Increasing liquidity of Nimiq

There have been some discussions in the community regarding liquidity. This topic is increasingly important since Exchanges we reach out to always comment about the importance of liquidity for a listing as well. We also published a video recently discussing about the difference between trading volume vs liquidity, market makers vs wash traders and why liquidity is important for a crypto project. You can watch the video below:

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Today a user was very open about the lack of market makers / liquidity and how this, I quote, “sucks”. Since we are actively looking at ways to increase liquidity, I want to bring this discussion to the forum to get feedback, ideas and suggestions from the community. If you are aware of legit market makers or other ways of increasing liquidity, please share them below.

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There is Gekko which is free and open source, although I was expecting that they added support for KuCoin at some point to be able to try it myself. Unfortunately Gekko is no longer maintained.

At some point they had an online platform for trading where they had contests with prizes given to the most profitable bots. Unfortunately it was suspended too.

If I understand correctly from the video, volume alone doesn’t bring liquidity, so I’m not sure if using any other kind of bot than a market maker one would do the job of increasing liquidity.

Something to consider though, is that Gekko had a big community of YouTubers and traders that perhaps could take the mantle to continue with the project. Some Gekko plugins for trading even were already using machine learning algorithms, which is kind of cool, IMO.

It’s counterintuitive but listing on more exchanges could help increase liquidity through arbitrage trading. A $1k NIM purchase on one exchange can actually become $2k+ in volume spread out over multiple exchanges if there is a divergence in prices.

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One of the things I’ve encountered a lot when trading NIM is the presence of ‘iceberg’ orders, where a buy or sell order for a small amount of NIM will be on the order books, but as soon as that order is filled it is replaced by an identical order at the same price. So while it often looks like a thin order book with a few hundred thousand NIM on either side of the current price, there is sometimes millions of NIM in liquidity available. For a while it would show up as a 186k buy or sell order on Kucoin; I’ve been taking a break so I’m not sure if it’s still the same or if that person has stopped trading.

IMO I don’t think any effort will make as big of a difference as a mass marketing/awareness campaign will. There’s simply not enough people interested in buying/selling right now.

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The thing is that liquidity seems to be key here because:

  • New exchanges are asking for more liquidity as a requirement for listing NIM.
  • One of the main concerns from traders is also liquidity, so massive marketing (which we are planning) will not be as effective since that same concern will remain.

Well traders need either fear or FOMO to do their work. Selling NIM to people that think the Nimiq rocket ship is leaving without them, and buying from people that think they’ve made a mistake when the price starts to correct, that is where liquidity comes from. Some people in the community see this process in a negative light, or see traders as predatory. But it’s a natural part of any ecosystem. Traders prey and weed out the speculators. So without marketing or some other way to create FOMO, and without an overreaction to correct it, you will never have liquidity. What you end up with is people that buy and hold long-term which is also valuable, but don’t forget those people are not buying and selling. It’s only when people are behaving out of fear or greed that you see the order books fill.

The other option of course is to hire a market maker to create big buy/sell walls on all of the exchanges. That is the most direct way to gain liquidity but it kind of destroys the idea of price discovery, which makes it difficult to know what the real market value of NIM is. Anyways, I feel like I’m taking up too much space on this thread lol. Those are my observations, ideas, etc. I hope they are helpful in this discussion

Edit: I have just realized I had an upside-down understanding of the concept of price discovery. So my above statement is null and void.

I think it comes down to use cases at the end of the day, which makes it tricky when there are a bunch of other coins who are also competing in the same space as Nimiq. It’s the same case for many other altcoins.

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This might be helpful https://hummingbot.io/
With Liquidity Mining, token projects can now leverage their native communities to act as market makers. We help projects manage liquidity mining campaigns that reward participants based on how much liquidity they provide in a given time period.

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I had problems with hummingbot, so I wrote a minimal bot a few months ago. I put up some minimal documentation and just uploaded it to https://github.com/longpass/lqbot. Feel free to try it out.

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I’ve just setup a Hummingbot on my VPS that trades on the NIM/BTC pair on Kucoin. It’s an interesting project when you combine it with Liquidity Mining where the token creator incentivize their community by running campaigns and reward them for being a Market Maker.

Is it common for projects to run these kind of campaigns and let token creators indirectly pay their community for being a Market Maker to increase liquidity? Any stats you can provide?

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Thanks @Flash, @Stefan, Hummingbot looks very promising considering the option to allow community to do liquidity mining. Lqbot from @longpass looks interesting since it seems very easy and straight forward to set up! I am going to continue researching and testing them as these might contribute to increasing liquidity :slight_smile: