Bisq revenue generated by BTC trading fees belong to the contributors

[freimair]

This is a Bisq Network proposal. Please familiarize yourself with the submission and review process.

TL;DR

• the more active BSQ trading becomes, chances rise that Bisq revenue by BTC fees does not reach the contributors
• make sure contributors get their share of revenue
• not a permanent or final solution, but a place to start

Problem statement

Recently, the BSQ market has been discovered by at least one trader. Given the attractive gap between buy and sell offers, it is a perfectly legit strategy to buy cheap and sell expensive. However, the BSQ market is not balanced at all, sell volume is significantly higher then buy volume.

That opens up different scenarios, of which an incomplete list is given now.

contributors cannot keep up with their sell offers

The issue is, that contributors are not and maybe cannot keep up with their sell offers and more importantly, the prices. This can have different causes.

• contributors do not care about selling stuff: seems unlikely. Every contributor investes hours of her time. Not all of them have the luxury to work for free.
• contributors struggle to keep up with adjusting their rates: one has to be online all the time and actively adjusting the offers, it takes time and it prevents contributors to focus on work.
• contributors do not want to underbid each other because they only hurt themselves and other contributors. If only a few contributors have to sell to make a living, they, given the market balance, might just destroy the market completely. External traders, however, do not care if they sell for ...50 or ...95 as long as it is over their buying price (saw it myself. Tried to sell BSQ multiple times. Once, price went from ...95 to ...63 within a day, nothing has been sold, but the price stayed at ...63)

non-contributors (traders) receive Bisq revenue

The burning man process is to buy at top price. What first seems like a legit solution shows some drawbacks when viewed from a contributors perspective.

Imagine the following scenario:

• A trader, Alice, puts up a buy offer over 1k BSQ for a price of ...6 BTC/BSQ.
• A contributor, Bob, takes the offer.
• Alice put up a sell offer over 1k BSQ for a price of ...9 BTC/BSQ.
• The burning man takes the offer.

As a result, the Bisq revenue is spread like

• Bob, the contributor, gets ...6 BTC
• Alice, the trader gets ...3 BTC
• from Bisq revenue generated by BTC trading fees.

This situation might occur already, but will occur more regularly when more traders join the BSQ market. Again, as more and more traders join the BSQ market, the issue will intensify.

Proposal

I propose to adjust the burning man process in order to route Bisq revenue generated by BTC trading fees to the contributors.

• The current budgeting solution and its effect on compensation requests stay as it is

• The burning man still prioritizes the refund agent

• After the refund agent is being dealt with, the burning man prioritizes contributors

  • The burning man communicates how much is left to spread, for example lets say 1 BTC
  • Contributors, according to their compensation requests, get granted a share of BTC revenue
  • a BSQ price is given (like the one we already have, but not for USD but for BTC) (lets say 0.00005 BTC/BSQ)
  • they have to put up a sell offer matching their share

  Contributor	BSQ requested [BSQ]	% of overall BSQ requested	Sell offer [BSQ]
  1	6000	20%	0.20 BTC = 4000
  2	6000	20%	0.20 BTC = 4000
  3	4500	15%	0.15 BTC = 3000
  4	6000	20%	0.20 BTC = 4000
  5	7500	25%	0.25 BTC = 5000

  • they have to communicate their node address in a trusted chat (ie. keybase)
  • the burning man buys their offers

• if something is left after that (because revenue has been bigger than compensation requests)

  • either follow the current procedure and take best sell offers
  • save up and create some buffer for future expenses (attack refund, compensation, ...)

Discussion

• the pressure on Bisq price might drop, as contributors do not have to underbid traders to get at least some part of the revenue (especially, as the burning man is the most valuable BSQ buyer, at least ATM)
• contributors are still free to sell their remaining BSQ on the market
• traders participating in the market do not get a part of Bisq revenue, the revenue belongs to the contributors

Notes

kinda matches the suggestion of @chimp1984 in #205

Can be used later as well for other use cases. E.g. to pay part of core contributors compensation requests (directly in BTC, BSQ request gets reduced). This would remove one part of the required trust into the burning man. He would then only receive the funds from arbitration cases. But also that could be done with that model once the arbitration cases go down.

