Improving liquidity is key to an economy

I started this game 2 weeks ago, so my opinion may be lacking in late game knowledge, but I feel it’s still valid from a new player point of view. For a game that has been running for a year and a half, I was expecting liquid markets for low tier products where a new player can simply plop in and integrate easily, but in reality CX liquidity is horrible. The spreads are huge, most markets are illiquid and it makes it very hard for a new player to get a feel of what is worth how much. DW shouldn’t have a 10-15% spread with such low volume in a healthy economy since it’s required in all recipes indirectly. Large spreads means an economic with high friction and high friction means an economy where trade doesn’t happen efficiently. It leads to fully integrated private production chains with trading being done as item swaps instead of through money.

The 2 main reasons I see why is because market making is a time consuming activity and money is essentially worthless in the production chain.

About market making, it needs to be compared to producing stuff in terms of ROI. You need to reserve goods and money to this task, so you should expect similar returns. Volume plays a huge part here, but also how easily it is to set orders. Since it’s all manual, you need to be consistently online to monitor your orders and replace them manually. That leads to larger spreads, which leads to low volume, which leads to less invested capital, which leads to larger spreads. It’s a negative feedback loop.

An automated market making feature would really help here. Something like the various AMM protocols out there. For example, I give it 1000 DW and 50K with a 25 - 100 price range. This AMM will place laddered orders in a way that will leave me with 100% cash if spot is over 100 and 100% DW if spot is below 25. Since it’s automated, this profits while offline and ROI necessarily increases, which increases volume, invested capital and liquidity. It’s a positive feedback loop.

The other reason is money is worthless. If I’m selling something in a CX, it’s because I want to trade for something else right away. Other than tax, there’s no use for money and that tax is already very low. Due to high trade friction, the best plan is to have a fully integrated production chain up to whatever you wish to produce. For example, selling ADR to the MM or producing more construction materials to expand. You could outsource parts of it, but that’s going to happen privately because of high market friction. The only value money has is to buy from the MM and that’s where the economy will end up when consumables are fully outsourced to the MM.

What I propose is to change workforce consumption to wages and get rid of CX MM. The way this would work is you could set either a wage or a desired efficiency. Consumables would be held in a planetary NPC liquidity provider account and use a simple AMM protocol, like a*b=k. When you pay wages for a production cycle, you will be buying required consumables to give you the desired efficiency. This liquidity provider will not sell these consumables directly and will only buy them. This is open to all players since it’s a planetary entity. This means anyone can bring in consumables if the price is right and it creates a stable local price for a lot of final goods.

What this does is it breaks up private production chains by adding an implicit public trade step. Instead of planning your chain as needing X amount of various consumables, you will be planning it as needing X cash. This immediately gives a production price to whatever you’re doing, which is a good thing for new players. It also means you need a steady flow of money, which means you need to start selling stuff, which is going to intice players to seek out trading at every step of the chain, helping with liquidity and volume at the CX. Since it adds an implicit public trade step, this improves all aspects that come with higher trading volume. You could completely abstract away the consumable part of your chain across sectors without needing to coordinate with dozens of players and that’s a good thing to keep complexity down.

Another aspect is it creates independent liquid markets on every planet for consumables. These liquid markets end up arbitraged on CX and that improves liquidity at the CX. I would expect players to setup local consumable production and deliver to nearby planets with the occasional trip to the CX for import/export. That probably already happens through LM, but this is private trading and doesn’t help liquidity. With this, anyone can setup in a sector and this should help colonization due to lessened coordination requirements.

For players who want to fully integrate, this doesn’t change anything. They can still bring in their consumables and sell them to the planet as they consume them. It leaves them with a price-neutral setup.

By removing CX MM, money needs to come from somewhere and these planetary entities are perfect for this. All these trades are perfect opportunities to create and destroy money. I would suggest basing the desired global monetary pool to be in relationship with global population size. Higher level population would generate more money. This means players are encouraged to increase and tier up their faction’s population because that’s where the money comes from. It would tie in better with the concept of colonizing the entire galaxy.

Another reason for this is currencies will now decouple from each other. Since there isn’t a constant bid order generating infinite money in all CX, currencies are now free to decouple from each other. Currencies will be worth how much labor efficiency they can purchase which should be interesting to see develop.

