Gaming BeeSwap Discounted SWAP.HIVE Bridge

avatar

Big surprise, people are trying to game the obvious holes in product designs. In this case, someone is converting SWAP.HIVE to HIVE back and forth (and paying the associated fees) to get their hands at some BXT token. Let me see if I can work out why they do that.

BeeSwap Logo

Why Does SWAP.HIVE Exist?

For starters, you are surely familiar with HIVE coin that is the blood that circulates in the veins of this *blockchain environment. Chances are you actually own some, acknowledging that Hive is a sensible network project (to you).

Due to the technical limitations of Hive, someone built another project on top of that. It is called Hive Engine. While it has its own independently valued (priced) BEE token, the users are familiar with Hive (and HBD, the Hive Based Dollar) so having pegged tokens (called SWAP.HIVE and SWAP.HBD respectively) makes sense. You probably think "pegged" means "1:1 interchangable". I do not.

There is no way to make a truck drive on a railway. Roads and railroads are different and so are the tokens. Fortunately, your container can be unloaded from a truck and loaded on a train (and vice versa). It comes with a fee but it is usually worth paying.

Once you realise the same thing happens with SWAP.HIVE and HIVE, it takes about ten seconds to arrive at one of the two mainstream conclusions.

Conclusion 1: SWAP.HIVE is always worth slightly less than HIVE

While the Hive Engine team holds one HIVE for every SWAP.HIVE they print to be used in the world behind their gate (and only releases when the SWAP.HIVE gets destroyed). It is still a private project relying on a private entity. No matter how small is the risk to you, it exists and that makes the value somewhat lower.

Conclusion 2: SWAP.HIVE is always worth slightly more than HIVE

There are so many great things you can do on Hive-Engine that you cannot do on Hive. Whether it is playing games like deck-building PvP card game Splinerlands or town simulation game dCity, investing in tokenised communities or investment funds, HIVE cannot buy any of those alternative tokens. SWAP.HIVE does.

Market Rate for SWAP.HIVE/HIVE Pair Exists

That is the real conlusion that combines the both points of view. Depending on the situation, either token can be more valuable.

Whenever the rate deviates from parity by more than 1 %, everyone has a way of trading effectively by printing/burning SWAP.HIVE via Hive Engine. You always get 0.99 for your unit but if the market rate is outside 0.99-1.01, that is a good deal. If it is inside the range, there is no effective way to push it back to 1:1. Unless you found a private deal (not effective) you were stuck with the token you had unless your subjective valuation left the range and you decided to make the conversion (even if it felt wrong for your perceived objective market price)

Discounted SWAP.HIVE Bridges

That is why there is a handful of services that aim at estabilishing a cheaper conversion by simply holding an amount of both HIVE and SWAP.HIVE that allows customers to send in one token and receive the other within seconds. LeoFinance's LeoDEX was the traditional alternative offering 0.25% fee. The only issue is, if the traffic gets single sided, one of the tokens can be out of stock and you have to wait for someone else to convert it in the other direction. LeoDEX 20k liquidity was not enough at times. Neither was the 180k their younger competitor BeeSwap offered at the same rate. The newest player would be HivePay undercutting at 0.2% rate but their 2k liquidity is not really relevant to the industry right now. On a side note, LeoDEX's liquidity has also gone down since the BeeSwap dominated the market.

BXT Rewards

A recent BeeSwap trick is rewarding conversion from the underrepresented side (leaving the pool more balanced) with BXT token (that has been recently introduced to incentivise some Diesel Pools). All conversions over 25 (SWAP.)HIVE in a three hour period share a fixed amount of BXT rewards. The more unbalanced the liquidity, the more rewards (announced in a dedicated channel on dCity Discord).

Essentially, your 0.25 % fee gets reduced at a rate depending on the traffic. When the traffic is low, the fee can be even negative (BXT tokens you get can be worth more than the fee you paid).

That is when the back and forth conversion can make sense. It is a risky business (someone else can make a big conversion at the same period and your BXT rewards will suck) that is likely to be conducted by bots in a really short time. That sounds good as the potential excessive rewards are evened out andthe gamers steal from compete with each other at the expense of generating conversion fees (that support the BXT value as BXT stakers get a cut).

Limitations

How come the liquidity stays unbalanced when the balancing mechanism works? Well, it really focuses on securing a floor for daily fee generation as opposed to focusing on offering an uninterrupted fair price conversion service.

Remember the SWAP.HIVE/HIVE pair has a market rate. Unfortunately, noone offers price discovery mechanism along with the trading opportunity. Before LeoDEX, you could trade at 0.99 or 1.01 or not at all. Then two more points appeared (0.9975 and 1.0025) with the first discounted bridge. BeeSwap innovation allows using the full interval of [0.9975,1.0025]. Should the fair price stay at say 0.999 for a while, the market can be stable at a slightly unbalanced point where BXT rewards allow arbitrageurs to pick up enough of a kickback to trade at that price.

The caveat is, if the fair price of SWAP.HIVE is 0.9925, the stable point is a single-sided liquidity. Anyone having SWAP.HIVE is incentivised to cash it in at 0.25% if available (getting a bargain of 0.9975 HIVE for a token worth only 0.9925). Anyone having HIVE can convert just enough to pick up the rightamount in BXT rewards to cover both fees - because they now have SWAP.HIVE that should immediately be bargained back into HIVE (under the 0.9925 fair price assumption).

Obviously, the pegging mechanism is supposed to burn some SWAP.HIVE to return it back to parity but noone wants to burn 0.9925 token if they only get 0.99 value.

Proposition

In practice, people have different views on fair rates which allows transactions to happen even with limited pricepoints available. The purpose of the exercise was to explain why the system is not as smooth as it appears. The fair price belongs to the (0.99,0.9975) interval too often. The current BXT reward system offers no incentive to push the price back into optimal range (and mints/burns only defend the 0.99 and 1.01 frontiers without really aiming for parity).

The real solution should implement raising the fees for the popular direction of conversion. That way the fair price leaving the [0.9975,1.0025] area does not encourage emptying one side all the way to zero - just emptying it to the point where fees are too high to autoconvert (more than the small amount necessary to legally game the BXT rewards - that are somewhat lower than in the single-sided scenario).

When I said "solution", I focused on customer. I am curious to hear from the BXT stakers whether they actually prefer such a change as well.

Was the article helpful to you? Well, you got lucky to read it. It is not shown on standard feeds so your friends might really appreciate a reblog.

Posted Using LeoFinance Beta



0
0
0.000
30 comments
avatar

puh that's intense

0
0
0.000
avatar

Thanks, that sounds I stand a chance.
The world outside Hive can be more content oriented than my recent bubble so I am refreshing my skills.

0
0
0.000
avatar

You've felt the wrath of the German spirit, I hope it was liberating in an abstract way at least.

0
0
0.000
avatar

I don't think I have felt exactly that. People defending their money and/or questionable actions are tough across the globe.

My POV on the national factor is 180 degrees off yours but I prefer to stay away from the topic.

0
0
0.000
avatar

Tribes always have their own value system in place, and they feel like it's worth defending of course.

Imagine a world where that's not the case, it's a lot less human for sure.

0
0
0.000
avatar

Tribes always have their own tokens to distribute value according to such values.

DACH is not a tribe, just a community without a token, so they need to turn to (ab)using other tokens to spread their views.

While DACH is full of people who enjoy getting paid for posting spam, there were two or three people in total (spread across six accounts) who bother DVing to defend the system. It is the language barrier that prevents it from being busted - not a community effort. See @photobook to understand the difference.

Imagine a world where that's not the case, it's a lot less human for sure.

No need to imagine one. Check out the Hive blockchain.

0
0
0.000
avatar

Our friend @jelly13 (he thinks I am a real dishonest jerk though - probably offended I call him friend) is intense but in a way i like his thinking

0
0
0.000
avatar

he thinks I am a real dishonest jerk though

That is an obvious concatenating foul that screams for a booking.

I admit I think you are a condescending jerk. When I suggested you needn't be one, you just couldn't help so from that point on, I consider the hypothesis validated. Whether that is a jelly-specific treatment or a personality feature is none of my business. Either way, your usage of the F-word is condescending beyond tolerable to me.

OTOH, I never said you were a dishonest person. I fully stand behind my opinion that you run a dishonest marketing campaign for Rabona but you have a formal position on their team and need to roleplay accordingly. Desperate times call for desperate measures so from my POV none of those actions indicated you were dishonest as a person and I challenge you to remind me if I ever said you were.

0
0
0.000
avatar

To me it sounds like when the bank worker rounds all transactions to the nearest penny, putting the fractions of pennies into their own bank account to get millions...

Posted Using LeoFinance Beta

0
0
0.000
avatar

I am not really sure who the clerk is.
All I can see is the bank who rounds down in a totally legitimate way and the client transacting their own money.

0
0
0.000
avatar

This is interesting, and there is a lot of ground to work the fee increase between 0.25% and 0.75%, for example.

0
0
0.000
avatar

I intentionally kept it user oriented. I can totally draft a technical post aimed at the dev side later. The actual math can chase away people and I first want to embarrass the Hive community and frontend owners by having a thoughtful conversation on a negative rep blog before moving to serious business.

0
0
0.000
avatar

Raising fees won't stop people from emptying the bridge. If I'm willing to pay 1%, a 0.75% raised fee rate won't stop me from converting.

Now, if I'm willing to pay 0.3% but it's charging 0.75%, well I simply won't do the action at all.

Posted Using LeoFinance Beta

0
0
0.000
avatar

Raising fees won't stop people from emptying the bridge.

Spot on.
Now, there is no point in avoiding the emptying of the bridge. That is essentially saying: "We need to stop people from buying our service." Why would anyone do that?

What businesses need to do at times is to say: "We need to stop people from buying our service too cheap." Hive-Engine does not do that because

  • Their stocks are unlimited (production has zero variable costs)
  • Keeping their product healthy longterm (ie. keeping the peg reasonably close to 1:1) is preferred to jeopardising the entire business model while shooting for an extra penny.

Bridges will never sell above 1.01, of course. Emptying one side while selling for 1.01 is the best they can hope for.

What they can (and should) do is to avoid emptying it while selling at 1.0025 when everyone around is fine with paying 1.005 or 1.007 or 1.009 - people converting back ather picking up the reward prove the point - they could have kept the other coin but why would they do that if they are looking at non-empty bridge offering an irrational price?

Now, if I'm willing to pay 0.3% but it's charging 0.75%, well I simply won't do the action at all.

It is fine and it happens all the time. If I am willing to pay 2c for a bottle of soda, I won't do any action either. Supermarkets do not price their goods in a way to make sure that everyone going through the aisle picks them up.

0
0
0.000
avatar

I thought I typed this reply but seems missing, here goes again:

Bridges will never sell above 1.01, of course. Emptying one side while selling for 1.01 is the best they can hope for.

I think there are times when Beeswap makes sense at 1.02. It is way faster than Hive Engine deposit/withdrawal methods.

Posted Using LeoFinance Beta

0
0
0.000
avatar

Sure, there are. OTOH, there is not much point in discussing those times. Once in a blue moon you can get a huge arbitrage opportunity you need to rush. In (current) practice, they can happen when BeeSwap has been empty for a while. And I do not think this is worth a "fix" as I would rather sell off one side for 1.01010101 (we have nitpick mode on) than miss out maxing in the hope for hitting 1.02 occasionally. Also, if the opportunity is so sweet, the bridge is not going to be fast enough anyway.

0
0
0.000
avatar

Thanks for taking the time to share this on LeoFinance.

Looking forward to hopefully reading more of your thoughts here :)

Posted Using LeoFinance Beta

0
0
0.000
avatar

This is the best post I read in a long time!
How on Earth did you get to negative reputation??? Someone like you should have 70+ reputation. I'm definitely sticking around for more :)
!PIZZA !LUV

Posted Using LeoFinance Beta

0
0
0.000
avatar

Thanks.
I guess the question is rhetorical as you can easily research the profile.

0
0
0.000
avatar

Hmm, the post has some personal POVs of jelly in my opinion, some may like that, some not, but there is nothing more.
Maybe there are some good reasons for the bad reputation of the jelly13-guy??
You can check the true history -thats one great thing on the blockchain thing- if you want.
Could it be due to the acting and insultings of the jelly13-account to a lot of other accounts and could it be due his formaly, self-proclaimed personal downvote crusade with a personal backlist without any real reasons or discussions, and mainly aimed to some in german postings accounts?
Could it be due to his stupid accusations to the "most toxic germans" (he called the austrians, germans and the the people from switzerland like that, the people form D-A-CH) and other of his stupid conspiracy-theories about cycle-jerk etc. in D-A-CH, which is by the wy a quite different community of hivians.
He wanted to made a social experiment-as he told- with the "germans", but as a MD i can tell you, that you have to ask people first if you want them to be part of a social experiment or study.
Jelly was asked a lot of times, that downvotes against him will stopp instantly, if he stopps his stupid crusade, and after he stopped his crusade you will not find any downvotes against him-as far as i can see.
You should hear always both parts of the story, when you say, jelly should have + 70 reputation, his reputation is there, where it now belongs to in my part of view, but he is free to improve this.
Not everyone who flirts with his negative reputaton ist a poor, poor victim. Best regards.

0
0
0.000
avatar

whats reputation and why is yours so low that it hides your content ?

0
0
0.000
avatar

Great question.

it hides your content

Reputation does not hide any content. The owner of the frontend you are currently using does.

whats reputation

Reputation is a number (usually displayed next to your username - 55 for you atm) that reflects how many upvotes/downvotes you got historically. It has little to do with what people think of you because that is often separated from the voting process.

yours so low

"Low" is not the correct way to understand it. Low Reputation is anything around 25 (the initial value). That means noone knows you yet. The further away you get from 25, the more recognition you have - people experienced the urge to vote on your posts.
The recognition can be positive (above 25) or negative (below 25 and into negative numbers).

why is yours so

Reputation is stake-based. A huge account decided I am worthy. You can either click my username and explore my posts and their walls of text full of Kremlin-based writing techniques. Or save some time and wait till they drop one here as well.

0
0
0.000