BSIP 88: BTS-DEX economic model

[bitcrab]

BSIP: 0088 
Title: BTS-DEX economic model 
Authors: Jerry Liu 
Status: Draft 
Type: Informational 
Created: 2020-05-21

Abstract

This BSIP try to build an economic model for BTS-DEX to activate the BTS-DEX ecosystem.

Motivation

The Market Making contest paused at 2020-05-10 after several months' operation, thanks to abit's work, the MM contest showed us how a DEX can do effective Market Making via a decentralized task distribution mechanism, although there are criticism to the MM contest, most of the traders agree that market making is an essential service that any exchange should provide and the MM contest really made BTS-DEX more attractive, it should continue to help BTS-DEX to attract users and help users to capture value. This BSIP optimize the MM contest rules with considering the suggestions from the community, and also add some other modules to try to build an economic model of BTS-DEX.

Rationale

What type of token does BTS belongs to according to its business model? one answer is that BTS is an exchange platform token, like BNB, which means the platform need to make money via charging fees and buy back BTS and burn, to create value for BTS stakeholders.

Following this idea, the core prelude worker is ongoing, after it be finished and BTS4.0 be launched, several new features will be added to BTS: Margin Call Fee, Force Settlement Fee and Market Fee Sharing to system, These new features will create great potential to increase system income, however, if we want to make the "buy back BTS with system income" model succeed, it is also a must to activate the trading in BTS-DEX with the Market Making work.

Ordering Mining will be the new name of Market Making contest and will be the important part of the economic model, There will be 3 pair groups - BTS/gateway assets, BTS/bitAssets and gateway assets/bitAssets groups in the Ordering Mining, reward to each pair will depend on the market fee income that was contributed from this pair to the system, the infrastructure will include several parameters which can be adjusted to fit the business status, the gateway assets which are included in the ordering mining will be forced to pay part of the market fee to system before BTS 4.0 launching as a precondition of being listed in. All these update is to build a market-oriented selection and cultivation mechanism, to make the competent pairs to stand out in a fair environment, and feed back to the system after growing up. The 3 trading pair groups just form a trading triangle, much trading chance will come out there if the market making really help.

Daily system income include all the BTS fees and the market fee share of the ordering mining listed gateway assets that were collected to committee-account, counted in BTS. All the funds that were used as rewards or for burning comes from committee-account, as current balance or future income.

Specification

Ordering Mining

Ordering Mining involve 3 categories of assets, which are BTS, bitAssets and Gateway assets.
BitAssets include bitCNY， bitUSD，bitEUR，bitRUBLE.
Gateway assets means the according gateway assets of main crypto currencies include BTC, USDT, ETH and EOS, the organizer request the gateways to guarantee the in time deposit and withdraw service with quick support while necessary, and provide the proof of real assets. Now the listed gateway assets include:

RUDEX.BTC https://audit.rudex.org/
GDEX.BTC https://www.gdex.io/noticeAssets
XBTSX.BTC https://xbts.io/audit

GDEX.USDT https://www.gdex.io/noticeAssets
RUDEX.USDT https://audit.rudex.org/
XBTSX.USDT https://xbts.io/audit

RUDEX.ETH https://audit.rudex.org/
GDEX.ETH https://www.gdex.io/noticeAssets
XBTSX.ETH https://xbts.io/audit

RUDEX.EOS https://audit.rudex.org/
GDEX.EOS https://www.gdex.io/noticeAssets

Ordering Mining is to encourage market making via reasonable reward, to form sufficient market depth to attract traders, so the principles for the rules are:

1. give incentive to ordering, to narrowing the gap between top buy/sell orders, to big fund participation, and try to form a long-term mechanism.
2. attendees need to operate with self owned funds and bear profits or loss，no matter how much funds are included.
   2.1. the bigger the order volume, the higher the reward.
   2.2. the closer the order price to the top counter party order price, the higher the reward.
   2.3. the longer the order stay there, the higher the reward.
3. each day the reward to each pair depend on the fees that were paid to committee-account from this pair, the fee include the margin call fee and force settlement fee of bitAssets.

The rules for reward calculation are described below:
Each pair group have 3 parameters include Base Reward, Top Reward, and Buy-Sell Reward Ratio, each pair have parameters include Pair Top Reward, Fee Return Ratio, Gear Goal Depth, Minimum Effective Order Volume.

Calculation of pair reward and adjustment
First, calculate out the reward for each pair based on the contributed fee and the Fee Return Ratio of that pair, compare it with Pair Top Reward and select the lower one as the reward of that day for that pair. in formula Reward to one pair in one day = MIN(Fee paid from this pair to committee-account*Pair Fee Return Ratio, Pair Top Reward)

Calculation of pair group reward and adjustment
Sum up the pair reward in the pair group to get the pair group reward, if Top Reward>pair group reward>Base Reward, adopt the pair group reward directly, if pair group reward<Base Reward, adopt Base Reward as pair group reward, if pair group reward>Top Reward, adopt Top Reward as pair group reward.