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As I started playing the game 6 month ago I also noticed that CX is rather illiquid as you say. Much less liquid than in EVE Online for instance. There are several reasons for that. One is that the player base of Prosperous Universe is rather small. This does not help liquidity. The other reason, in my opinion, is that most of the trade goes through local markets, including the exchanges for such basic goods as RAT and DW, and one does not even see it on the CX. When I started I mostly relied on the CX. Now I mostly trade through local markets. On top of that, I mostly trade with the people that are in the same corporation (sort of clan) as myself, and we trade according to the internal corporation prices, which are very different from those on the CX. So our corporation has an internal circuit of liquidity, and new cash is injected in this circuit because either we sell to the LM or CX some expensive goods in high demand, like BHP or limestone, or because we sell ships in kits for several millions of credits. Every corp member has a rather vertically integrated setup across several planets, and there is also in-corp cross-member vertical integration. And our corp is not the only one to do that. This is standard in this game.

Now, that being said, is it a problem for the gameplay? It depends for whom. A new player with perhaps only a trial license would certainly prefer a more liquid CX. More established player with a PRO license and perhaps members of a corporation (as myself) mostly don’t care about the CX. Most of the trade is done through LM. And even if we need some rare goods that our corp does not produce, and that are not sold or perhaps too expensive on the CX, we simply reach out the producers of these goods through chat or Discord, make deals with them and exchange through LM.

It would be indeed interesting and more realistic to pay wages to the workforce instead of providing consumables. Then the workers would spend themselves in an automatic way this cash to buy consumables locally from companies who would sell it to them. However, this is much more difficult to implement for the game devs, and is not (and should not be imo) their priority.

Regarding the MMs, indeed these anchor the different currecies and therefore the exchange rates are almost one to one. On the other hand, the MM prevent deflation or hyperinflation and the shortages of basic goods. Without the MMs for instance, there would have been a shortage of basic contruction prefabs after the release on Steam (many new players). Simply the existing production was not able to keep with the demand that has suddenly increased. Not being able to buy at all construction prefabs would have been very frustrating for new players. So overall, I believe that removing MMs is a very bad idea. Perhaps one could make the MM prices dynamic, depending on the amounts sold to and bought from the MM, so as to unanchor the exchange rates for different currencies. But again, implementing such mechanics would be a lot of work for the devs.

To give you an idea how big the local market is, yesterday I bought 6 000 slower than light fuel (SF) on the LM on Phobos, for a much lower price than on the CX. I simply took this oppurtunity. 6 000 SF is 4 full ship tanks. In comparison, the total amount of SF exhanged on Antares I CX is about 10 000 units per day.

Here I disagree with you. Money is still worth and practical in this game for the exchanges. Just the exchanges on the CX are a fraction of total exchanges, the other one is on the LM.

The spread is 10, 15, 20% for several reasons.

  1. The time-cost of getting orders filled. Many people want transactions executed instantly and thus aren’t willing to wait for their order to get filled. So any orders which would be “close enough” will just be matched anyway.

  2. It is a pretty illiquid market because it’s a game, and the population isn’t huge. We’re only talking a couple thousand people being active market participants. And only a fraction of those per CX. And not all of them need to buy\sell DW, many produce\consume it internally without any CX trade.

  3. There is no automated MM\LP available frontrunning each other to close the spread to a penny like you see in traditional markets. That is the main mechanism which generates tight spreads in (real) markets.

You’re completely correct here. That would be the end result. But the devs are very against automation in this game. It’s supposed to be a manual process. And now you have got to generate and maintain the code for a MM. Matching engines for trading are not lightweight pieces of code, high throughput is extremely hard to achieve since all transactions MUST be serial. Thus it’s extremely difficult to parallelize. Thankfully there isn’t margin to deal with which is a quadratic scaling problem lol.

I think something you’re missing as a whole on your topic here is logistics. In general, I think you’re assuming perfectly efficient markets, but in reality a huge bottleneck is shipping logistics. It’s getting this specific good to it’s required consumption point. This is why item “X” is cheaper in one region where it’s commonly produced vs. somewhere else. There is a cost, both in time and actual money, to moving items around. Liquidity is not free, transport is not free.

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Time, money, and simply the avaibility of ships. Overall not enough ships for shipping in this universe. Most players have only the two starting ships, and those who only have a trial license (the majority) do not participate to the shipping market.

This is a bit what I meant by trading being done as item swaps instead of money. It’s kind of static and doesn’t create fluid economies because it cannot react to outside forces. Helping your corp members grow equitably is perfectly fine, but by doing so you’re isolating yourself from the greater economy, except for these special cases like you mentioned. It’s the opposite of free markets, but it’s necessary in a high friction economy.