[wiz]

Considering that all BTC revenue will likely be used to directly repay the donation address exploit victims for the next couple years, isn't this proposal basically moot? It seems to me the core issue is that Bisq is simply not profitable anymore, and we will have to cut our budget drastically to break even after the revenue is lost.

[freimair]

Well, if we stop distributing revenue to contributors for years, there will not be any Bisq left.

If we cut the budget even more, then there will not be any Bisq left.

Besides, there is another substantial attack inbound. We just don't know when it will happen.

[freimair]

Besides, Bisq hasn't been that much more profitable in the past. The only thing new is that there has been a small attack that only affected 6 users. What happens if a big attack comes in? It needs to be a tradeof. You cannot shutdown development and operations until dept is paid. It does not work that way.

And what if there is revenue coming in because growth succeeded and we could spread the revenue to contributors, should we still share the revenue with traders?

[freimair]

btw. I haven't seen #205 (comment) before I posted this proposal. Have been working on it for days now...

[MwithM]

Recently, the BSQ market has been discovered by at least one trader. Given the attractive gap between buy and sell offers, it is a perfectly legit strategy to buy cheap and sell expensive. However, the BSQ market is not balanced at all, sell volume is significantly higher then buy volume.

I see no problem here. We should thank that trader for his market maker labour, bringing the gap closer and making the market a little more "balanced". If that is making he rich, other traders will try to copy that lucrative strategy, increasing BSQ volume and helping BSQ to find its price.

Traders and contributors (when they're not the same person) have the same possibility to get burningman orders. When someone sells at lower prices, the burningman gets to destroy the max amount of BSQ possible, which reduces BSQ monetary mass, in favour of the rest of contributors holding BSQ.

Your proposal adds a high amount of complexity to BSQ compensation distribution (and it looks like the burningmans have ennough trouble to perform the current system).
Also, it looks like it only contemplates lower and lower BSQ prices. Contributors would not benefit from having a fixed BSQ price based on an average price when the price at the time of distributing BTC to contributors is higher than the average of the past days. Now, they individually get to decide at what price they try to sell their BSQ.

The problem Bisq faces is that currently there's not ennough BSQ bids to satisfy the amount of asks. There's two solutions to that problem: Increase BSQ demand or reduce expenses.

[wiz]

The problem Bisq faces is that currently there's not ennough BSQ bids to satisfy the amount of asks. There's two solutions to that problem: Increase BSQ demand or reduce expenses.

Yep, this is how the free market works. The problem is we are not profitable, so we must increase trading fee revenue and reduce expenses to become profitable. It really is that simple.

[freimair]

currently there's not ennough BSQ bids to satisfy the amount of asks

there have never been enough bids to satisfy the amount of asks. the only reason why the Bisq market still is somehow functional is because stakeholders are not trying to sell. There are hundreds of thousands of BSQ out there waiting to be put to market. Given some stakeholders are actually contributors, they someday will sell.

We saw in late 2019 what happens if contributors dump BSQ - the price crashed. Enough to trigger a management change. And the amounts where very small back then (100k?) It is bound to happen again - we just do not know when it will appen.

We should thank that trader for his market maker labour

if we go through with that, I am certain we can drop the price even more. Which means that compensation requests get higher and higher and we risk for inflation taking over uncontrollably. Given a high enough inflation, we might risk big stakeholders leaving the project - by dumping their BSQ which might be the end of Bisq.

Increase BSQ demand or reduce expenses.

We cannot undo issuing the hundreds of thousands of BSQ that already have been issued in the past. So reducing expenses to me seems not a way that leads to any success. And growth efforts are already under way. Worst case, we might not be able to catch up at all, because attacks are bound to come in and the more we reduce expenses on fixing stuff the more expense for reimbursement will grow.

Yep, this is how the free market works.

Well, if Bisq is willing to give its revenue to traders instead of its contributors, then Bisq must be transitioned to a free trading platform which requires no trading fees at all (because the fees are paid for by Bisq revenue anyways).

Thing is, the BSQ market is designed to sustain the Bisq infrastructure. Given a big-enough market, this might work with a free market. However, the market isn't big enough. And signs are there that it might worst case never will be.

[MwithM]

We saw in late 2019 what happens if contributors dump BSQ - the price crashed. Enough to trigger a management change. And the amounts where very small back then (100k?) It is bound to happen again - we just do not know when it will appen.

