A Discussion about SPS, Exchanges and Market Makers

in #sps4 months ago (edited)


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I've recently raised the alarm that the SPS DAO needs to be aware of its current situation with exchange listings and the fact that it doesn't have an active market maker. Today I'm going to outline the options that the DAO has, potential outcomes, and let the community discuss the topic further in the comments.

The first and easiest option that will eventually resolve all of these exchange issues on its own is to do nothing. If we choose to do nothing, we will very likely be delisted on most of our centralized exchange listings such as HTX (huobi), Crypto.com, and Gate.io. This will likely cause us to lose face in the wider crypto community, result in no direct fiat on/off ramps for SPS, and will leave the community entirely dependent on liquidity pools.

That said, liquidity pools are very much our friend anyway we go. With the "do nothing" option, we could still choose to pursue some strategic defi partnerships and open more liquidity pools. This could give us access to more chains that the community desires, such as Matic, SOL, or any other chain that hosts defi platforms.

The next set of options is related to doing something to maintain our listings on centralized exchanges (CEX) and having the potential to expand into more CEX in the future. We can either search out a reliable trading bot operator ourselves that the community wants to entrust with enough liquidity to cover our exchange listings and work out a payment arrangement with them or we can contract with a market maker.

As far as the community finding its own trading bot operator and providing them with liquidity and payments. I have no real suggestions as it's highly risky. I've seen one community recommendation for the user konvik that operates trading bots on hive-engine as well as on centralized exchanges. The community would be very much in a situation of trust with anyone they chose to do something like this with and may well lose all tokens provided.

The traditional option would be to hire a market maker (MM) to keep higher liquidity and potentially do arbitrage trading with our liquidity pools to maintain solid price and token availability on whichever platforms they are deployed on which generally leads to higher token accessibility and volume.

There are generally two models for how MMs operate. There are lending based contracts and there are subscription based contracts. I will provide a brief summary of how each operates below:

Lending based contracts require handing over large amounts of tokens (likely million+ USD worth) and not charging us a fee. That said they have custody of our tokens and the contracts will always have a "strike price" negotiated in which they can buy our tokens at whatever price is agreed upon in the contract. For example if we hire a lending based MM right now, they will likely request strike prices below 2 cents per SPS. If SPS goes up, they will buy out our tokens that are already in their custody at the agreed upon price and sell them for a profit.

The other option is a subscription based MM service. These providers require much lower liquidity, usually $30-60,000 USD per market (depending on size of the exchange), they charge monthly service fees, and some will actively arbitrage their positions as well with the liquidity pools to maintain our liquidity balances and allow for tighter spreads on the market.

To sum it up, a lending based model has no upfront fees, higher liquidity requirements, no active arbitrage, and we may have to sell tokens at a loss if price appreciates. Subscription based market makers have lower liquidity requirements, maintain our liquidity at a stable rate, have a tighter liquidity spread and no ability to buy out our tokens because we're paying them with cash up front.

While hiring a market maker involves a legally binding contract and is generally perceived as safe, it is never going to be a zero risk situation. Exchanges can grow insolvent, they can be hacked, or they can be shut down due to regulatory issues and we could lose whatever tokens our MM has on the platform.

I will now provide some examples from available charts of when we did and did not have market maker coverage for posterity:

In the chart below we can see a huge loss of volume in January 2023. SPS was using an undisclosed (NDA sorry) top level lending based MM for all of our exchanges. They decided to stop providing quality service as the bear market intensified and after a lengthy back and forth terminated service and returned our funds a few months later. This is when you see most remaining volume dry up:

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Here is another chart for the SPS/USDT pair on HTX (formally Huobi) in which there was a subscription based MM, Flowdesk, being utilized to provide liquidity for that market. I'm sure you can see when their services were disabled quite easily a couple of weeks ago:

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So now that we have examples of what our token health looks like with and without market making services. We have some idea of what they could cost, although the subscription based models are highly negotiable. Flowdesk for example (the only company that has outright allowed me to share their information with you) charges $3,500 per month per market and has shown a strong willingness to both negotiate with us and be completely transparent while working with the DAO. Their current offer can be seen here, but they are willing to adjust liquidity and potentially price depending on what we hire them for:

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With all of this information at our disposal, it is now time to decide how we as a DAO want to proceed. My strong suggestion would be that we keep things civil in the comments, share our thoughts about which way we would like to proceed, and then we can make a proposal and approve or deny different approaches accordingly.