There was a simpler economic game I played about 20 years ago I forgot the name which had solved their economic simulation. You joined a small group of player, picked a role, set your stuff to preset prices and let the game run. If you didn’t follow the rules, then you would get shunned. PU is a bit more complex so it requires a larger coordination effort, but the end result is the same I feel. Prices within a corp can be set because the end product profitability can be calculated and the entire production chain solved to ensure equitable profitability for all members. Remove MM and this can no longer be solved.

Shortage of basic goods is a valid point. With planetary MM, you still get currency control, but not basic goods. Although with an a*b=k MM, they would never really run out of consumables except wages would become insane, which would get arbitraged rather quickly.

I think what happened with Steam release is a symptom of these closed economic loops. If basic construction materials traded through exchanges, then new players would have been easily absorbed by established players’ economic output. It’s why I identified the root problem as the lack of liquidity, because this increased demand was far greater than available liquidity even though the economy is strong enough to easily absorb this new demand. An established player could have easily modified their bases to output hundreds of BSE every day temporarily, but because they are stuck in a corp production chain, they couldn’t.

Money is only worth what it can be redeemed for, which boils down to time. Someone might assign time value into money and make it their goal to have the most, but at the end of the day, it’s whatever MM ask order that it can be redeemed for. If people are willing to undercut the MM, then that’s even better. If you’re into expanding your empire, then all you really care about is how much base elements you can acquire for this time. Ships cost millions because building a ship is time lost producing whatever can be sold to a MM, so you’re compensating for lost time and not really because these millions mean anything.

Right that’s why I suggested implementing automated liquidity providing tools for players. That would increase liquidity providers profitability and improve liquidity. I’m not talking the kind of automated bots that read the order book and adjust accordingly. I’m talking Uniswap’s like AMM.

It’s fairly simple thing to implement in reality. You have this pair of resource-money and whenever a change to it is detected, you replace bid/ask based on the new value. For example using a simple a*b=k, the pool has 1000 DW and 50K and seeks 0.5% fee. That’s a K of 50M. It sets 1 ask for 5% of the pool, which is 50 DW. Removing 50 DW from the pool means cash needs to be 52631.57, which is a difference of 2631.57 for 50 DW for a price of 52.63. We want 0.5% fee however, so that becomes 2644.72 and the ask gets set for 50 DW at 52.89. Whenever a trade happens, the orders are removed and new ones are set. It doesn’t require constant monitoring, just reacting to a fill event.

I can understand the devs are against automation, but this is a case where it’s almost necessary for gameplay purposes.

No I took it into account. I just didn’t get too deeply into it in my post to keep it short. Planetary prices would tend to be equal to the best production cost minus transportation fee, assuming there’s transportation capacity available. Otherwise it would create a premium until players build enough ships to bring this premium down to 0. Planets near CX would tend to have planetary prices almost in lockstep with the CX, whereas further away planets will have greater variance in one product vs another. Regional price differences would also be present, which the sum of the costs required to get base construction materials, consumables and transportation between all the steps.

A H2O poor region would always have higher prices for DW and RAT for example, whereas a FE+LST poor region would have higher prices for extractable resources since that’s all BSE. Food would be lower in agricultural regions while bases would be be lower in metal rich regions, which translates into capital or labor dominant regions. You would be hiring for higher efficiency in a labor region to maximize your structures and for lower efficiency in a capital region, but compensate with more structures.

What do you mean by item swaps? Goods are exchanged against money on the LM. It’s not barter.

Having an efficient free market is not the goal here. The goal is to have fun. It’s a game. Exchanging with corp mates is fun.

No. That’s not the issue. You are wrong here, imo. The issue is that there was a production capability for prefabs before the Steam release. And it takes time increase this output. Then came a huge wave of new players with the release on Steam. Production simply didn’t follow. There is a time lag here. Some people anticipated a wave and increased their production capabilities for B-fabs. But personally I underestimated the size of the wave. So the issue was really the incorrect expectations.

By the way, basic prefabs are still traded on the CX, just not all of it.

Not easily. It’s not easy even for an established player.

Item swap is when you determine that one item is worth X and another is worth Y based on some metric and then agree to trade them at the X/Y ratio with money being used as a very short term trading vehicle. It’s what all games without a use for money devolve into. For example Diablo 2’s Stone of Jordan being used as currency for items.

Let’s say I joined a corporation and wanted to sell DW at a below market price, I would expect the corporation to provide me an equivalent value in another item I needed, say BSE. If the corp rate is 40 per DW and 600 per BSE, then I’m effectively swapping 15 DW for 1 BSE and this trade can happen because there’s a trust relationship at play, not because money has value. No matter what the CX price is, this ratio is always valid and that’s what I would use it for.

