Nubits are created from nothing but are traded from the Custodian for something of value which at the time equates to 1 usd for every 1 nbt. From this moment, the net worth of the Nu economy is $0. Every 1 nbt is a liability and every 1 usd is an asset. Now, I imagine that most of the trades will be in some sort of cryptocurrency and we know that cryptocurrencies can be extremely volatile. If right from the start, the coin exchanged for the nubits (say bitcoin) decrease in price, the Nu economy would be technically insolvent, as the assets are worth less than the total liabilities. I thought I read that Custodians could bring in their own money as a ‘buy wall’ or an asset but this would mean nothing, as the Custodian would expect it back in one way or another and it would become a liability.
At the point where the first trade happened, the Nu economy is 0% leveraged. A single percent decrease in asset value would make Nu insolvent. The Federal reserve (on its books anyway) isn’t even this bad, it is leveraged at 50:1 which means a 2% loss in asset value is possible before it becomes insolvent and the money it ‘prints’ is backed by the government (with guns and stuff).
After reading a one of the Custodian’s proposals, I was quite shocked actually about what was being proposed. Right from the start when the Nu economy was leveraged at 0%, the proposal was to put 90% of the sale of nubits back into a buy wall and distribute the other 10% as dividends. The purchased nubits would then go to the sell wall and the same process would happen, eventually removing 10% of each sale of nubits until the amount of assets (cryptocoins) able to be put back on the buy wall is less than a certain amount, then they would all be distributed as dividends.
At this point, if only this Custodian was active (which if all Custodians were following the same principle, the outcome eventually would be the same) there would be $x amount of nubits distributed (in the economy), with $x worth of assets distributed (as dividends), leaving $-x capital! Well, $-x + total fees destroyed (lets say, max x/10). Therefore : $-x + x/10. If demand dropped from here, there would be no logical reason why there would be a buy wall, as the whole economy is completely insolvent! (if the argument that future Custodians will come in with more capital and hold the buy wall but follow the same principle as above, I think it makes Nu, technically, by definition, a ponzi scheme)
If dividends are produced any other way, that’s great but it doesn’t address this core issue here
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I can see a solution to this though:
I propose that the Nu economy will only ever distribute dividends, if the total (from all Custodians) net worth of Nu is at a ratio of 5:1. This means, that all of the assets can decrease in value by at most 20% and Nu will still be solvent. When the net worth is above this ratio, all excess assets can be liquidated into peercoins and distributed to the shareholders. When it is below this ratio, it is expected that the assets are decreasing in price(very possible). Because of their likelihood of doing so, no dividends should be paid until the ratio is met (most likely if the assets increase in price again). If demand decreases, the entire nubits in circulation should be able to be purchased back. This is what will create confidence in nubits.
Since the Nu economy isn’t backed by the Government or any force, the confidence and psychology of the consumer should be seriously considered and taken into account when expecting nubits to hold its pegged value.
I think that if cryptocurrencies (or commodities) are to be successful, then they will most definitely always be increasing in price over the long term due to adoption and usd inflation (since we follow the keynesian economic theory and the US double export policy, deflation (through reduction of money supply) is very unlikely). It is by this logic, that the dividends paid to the shareholders will be equal to the increase in price of all of the assets used to purchase the nubits, or the assets used to store the value as collateral. This would achieve exactly what I think nubits was designed to achieve and channel the value of cryptocurrencies into peercoins and the value of nubits into nushares.
Now, Custodians will only want to be Custodians for a specific period of time or may need to leave the position for whatever reason. This creates a problem with the current control of the assets the Custodian was in control of and is now part of the Nu net worth. I would suggest a multisig control of these assets and distributed to future Custodians through the same method as the Nubits.
After some discussion, it appear that the current framework of Nu allows for this to happen, as assets can’t be assigned back to the Nu system. A solution to this would be multi-signature application on all assets that allow Custodians to come and go. A consensus would then have to be made by the Custodians to release any funds, because this would have to be done in high frequency, some automated scripts would need to do the release approvals.
This brings me to another point that I posted about earlier. That Custodians are actually human. Excluding the control of USD’s, I can’t see why all Custodians can’t be trading bots that act autonomously on a Decentralized Exchange. This removes so many implications of having humans that we must trust on top of the nushareholders (including less fees, errors, security, trust and friction). Then the nushareholders can actually make decisions directly, without trusting a 3rd party.
Another point was the importance of the return of dividends to nushareholders to continue to give them incentive to cast their votes and make rational decisions. I believe that nubits should be of utmost importance and the peg should be kept at all costs. This might mean no dividends for months. But what this would also mean, that when any of the assets increase in price (due to their deflationary properties, they should most definitely over time) and as fees are destroyed and arbitrage trading by the bots turn extremely small but extremely frequent profits, more dividends will be paid. The success of nubits will also in turn increase the value of nushares AND its deflationary properties will increase its price. Nushareholders should accept this and be understanding that reward will come with patience.
Without this capital and large leverage ratio, other ‘coins’ will ridicule and critique the hell out of Nu, severely hindering adoption and success through simple logical FUD.
Ps. Big supporter and can’t wait to be able to buy some nushares! Dissapointed that they aren’t publicly for sale right now. 
I know Nu is in early stages, has lots of potential and will continue to grow. Also it’d be cool to have a development map of current and future plans like this-
http://www.nxttechnologytree.com/
Edit: I guess what I’m essentially suggesting is that if Nu was to fail, the risk is transferred from nubits to the nushareholders. This makes that nushares the speculative investment and the nubit holders know that nushares will approach 0 before the peg breaks. As while there is assets being held by the nushareholders, there is still liquidity for nubits.
Regards,
Lovely.