I will also publicly commit to seeing this particular project through if we want to take action regardless of how the DAO vote to hire me goes as well as offer to establish the same contacts I currently have with anyone the DAO could choose to hire or work with instead of me. Thanks for your time and consideration.

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Well lets see...
From the start I thought going after and paying for exchange listings was a huge waste of money and I still think that way.
Gate.io $26,000 in the last 24 hours
HTX $1,600 in the last 24 hours
MEXC $28,000 in the last 24 hours
Crypto.com $367 in the last 24 hours

So if you all really want to keep ones then go with Gate.io and MEXC for now from the looks of it. However I only have data shown on coingecko to look at which isn't always accurate.

That being said I'd rather see more focus on blockchain swaps that deal with gaming. Wax would be a good place to start as that's a massive gaming community and other swap type platforms. IMO there's no reason why splinterlands can't grow to new highs by having liquidity trading pairs and no centralized exchange listing. I think people are smart enough to simply use the swaps to convert it in and out of a stablecoin and then cash out to fiat if they want via these swap platforms.

Also not a fan of NDAs rolling forward is this is suppose to be transparent to the DAO holders.

Solid points. Thanks for the feedback!

welcome, and thank you for brining it up and starting discussions about it all.
Off the top of my head some to maybe look into would be Taco swap and Alcor seem to be the biggest most popular on the wax blockchain. Taco is more of a newer one which Alcor would have a more established base.

One thing about working with defi platforms is we can often get cross promotion and sometimes either receive their tokens or have to spend some of our own. Sometimes they do a mutual token swap for some amount. Anyways this is something we've done in the past as well and we could certainly expand to more chains, open more LPs and maybe find some good defi partners if the community wants.

I will recommend MM subscription options on exchanges we already in. Get an estimate of the cost and write a DAO proposal to fund it.

After we approve your own job proposal of course.

Thank you for writing this.

So we actually have a few ways to proceed in that regard. We could strategically pick and choose a couple of exchanges, HTX and Crypto.com are the most obvious to me, and put a market maker on those specifically. We could also try to go for a bulk coverage rate, but that will be at least 2-3x the price of strategically covering 1 or 2. I am in direct contact with a few agencies so I can shop whatever we want to do for a good price.

I would personally prefer to work with a company that is completely okay with me sharing the details publicly, but if someone else offers a significantly better rate the community could decide what's worth more. Knowing the name of a company and its terms or saving money.

I recommend that you get a cost estimate of these various option and create a post in due time, and have a discussion on that post, before putting together a proposal. I estimate take 4 weeks time to do this.

Agree we need to maintain CEX listings and support with the needed MM as long as it is transparent and reasonably priced. While I prefer DEX, we are trying to create better onboarding for new players (whenever that focus returns) and not having one would hamper that potential. Thanks for the update!

Thanks for writing this up. I don't really see the value in having these small CEX listings so I'd vote against it. I really would like to see more done on the education side.

As I said in Discord, I've spent two years asking people how to buy DEC and hive using a coinbase onramp. The only answer I've gotten from anyone is "I just use binance". Living in NYC, that was not an option for me. Then in this last town hall Matt casually dropped that always just tells people to open a coinbase account and buy USDC for no fees and then swap to DEC on whatever DEX he mentioned for DEC. Literally no one in two years has given me that answer so I've only been able to buy into the game with credits. Every time aggy said buy DEC at this discount I've had no way to do it other than buying credits to buy cards to hopefully sell them for DEC.

We need education. Paying thousands of dollars per month for listings on exchanges that hardly anyone uses just to save face with people who don't know we exist seems like a waste of money when other Decentralized onramps exist that no one knows about.

I just buy DEC on Hive-Engine with Hive…. I buy Hive on Ionomy.com. Cheapest way of all.

Could be a good project for the War Room in discord... get some community members mobilized to make a tutorial video? There are many swap sites and hive-engine has free ETH deposits as well. If you can buy ETH, you can deposit it on hive-engine for whatever the transaction fee is and then use the pools on tribaldex to convert it to HIVE/DEC etc... just check the liquidity in the pool you are using. I tend to suggest going ETH to hive to whatever token you want.

the liquidity for swap.eth usually sucks. Plus I'm one of those people who believes I shouldn't have to spend $100 in fees to move $500, hoping I don't lose the $100 to a failed transaction.

After two years of searching for a way to avoid low liquidity, binance, and rediculous fees, I did discover a few months ago that I could swap algorand, cardano, and matic on simple swap for hive with very little fees. But it took years to learn that and I had to figure it out on my own. That's what I'm saying though. There are existing rails, Its just that no one knows about them.

Agreed on education and onboarding!!

$$$ Buying into a game should be like rolling off a log, not searching for the secret of Praetoria. It should not take 2 years, 2 months, or even 2 minutes to find the answer to the question, "Where can I give you my money?"
I agree with your suggestion for the education - easing the onboarding processes. I think this is a super high priority - like #1.

As for the Exchanges, I don't think it is wise to let these listings die out. It breeds familiarity and we already have the listing. I don't agree with pursuing additional exchanges, but allowing those we do have to perish is not a good message to others or us - especially gate.io and crypto.com would be a mistake. We should not pursue any more exchanges but we should not let these two go for reasons I posted on the proposal...

But thumbs up on the Educational Video idea for sure.

Definitely doesn't hurt to do better on the education front. Perhaps that is something the DAO can help pickup the slack on!

I think having someone manage this stuff sounds great, sounds like you know your stuff, and exchanges are great to have.

But where I struggle is, we been told money is tight for 18 months and now we are being given options to spend it when it doesn't quite feel necessary yet.

Basically, I think I support all of this, just don't think I do now.

I think that's a very fair stance. The "do nothing" option is a potentially valid one. I'd personally suggest thinking of this less as a greenlight to spend money and more of a shift in direction/tone for the DAO towards self governance. Essentially, no one should make these decisions but the DAO with majority consensus. I'd also point out that the DAO and Splinterlands, while clearly intertwined, do not always have to operate in unison. The Bot/BH proposal was a clear indicator of that. The main reason for me pushing this issue now is simply that if we continue to do nothing the decision will be made for us. Thanks for the feedback!

I just buy DEC, SPS etc on Hive-Engine using Hive … I buy all my Hive on Ionomy.com … cheapest way of all. Do we pay Ionomy.com for Hive listing ?

I don't know if they did or didn't... that said market makers and exchange listings aren't the same thing. Market makers help boost liquidity on low liquidity markets.

Ok. Thanks. I try to avoid pools. Lost too much with impermanent losses … waited and waited until the losses went to 100 % . Practically permanent loss. Unless they come back 😂 … too many moving parts.

My two cents are to use DAO assets to fund/supply the DEX LPs without having to pay any more funds for outside MMs.

My only experience using a CEX to acquire SPS was awful. I felt Cryptodotcom overcharged on its spread and after transfers, it would have been easier and cheaper to do the trades on a DEX. I had been using pancakeswap before this and will continue to do so for as long as there are LPs that provide the service.

I would prefer a lending contract mm. But I'm not sure how much a sps listing will even help. It seems that getting Dec listed would have more direct benefit to the DAO and sps. This would remove liquidity from elsewhere and help the flywheel. Also we have a ton of Dec in the DAO that will sit and do nothing. I think this is an option to use that Dec without flooding the market and harming the value.

DEC itself can't really be listed directly. We'd have to choose if we wanted to pursue a listing for a wrapped version of DEC. That said exchanges generally don't like tokens without a finite supply that they can't audit the contracts for... IMO pursuing DEC exchange listings would be problematic at best.

I'd prefer to focus on enhancing LP investments and providing more educational resources on acquiring tokens. If anyone is interested, I've outlined some arguments against exchanges an market maker here:

https://peakd.com/hive-13323/@mangowambo/embracing-decentralization-the-case-for-prioritizing-liquidity-pools-over-centralized-exchanges-for-the-sps-token

With all of the swap sites that exist now, it's always an option to go full dex.

volume on gate.io has picked up significantly over the last weeks

Yea that one exchange has always been inexplicable to me. I don't know if they run their own internal MMs or what. Just have no idea where the liquidity there comes from unless someone is running their own private trading bot there? I got no solid explanation beyond some speculation.

I'm personally for 2 options in present time:

  1. Do nothing - stop sinking money into these small exchanges during current market sentiment whilst we heal our own ecosystem

  2. Hire Flowdesk (or another transparent) as MM Subscription - IF we'd like to maintain a couple or all CEXs - we should only support the MM that respects our DAO, support for decentralization, immutability, transparency, & acknowledges US/DAO with said treatment.