We have different ideas of fun then. I would rather be a free agent taking part in this grand economy that feels alive than become a cog in a giant machine.

That circles back to the liquidity issue. If there was greater liquidity, then capital could have been more easily allocated because it would have been available.

I suppose this is another symptom of this selling to MM, because whenever selling to a MM, resources are correspondingly destroyed. If selling to a planetary liquidity provider, then labor efficiency is created and it feed backs into the start of the loop increasing the universe’s productivity. Running MM production chains doesn’t improve the global economy. It simply creates cash which can be redeemed by the MM at a big loss whenever there’s a liquidity crunch. That’s why I mentioned these changes would align player goals with the prosperity of the universe.

If that would have caused problems, then players would have started with capital worth a lot more than their 40K credits. New players could have had a million worth of starting capital producing an equivalent return on investment. They would have had no problem producing for themselves after a short while and prices would have stabilized a bit higher, but would have fell down rapidly. Remember that money is meaningless and the real productivity metric is capital+labor+transport producing more capital/labor/transport. New players start with all 3 in fixed quantities so their output is unchanged.

I think there are many things you don’t understand about this game. I can produce 24+ BSE per day. That’s a lot. If I would be asked to increase this output to 28 BSE per day, my answer would be NO. Why not? It would only require one additional Prefab plant. I can easily afford this additional prefab plant, and the consumables for the workers there. That’s not the issue. The issue is that my base where I produce the construction prefabs is full. I reached the area limit and cannot add more buildings there.

One option would be to tear down some other buildings, like chemical plants, and replace them by prefab plants. Perhaps this would be even profitable. But I won’t do that. One reason is that it would require me some analysis to compare the profitabilities, which takes real life time and I don’t want to spend it on that. The other reason is that this will mess my vertically integrated setup, and I would need to buy the products of my chemical plants on the market. That may not be a problem for the profitability. But I have a psychological attachment to my vertically integrated setup. And vertical integration saves real life time. No need to care about buying some goods on the market. No need to care about shipping them. It reduces the number the tasks one has to perform in game.

Another option would be to start producing the prefabs on other planets. But then it would be less efficient. I wouldn’t get the COGC bonus. I would need to ship the bulky limestone. Also my other bases are dedicated to other purposes, in a vertically integrated spirit. Perhaps it would still be profitable to switch to prefabs there, but certainly less fun for me.

Understand that most players in the game do not exactly try to maximize their profits. They do this only up to some extent. There are other considerations too. One consideration is the fun. There is a part of roleplaying in this. People might prefer producing steel rather than basic rations simply because they prefer roleplaying a heavy industrialist/metallurgist rather than a farmer. The other consideration is the time one has to spend menaging the in-game business. People might prefer a less profitable set up (generates less in-game credits) if it requires less clicking and less time spent in game.

So if we return to the construction prefabs, I cannot at this stage easily increase my output for these. And liquidity is completely irrelevant here. Because in theory I could increase this output. But this would require to change my setup on other planets, tear down some buildings, change my logistic chains, which I simply don’t want to do, even if it would be more profitable.

You mentioned high friction economy. Well, in Prosperous Universe there are at least two kind of frictions. One is the hard limits in the game, like the maximal area per base. An other friction is the psychology of the players.

The game is not and should not be a simulator of a pefect market. It’s more about complex production and logistic chains. That’s where is the fun and why most people play it. In my case, there is a special fun to be part of a corporation that produces ships, which is the most complex thing to do in this game for now. I like the roleplay part of it, and I like the social interactions with my corp mates.

Yes, certainly. Fun is subjective. I like the idea of shipbuilding. I cannot do it solo because it’s too complex. But I like being member of a corp that does it and I like contributing something to the whole process. Being a free agent in a free market is really not the reason why I play Prosperous Universe.

Vertical integration like your setup is the only option due to market frictions. If the game allowed horizontal integration, then that whole shortage issue wouldn’t have happened.

You have maximized the base size limits in your setup, so obviously you have no manoevring room. Rigidity is the drawback of vertical integration along with vulnerability to final product market. Since final product price is guaranteed by MM, that last one isn’t a risk anymore.

In a low friction economy, switching from one product line to the other would be easy because there would be high liquidity in both inputs and outputs. On Moria, each PP1 producing BSE would consume about 0.5% of daily volume. That’s why quick adaptation to market changes is impossible. If volume was 20-50 times higher, you could refit a whole base instantly and barely affect spot price. That doesn’t mean vertical integration wouldn’t work, but it wouldn’t be the only option anymore.

