Why the heck has Bitfinex a problem, which wouldn't be there when it was just a BTC stock exchange?
...
My guess is, it is actually a problem of perception.
Iin the case of Bitfinex, it looks so easy when both exchanges are linked. But we are lacking a sensible way to make people feel that limited bandwidth.
Now, according to liberal theory, people dislike (and fight against) rules , but they are easy to "buy" when there is an incentive, and when they can feel a feedback. Thus we should search a solution to make that liquidity level tangible and perceptible all the time. Not only when it is too late, and funds are used up,
but all the time.- have a display all the time, similar prominent as the exchange rate.
- that is: make that liquidity level a state variable, which can be easy grasped, like e.g. a percent value or such
- to create the feedback: add a premium for trading on Bitstamp. And tie that premium dynamically to aforementioned variable. That variable and the resulting premium is applied in real time, at the moment the opening trade is executed.
- that is: money on Bitstamp is not gone immediately, but instead it becomes more expensive and thus slows down the excessive use and makes using the internal exchange really interesting for traders, since it moves their orders ahead in the order book. And there is an additional risk for traders to use Bitstamp, which isn't there on the internal exchange
Whenever we finish money on BSTP, BTC start trading with a spread on BFX. Giving an incentive to people that will force them to sell on BSTP when they can sell for more money on BFX is the typical example of game theory: individuals act in a selfish way and simply don't do it, unless "the house" will compensate for the difference.
Now everyone knows this is impossible to be done ( we make 0.1% commission, how can we compensate for a 3-5% spread?).
Do you have any idea of how to do it without causing a loss on our side?
Are we trying to defeat gravity?
Things are relative, you know.
Of course you can't
pay people a bonus for selling on Bitstamp.
But you can
demand a compensation for the
problems people are causing by excessively buying at Bitstamp.
My reasoning is that the problem is
perception: what your platform offers is brilliant; actually it looks too easy to people. It looks so natural that traders think it just must be this way and they have a right for exploiting all those arbitrage possibilities. That's why I am proposing to let people
"feel" the strain. Whenever there is excessive buying on Bitstamp, this would decrease a certain visible indicator and at the same time make buying on Bitstamp
automatically more and more expensive. Selling on Bitstamp and trading on the internal exchange would not be affected. (And the other way round when the liquidity problem is somewhere else) This way, the Ask side of Bitstamp would be moved up in the combined orderbook, which creates the incentive to sell at that higher rate. Of course you make an additional gain margin this way, which needs to be spend in a way which feels justified to the users. You could e.g. pick up the other proposal and let lenders participate on that additional margin, on the condition that they agree to lock their money for at least xx days (so you can send it to Bitstamp and use it there for some time).
The basic idea is to create a continuous feedback loop. So that money on Bitstamp won't be exhausted entirely, since buying on Bitstamp becomes exessively overpriced. This way the system would regulate itself. You would just need to define that automatic, controlling factor such, that it truthfully reflects the efforts, costs and limited bandwidth of the real-world connection between Bitfinex and Bitstamp.