Thank you for this post @clayboyn

For what it's worth Flowdesk isn't the cheapest, but they aren't really out of line from what I've seen. It really all depends on the company... there's some sketchy companies out there that pull the "street vendor" tactic a lot... throw out high numbers and chase you screaming lower prices as you walk away. That said I agree transparency is key for the DAO imo. If we can't get transparency on the exchange side, we should 100% have it on the MM side if we're going to hire one. I'm pretty neutral on what we do at this point, but in generally I'm quite fiscally conservative.

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Liquidity pools all the way. Centralised exchanges are overplaying their hand.

I think a listing should only be thought of when factors such as gameplay quality, community support, marketing strategies are at a good level.

That's fair, but that doesn't really address the current issue. We have listings that we will lose and need to decide if we want to intervene or not.

I appreciate you taking the time to write this up and give us a realistic assessment of the situation.

I don't want to argue with anyone about this as I'm not an expert. But here are my thoughts.

I personally don't think we get much value out of any of these small centralized exchanges, so I view this as "window dressing". I don't think the volume done on these exchanges is real volume (ie people actually trading as a result).

I do understand that people are willing to pay something to keep up the appearance that we "have our token listed on an exchange", but in my eyes as a long term believer in the value of our platform I don't subscribe to that thought. Put another way, if people view our value based on whether or not we are on an exchange, then I think they will be missing out on our opportunity anyways.

I will be a hard "no" on spending $10,000 a month for all 3 exchanges. If we can negotiate one exchange for $3k, then I wouldn't vote against that if people are willing to save face and maintain one exchange.

I'm only one person and I don't plan on having a fight with anyone based on their views. But I am a believer that decentralized exchanges provide us far more value (for little to no cost), and they accomplish most anything we could hope for at this time. (getting money in or out of the system)

I simply don't buy the argument that any of these smaller exchanges help us attract more customers to the system, and the larger exchanges cost millions of dollars and are out of our reach right now.

Thank you Clay for bringing this to our attention and for having a debate about what path we take going forward in this particular area.

For sure Dave and after working with many of these exchanges and MMs I can tell you I have plenty of my own opinions. My goal was to remain as neutral in tone as possible and just present the options. It's not for any one of us to decide. It has to be a majority decision any way we proceed. Thanks for the feedback!

Definitely its a majority decision and that's why I said my thoughts and won't argue about them. I think many people will have various opinions and we are all entitled to follow what we think is right. Again thanks for organizing this and enlightening us to the situation and the facts necessary to make a choice!

I do not mind this opinion at all. As you know I am a concervative guy. That is why I like to see the estimate and option and decide after that if a proposal is even needed. If we do nothing, no proposal is needed.

I personally agree with Dave... Maintaining all three is a bit expensive right now, but maintaining one is feasible. Crypto.com just partnered with PayPal as the 'official exchange' for the new PP stablecoin. They have also been working hard to comply with US regulatory obstacles, while other exchanges (such as Binance) have just given US citizens the finger. Having a CDC account for years, I can say from experience that the fiat on/off has very low friction (especially the ON part). They are a legal fiat banking entity, part of the swift system, that fully embraces crypto, and I see them potentially becoming one of the largest exchanges in the world if they continue the course they have been on for years now.

We may very well find that we are already on one of top exchanges in the world next bull cycle.

I would fully support maintaining our CDC listing exclusively at this point.

I would second Crypto.com as a US user that is the easiest fiat on-ramp. Get SPS with USD then transfer into Metamask then straight into the game. Very few hoops to jump, though get BTC or ETH on Coinbase then into Metamask then into Hive Engine is also fairly straight forward.

That would like cost the DAO $3500 USD a month + liquidity + maybe 50-60k in liquidity in their custody. I'll get a few quotes for different scenarios and make another post sharing those options soon. Going to keep gathering feedback or now.

Awesome!! It would be a matter of weighing the pros and cons. And we'd be front running... speculating that CDC will indeed continue to grow and become one of the biggest out there. I honestly think it will, but that's still just a guess at this point... although they have definitely been moving steadily in that direction. Being able to literally send SPS to my CDC acct, and then use that SPS to load up a Visa Debit card I can spend anywhere that accepts Visa is almost groundbreaking at this point. I can certainly see that ease of use as a HUGE incentive for players in other countries that use SPS earnings in the real world.