I understand that players and devs may not want to change this and that’s perfectly fine. I’m simply giving feedback about my experiences in the game along with different mechanics that achieve similar macro results with different game flow. They’re free to do whatever they want with it based on their vision, which I simply don’t know. I clearly don’t have any power over this game’s design and do not claim to speak for the entire player base, as you seem perfectly fine with the current implementation.

I don’t have much to add here other than be careful with AMM in such illiquid markets. It works fine on crypto because there are billions of real dollars at stake and parties are highly motivated to keep things in line. And because it’s “too big” for any one party to maliciously manipulate.

Not the case in the game. Many items to maliciously out of stock, where there is nobody offering any at all. What is the price then? And how do you implement smoothing\averaging to balance out these illiquid markets? How do you solve the liquidity issue? AMM’s work because people are willing to front coins to gain yield, that’s where the fees go. But how do you provide that in a commodity driven market? How can you get “yield” on BSE? Do you just get paid bonus fees for any items you list by just having them in the pool?

There is a certain threshold where AMM’s become viable. IMO that is somewhere around the liquidity\orderflow of PLEX in Eve Online. But PRUN’s markets are too small and too illiquid. One person could shove up a bid for double the existing buy orders and hugely inflate the price which other people might not have been willing to pay.

Yield would tend toward opportunity cost. It’s proportional to volume divided by liquidity.

In the case of BSE, you have 2 choices when acquiring one. Either you sell it to someone else that will see a better return than the price you’re selling it for or you put it to use yourself by converting it into another commodity. To acquire one, you have the same 2 choices. Either you buy it or you convert other commodities into one.

By providing BSE liquidity, you’re taking 2 positions at once where you sell it over what you think it’s worth and buy under it. The risk is in being short volatility if markets move in a particular direction and opportunity cost. That risk is compensated by the spread and has economic value because it reduces friction and gives other players more stability.

AMM make this process simpler by being passive about external events and being always on, which is what we need in an online game. I’m not sure why you say they require high volume because they were created to fix the liquidity issue of thinly traded coins.

Some good points made in this thread.

Bear in mind that the devs have actually tried to remove or alter the MM prices in the past, and there was an uproar from players at the time. So it seems that this is already a direction that the devs want to go in - you don’t need to convince them of the benefits of removing the MMs.

The main concern with having markets be too liquid is that if margins are driven down to almost nothing by the veteran players using economies of scale, it makes it difficult for new players to start, since their relative costs are higher. With MMs in place, and the fixed recipes, it guarantees that most operations are profitable, so anyone can join and grow their company. Any proposal to change this situation would have to include a mechanism for new players to have some advantages, so that they aren’t facing an uphill struggle from the outset. This is a game, after all.

Good to know, thanks. It’s normal that a meta builds up over time and any core change would be opposed, but I figure with resets it might happen.

New players have an advantage because bases are limited by HQ level. As players acquire capital, they reach a limit of how much of it can be deployed at once. Yield per area becomes the main decision metric rather than yield per building material. It should be more profitable for a rich player to produce higher level items than lower level ones even if the margin is lower because they can put more capital in use. This increases yield of lower level chains.

It’s also why I proposed planetary liquidity. A farm would always be profitable because they can sell their products without transportation. High level players will want higher efficiencies to optimize capital per area and will be willing to overpay for PIO labor. If marginal benefits is applied to efficiency formula, then a new player can run at 60% efficiency while paying 25-35% labor costs and turn a guaranteed profit. Rich players will be fighting for luxury goods since that’s where revenue per area is highest.

I don’t think this translates to an advantage for new players. Even if an advanced player’s emphasis may shift to optimizing something else, they still have an advantage of economy of scale over a beginning player. I didn’t start sending full ships of my own products until I was several months into the game, so I was paying more in fuel costs per unit sold than someone already at that stage.

Did the devs want to replace the MMs by some other system? Simply removing the MM for basic goods is a terrible idea imo. If it’s removed, it should be replaced by something else, to prevent the prices of basic goods (RAT, DW, OVE, MCG, Bfabs) to rise too high and make the game unplayable for newer players. Also to prevent the prices of carbon, ores, gases, minerals and basic agricultural products to drop too low. Because the latter can be easily “farmed” by new players which guarantees them at least a minimal income.

The main issue with the MM is that it anchors the exchange rates for different currencies (AIC, NCC, etc.), which makes having different currencies pointless.