Marketmaking Parameters

[chrisengel]

Background

LEV will be trading almost from day 1 on GateCoin and EtherDelta in the pair LEV/ETH, meaning trading LEV for Ether.

Because we have no real reference price because it is a completely new financial asset, we do not know what the "true" price is. In fact, this price will vary wildly.

What we do know is that there will be a lot of people who bought LEV tokens in presale and in public sale who want to get out at a fast profit, if possible.

We are funding the marketmaker with ETH (to provide bids on the book) and LEV (to provide asks on the book).

Goal

We need to provide a modest amount of liquidity so that traders who have LEV or want to buy LEV are able to engage in basic trading on GateCoin and other exchanges (Binance, Liqui are soon to come).

We want to find a price point and spread and depth that more or less balances the marketmaker exposure on LEV and ETH.

Exposure Management

We start by funding the MM with LEV and ETH. This has also a USD value. We should be tracking how much we start with in USD and ETH as well as how this exposure value changes day to day.

It is absolutely critical that we do not get over-exposed to LEV long. We already have so much LEV and we dont want to essentially burn ETH just to allow LEV buyers to have a free out.

Parameters

In the first days, we have to be extremely conservative with our MM's bids especially (i.e., not making too high bids) and also not to sell our stocks of LEV too low (but not as big of a problem).

The presale price was 0.000216685 ETH per LEV.

The public sale price was 0.000333333 ETH per LEV.

This is why our initial parameters should be something like this:

Initial price point: 0.000215
Spread: 0.00001
Initial bid: 0.00021
Initial offer: 0.00022

Quantity: 10,000 LEV

Step: 0.00001

Number of steps: 10

This will put at risk only about 10 ETH worth of capital, just to test the waters.

Concluding Remarks

We need to see how much OTHER liquidity comes on board, and see how price reacts, then we can fatten the books up more and readjust the price points.

We do not want to be sitting ducks and have really big bids that get eaten up by weakhanded presale buyers.

We can not let the books get manipulated such that they bring the price high, then we put a lot of ETH bids that are then eaten. (Requires testing).