we get out of it is deeper more liquid markets with more accurate prices for almost no trade off.
"almost no trade off"

I guess if you dont count at least doubling the average trading cost, reducing the available top of book liquidity to the minimum of either half, or the very real risk of getting stuck i half the trade and having the market for the other half run away from you, just as a 5 minute block begins,

then its "almost no trade off"

My assessment as an experienced trader is that there is a significant tradeoff for the above reasons. I am limiting the issues to trading things that are a small percentage of NXT liquidity, cuz such things cant even be traded, it wouldnt be fair to use it to support my thesis.

Also, the gain that we get by forcing people to denominate in NXT is no gain! For a cross trade (manual or automatic), there is an equal purchase and selling of NXT, so there is no net buyside effect.

The significant tradeoff is in exchange for no actual benefit in demand for NXT. I look forward to math based debate on this instead of non-math

James
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forkedchain

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Re: The Settlement Currency Debate & Decentralized order matching
« Reply #35 on: March 29, 2014, 04:51:37 am »

well i was looking at it from a non-arbitrage perspective.  Face it, NXT will get hit hard on the opinion side if we dont allow arbitrary pairs and arbitrage
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anon136

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Re: The Settlement Currency Debate & Decentralized order matching
« Reply #36 on: March 29, 2014, 05:16:52 am »

well i was looking at it from a non-arbitrage perspective.  Face it, NXT will get hit hard on the opinion side if we dont allow arbitrary pairs and arbitrage

this is a very valid concern. perhaps valid enough to outweigh any aforementioned advantages. the ideological part of he hats compromising for the sake of PR but I'm a pragmatist at heart.
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jl777

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Re: The Settlement Currency Debate & Decentralized order matching
« Reply #37 on: March 29, 2014, 05:29:13 am »

well i was looking at it from a non-arbitrage perspective.  Face it, NXT will get hit hard on the opinion side if we dont allow arbitrary pairs and arbitrage

this is a very valid concern. perhaps valid enough to outweigh any aforementioned advantages. the ideological part of he hats compromising for the sake of PR but I'm a pragmatist at heart.
Certainly if we didnt have to "force" people to use NXT and they all willingly traded everything against NXT, that would be the best case.
The reality is that LTC traders like to trade it against only three things, BTC, USD and CNY. Anything else requires getting traders to add a fourth against LTC and it might be a lot more than just personal preference. My guess is that a lot of them have fine tuned trading bots that make money with those pairs and lose money or simply dont work with anything else.

Philosophically, I think it is best if we had an open tent and not try to force anybody to do anything they dont want to. If we do, its not like they wont just avoid it and if we dont force them and they do start using NXT AE,then there is a non-zero chance that they will start trading NXT, maybe for something else entirely.

Gotta get them in the door and staying within NXT. Once they are here and actively trading whatever against whatever, it will naturally lead to trading and using NXT

Think of how much search business google would have gotten if they started with charging people per search!
Or even just having annoying advertising banners.

Build the user base, then add monetization

James
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anon136

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Re: The Settlement Currency Debate & Decentralized order matching
« Reply #38 on: March 29, 2014, 05:29:43 am »

Exactly chuckone. all of these things that people think are ruled out by forcing only nxt crosses can be done client side. Your client can still display a usd/btc cross and even do the whole process of usd->nxt->btc in one transaction. You wouldn't even know that you had passed through nxt. And the advantage that we get out of it is deeper more liquid markets with more accurate prices for almost no trade off.
"almost no trade off"

I guess if you dont count at least doubling the average trading cost, reducing the available top of book liquidity to the minimum of either half, or the very real risk of getting stuck i half the trade and having the market for the other half run away from you, just as a 5 minute block begins,

then its "almost no trade off"

My assessment as an experienced trader is that there is a significant tradeoff for the above reasons. I am limiting the issues to trading things that are a small percentage of NXT liquidity, cuz such things cant even be traded, it wouldnt be fair to use it to support my thesis.

Also, the gain that we get by forcing people to denominate in NXT is no gain! For a cross trade (manual or automatic), there is an equal purchase and selling of NXT, so there is no net buyside effect.

The significant tradeoff is in exchange for no actual benefit in demand for NXT. I look forward to math based debate on this instead of non-math

James

It wouldn't double the trading cost. Not if we were pricing space in the block chain at market rates.

It wouldn't decrease liquidity. Liquidity would be the same for a nxt pass-through and significantly higher for anyone who wanted to get in or out of nxt.

I don't know what you mean about getting stuck. Obviously both halves of the transaction would have to execute simultaneously. You wouldnt be any more or less likely to "get stuck" than with out a pass through.

You know what though. I really don't care about this nearly enough to be motivated to keep going. Honestly its such a small issue that its probably worth adding other crosses just to appease people. Hopefully not too many people will use them.
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jl777

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Re: The Settlement Currency Debate & Decentralized order matching
« Reply #39 on: March 29, 2014, 05:42:11 am »

I don't know what you mean about getting stuck. Obviously both halves of the transaction would have to execute simultaneously. You wouldnt be any more or less likely to "get stuck" than with out a pass through.
I think the above is the reason you are coming to the wrong conclusion...

It is not obvious to me at all why both halves of the transaction will execute simultaneously. There is no assurance that both halves will execute, while if we allowed direct trading, it either happens or doesnt. There is no halfway. This is a giant issue. The chance of getting stuck with half a position, a position you are not familiar with or comfortable with, is probably enough to deter a lot of traders trading via crosses.

I am glad to have your support of denominating trades in non-NXT assets!

James
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