Distribution of pair reward
Only the order with volume > Minimum Effective Order Volume will be put into the market depth and reward calculation

Calculate the depth based on the distance from current order to the closer effective order in counter order listing.
Distance = ABS(this order price-closer counter order price)/MAX(this order price, closer counter order price)
Ordering Gears and according Reward Ratio
*orders inside 1% distance will share maximum 53% reward
*orders inside 2% distance will share maximum 25% reward
*orders inside 3% distance will share maximum 12% reward
*orders inside 5% distance will share maximum 6% reward
*orders inside 7% distance will share maximum 3% reward
*orders inside 10% distance will share maximum 1% reward

Distribution of reward in each gear
If the summed up depth does not reach the goal depth, reward = maximum reward share* real depth/goal depth.
If the summed up depth overcome the goal depth, reward = maximum reward share
Calculate the weight based on the distance of the order price to the gear border price:
Weight Coefficient = 1 + (gear top border price - order price)/(gear top border price - gear bottom border price)
The pair reward share to each gear will be distributed to orders based on Order Volume*Weight Coefficient inside each gear.

Calculation and rewarding will be done each day with period from UTC0:00 to 24:00, proposals will be created to distribute the rewards.
If BTS 4.0 is not launched yet when this Ordering Mining begin, gateway need to pay 20% of the market fee of the listed gateway assets to committee assigned account, the reward to pairs with the gateway asset will stop if more than 1K BTS fee are not paid.

Parameters and Initial Values

Minimum Pair Daily Volume: 5KBTS, pairs with volumes less than this value at the day will not be included in reward distribution.

1. BTS/gateway assets group: Base Reward 3KBTS, Top Reward 20KBTS, and Buy-Sell Reward Ratio 7:3, each pair inside have Pair Top Reward 2K BTS, Fee Return Ratio 40, Gear Goal Depth 200K BTS, Minimum Effective Order Volume 100BTS.

2. BTS/bitAssets group: Base Reward 3KBTS, Top Reward 20KBTS, and Buy-Sell Reward Ratio 10:0, each pair inside have Pair Top Reward 10K BTS, Fee Return Ratio 20, Gear Goal Depth 1M BTS, Minimum Effective Order Volume 100BTS.

3. Gateway assets/bitAssets group: Base Reward 3KBTS, Top Reward 20KBTS, and Buy-Sell Reward Ratio 5:5, each pair inside have Pair Top Reward 2K BTS, Fee Return Ratio 20, Gear Goal Depth 200K BTS, at calculation the depth will be converted to according gateway asset depth based on the MA24 price, and
   bitAssets/BTC: Minimum Effective Order Volume 0.0002 BTC
   bitAssets/USDT: Minimum Effective Order Volume 2 USDT
   bitAssets/ETH: Minimum Effective Order Volume 0.01 ETH
   bitAssets/EOS: Minimum Effective Order Volume 1 EOS

Committee can change the Pair Top Reward, Fee Return Ratio and Gear Goal Depth of each pair with 3 days advanced announcement, keeping the ratio Gear Goal Depth/Pair Top Reward unchanged and Fee Return Ratio no higher than before when Pair Top Reward increase.

Other parameter changes need the poll voting approve.

Suggest committee to set market fee to 0.1%, market fee sharing ratio to 20% for bitCNY, bitUSD, bitEUR and bitRUBLE.

Payment for Development and Daily Operation
Generally BTS with amount = reward*1% will be paid to daily operators, each day proposal will be created to transfer such amount of BTS to operator account. On the other hand, as the update need development, salary will be paid to the developers if the proposal be approved by voting, currently the estimated salary is about 150K BTS.

BTS Buy back and Burning

Committee will be responsible for the BTS buy back with the non-BTS assets in system income.
A parameter Burn-Income Ratio is set, each day BTS with amount=（system income*Burn-Income Ratio）will be transferred to the specific burning account, and will be burned when the accumulated amount reach a certain value. the initial value of Burn-Income Ratio is 0.5.

Discussion

https://bitsharestalk.org/index.php?topic=31515.0

Copyright

This document is placed in the public domain.

[grctest]

Rudex gateway shutdown, so their EBA tokens are irrelevant now.

There's still the BTWTY gateway though.

I'd also perhaps encourage expanding the idea to cover liquidity pool staking too? Because it is far easier to participate in liquidity pools than to setup a trading bot, liquidity pool staking is set and forget - much easier to encourage participation in.