I see it the other way. I sold BSQ near to that time, because of lack of management, BSQ inflation was too high. I bought back some when the budget system started.

Which means that compensation requests get higher and higher and we risk for inflation taking over uncontrollably. Given a high enough inflation, we might risk big stakeholders leaving the project - by dumping their BSQ which might be the end of Bisq.

What keeps BSQ creation into reasonable limits is that their holders will vote what's best for the BSQ they're holding. That is, usually, not inflating BSQ monetary mass.

We cannot undo issuing the hundreds of thousands of BSQ that already have been issued in the past.

Maybe the initial price of 1BSQ=1USD was too high. I don't know andwe cannot get back. To know that, we just need to keep the BSQ market flow, and removing the liquidity that burningman provides to it is not a good idea.

Well, if Bisq is willing to give its revenue to traders instead of its contributors, then Bisq must be transitioned to a free trading platform which requires no trading fees at all (because the fees are paid for by Bisq revenue anyways).

I think that BSQ can be traded anywhere (is not possible to stop people from buy and sell it), and in fact that would be good for BSQ contributors and users, as there would be more liquidity to buy or sell when they want to. I would oppose to pay listing fees for it, though.

[freimair]

and removing the liquidity that burningman provides to it is not a good idea.

that is exactly what #205 proposes though.

BSQ can be traded anywhere

yes, and that is good.

the issue is that revenue created by Bisq is given to traders instead of contributors only.

[MwithM]

The filter, at this time, is expected to be only for attending victims of the attack. They have strong reasons to not hold BSQ.
I still don't see how destroying BSQ at the best price possible is something that only benefits the "trader". I don't even see the difference between a trader and a contributor in a decentralized system. Anyone can be both.

[freimair]

I try to clarify. First let me define the term "revenue" I used above more precisely.

• BTC-induced revenue the part of Bisq's overall revenue that is created by the trading fees payed in BTC which go to the donation address.
• trader someone who buys and sells an AltCoin for profit. Does not create value. Just waits for rates to develop in her favor.

The filter, at this time, is expected to be only for attending victims of the attack. They have strong reasons to not hold BSQ.

yes, but by giving all BTC-induced revenue of Bisq to the victims removes the liquidity provided by the burning man from the BSQ market as well. regardless of how it is implemented.

(that is where @wiz is correct in saying that this discussion is pointless if the DAO decides to give all BTC-induced revenue to the victims).

I don't even see the difference between a trader and a contributor in a decentralized system.

Of course, a trader can be a contributor as well and vice versa. However, if contributors can't sell enough for reasonable prices, the Bisq project will cease to exist, because contributors can't afford working on Bisq. Traders then cannot use Bisq anymore, because Bisq is not there anymore.

I still don't see how destroying BSQ at the best price possible is something that only benefits the "trader".

you got me wrong here.

In the scenario I described above a trader gets 1/3 of Bisqs BTC-induced revenue and the contributor 2/3. For Bisq being able to sustain itself, the trader should get 0 and the contributor 100% of Bisqs BTC-induced revenue.

All I am saying is that a speculative trader can get a huge chunk of Bisqs BTC-induced revenue (1/3 in the example). I would rather see the BTC-induced revenue to be directed to the people making Bisq possible (because that is the whole point of trading fees isn't it).

[MwithM]

trader someone who buys and sells an AltCoin for profit. Does not create value. Just waits for rates to develop in her favor.

A trader creates value. Bisq is desperate to have more traders in order to gain volume, and other Bisq traders would love to have more traders in order to gain liquidity.
The only way for the speculator to get burningman's BTC is by making a better deal, he steals nothing from a contributor. "Wait for rates to develop in her favour" means being exposed to a tremendous amount risk that not everyone is willing to take.

[burningman2]

Trade events are announced and contributors are welcome to compete for the best offer.

The real problem is that BSQ has basically zero investors, so only traders are buying BSQ and that is problematic in the phase where we are not generating enough revenue to operate on the level as we wish/should. Any startup gets support by investor money to get over the first years while being non-profitable. Bisq is missing that. So contributors are forced to be investors by not being able to sell larger amounts of BSQ.

But please also consider that not all contributors want to sell and if you look at monthly volume it is a few BTC (excluding refund agents trades). I think at least 1 BTC can be seld per month with some effort. So if you take the effort to keep offers open with smaller amounts (thats what traders are looking for) you get some trades done with reasonable prices. See the market makers who seem to make some profit by keeping offers on both sides and provide liquidity to traders by offering small amount offers and buying BSQ in larger amounts from contributors who don't want to do the labour to make many small trades.

[huey735]

Another way to go about it is to stop issuing debt to contributors and instead distribute only a share of available revenues.

[beingindot]

Since bsq is only listed in bisq,
one other solution i thought was disabling buy side for some time experimentally. no extra work needed and maybe need to maintain 10bsq or 20 bsq sell offers( for minimum qty sell) always.
ps. no offence was intended.

[freimair]

@MwithM

A trader creates value.

sorry, again: with value I meant work going into the Bisq software and processes.

A speculative trader does not change the software. He just uses it.

Bisq is desperate to have more traders in order to gain volume,...

yes of course. And there are markets in place to do so. FIAT, AltCoins, BTC. Also for the BSQ market, a trader creates value ie. "volume".

"Wait for rates to develop in her favour" means being exposed to a tremendous amount risk

isn't that what traders do on every market? BTC, AltCoin, Stockmarket?

@burning2019

So contributors are forced to be investors by not being able to sell larger amounts of BSQ.

Exactly. However, I monitored the market for quite some time now and they have to work hard to even sell small amounts of BSQ.

But please also consider that not all contributors want to sell [snip]

Yes, I know. That is why the BSQ market still works somehow.

Trade events are announced and contributors are welcome to compete for the best offer.

The process for a contributor basically is:

1. do work
   • see if it is in the budget
   • hope that it stays in the budget
   • [...]
2. put it up for compensation
   • calculate the personal amount of BSQ to be requested
   • by using a value gathered during months in the past
   • so that one can have some reference to real spendable moneys (ie. USD)
3. try to sell it at a trade event
   • compete against other contributors
   • AND, as trade events are publicly announced, you may also compete against speculative traders
   • drive the price down in the process
   • decide on how cheap you will sell your working time and efforts in order to make a living

Compared to the real world where a you need to take on a loan from a bank, the process we have here would mean that the bank has to fight for payback? seems a bit odd.

@huey735

stop issuing debt to contributors and instead distribute only a share of available revenues.

given the circumstances we are in (#206), that would probably result in years of working for free. In other words, it is the situation we are in (minus the hope that BSQ will work).

one other solution i thought was disabling buy side for some time experimentally

that means that the burning man has to set the price? Other than that, contributors and traders are still fighting against each other.

to not drift too far off-topic

I only suggested that revenue created by trading fees payed in BTC is exclusively routed to contributors.

[beingindot]

that means that the burning man has to set the price? Other than that, contributors and traders are still fighting against each other.

It may prevent contributors from taking low buy offers.(thus preventing same bsq appearing in sell orders again) Natural demand is from burning man and traders buying for fees. they can take it from available sell orders.

[sqrrm]

I think it's really good news that there is a market maker in the BSQ market. This means it's easier to sell BSQ for contributors and easier to buy BSQ for traders. The profit made by the market maker is value added to both contributors and traders. Considering we have thought about incentivizing market makers in the other Bisq markets this kind of natural market maker seems like a very good thing.

Hopefully this can narrow the BSQ spread to something more reasonable over time which would benefit everyone.

[freimair]

@sqrrm, @beingindot, @ALL,

I think it's really good news that there is a market maker in the BSQ market.

I agree that it is good news that there is a market maker with all the details you mentioned.

Natural demand is from burning man and traders buying for fees.

Exactly. However, the burning man spends Bisq revenue. If the burning man buys from a speculative trader, Bisq revenue goes to a speculative trader instead of contributors.

And that is exactly the point of this very proposal.

Closing thoughts

I consider this proposal as rejected. Sadly, I feel this is mostly because of misunderstanding. For the sake of completeness:

• this proposal does NOT try to alter the free market
• it merely tries to make sure to route the little Bisq revenue we have to the people actually making Bisq work.

I talked to @ManfredKarrer and others about the whole stuff beforehand and my understanding is that Bisq has been designed to be a company with its goal to create revenue for its employees to make a living of. If we fail in doing that, Bisq will become a pet project eventually and a pet project may not be able to take the burden of having hundreds of thousands of USD value going through it, especially the hostility that is going to follow.