I will be writing quite a bit more about the idea of destroying currency for NuShares soon.
Briefly, this idea is very intriguing because it provides a better separation of the speculative asset (NuShares) and the sure thing (NuBits). It lowers the risk of holding NuBits by raising the risk of holding NuShares. Creating a safer product may benefit the value of NuShares. This creates a number of problems that will require solutions. I will detail these soon.
Burning currency for NSR is something we should discuss more with the aim of crafting a motion on the matter.
If you don’t have a way to reduce the volume of NBT you might sooner or later end up in a situation where a lot of NBT are in circulation, but no USD are available to buy each and every of those back.
This can be prohibited by feasible ways to generate revenue in the Nu ecosystem to back each NBT with 1 USD.
But those revenue models need to be developed. Destroying tx fees alone is not sufficient (until there are way more tx executed or the tx fees are adjusted).
Meanwhile you can use NBT burning to adjust the NBT to USD ratio.
Without ways to adjust this ratio there will be a level from which on the trust in the NBT system will fail and a bank-run will cause the end of NuBits. If you can level the ratio between pocketed USD and emitted NBT out by removing NBT from the game, that will resovle this problem.
Just like Jordan summed it up by saying
it shifts the risk to those who are resposible for sustaining a sound framework and away from those who only want to use a currency.
As it should be. It’s my firm belief that those that use a token as a currency—and not as an investment—should always be afforded the least amount of risk possible within a system.
And the more and powerful tools are developed to control (especially decrease!) the amount of NBT
…the easier it will become to defend against Ponzi scheme allegations
…the better base for adoption will be created
…the easier it will become to enjoy people’s confidence
…the better the projection for the whole Nu will become
Controlling (decreasing!) the amount of NBT by “paying with NSR” (in one way or the other) is the key to really make NSR the speculative asset and NBT the sure thing.
So my understanding is that in case there is not enough demand for NBTs, parking will remove the sufficient corresponding amount of NBTs from circulation in order to get the exact right equilibrium between demand and supply (to get 1nbt=1usd)
When unparking is triggered, there will be interests paid out to shareholders, which would increase supply.
There is an issue to that when demand has not picked back up meanwhile (during parking), which would trigger another wave of parked nubits, implying even more supply at unparking…
In this scenario, basically the lack of demand (or the oversupply) gets worse and worse, triggering a vicious circle ending up with the destruction of Nubit’s value.
This is what Chronos alluded to.
Sorry if I repeat something that has already been described but I am trying to understand myself.
So the parking mechanism is not enough to guarantee in any circumstance the prosperity of the network.
There is a need for a mechanism that destroys Nubits.
Destroying tx fees would not be enough since the fees are too low.
That is why “shapeshifting” Nubits into Nushares has been proposed.
I am amazed by the actual openness of the dev team to implement any changes that improve the network and by the high level of flexibility of the design to adapt to new findings, even 1w after launch.
This is something we have not seen with traditional asset cryptos such as bitcoin or litecoin…
The dev team seems to be clever enough to understand that they might be able to create something you can start with, a good base for further evelopment, but that they are not able to create a soution that is final and perfect from the start.
The dev team is also aware of the consequences decisions might have for the NuShares holders.
The start has been made.
Now there are discussions going on about how to improve the system. And I appreciate the constructive way of discussing ideas so far.
The voting mechanism grants the right to finally decide which way to go to those who are accountable for the chosen way.
That is as close to my understanding of democracy as it can be in such an environment.
I really love this concept as it has integrated the voting for those who have something at stake right from the start.
Something Nu has just begun…
For a day or two, I was worried that the Nu development team might be demoralised by the dissection of their work. But everyone is being transparent and constructive, and we are all pulling forward together. I think it’s great
I sincerely hope that the Nu development team is not demoralized.
I’m almost sure that they are not demoralized, but rather encouraged, because the dissection in this forum was done to enhance that great Nu framework it already is.
Just like you already said: everyone is being transparent and constructive.That’s the style I already got to know and love in the Peercoin community.
Regardless of which way shareholders might vote, we should try to develop the best possible proposal in the first instance. Otherwise, we may compromise the solution by second-guessing the response.
I have an alternate proposal for burning of NuBits that could be more effective.
Resistance for the peg is currently provided through NuShares holders creating an arbitrarily large supply of new NuBits, selling those in market, and retaining a profit on these sales. What is required to ensure support of the peg is a mechanism that also allows the burning of an arbitrarily large amount of NuBits. I propose a symmetric mechanism to the creation as follows.
Out of the profits of NuBit creation, a large reserve of funds is kept for the purpose of buying NuBits on market and burning them. The size of this reserve, and its application, can be voted on by shareholders in the same way that new allocations are currently made to custodians. The size of the reserve could also be transparent to the market, increasing confidence in the peg, and reducing the chance of its depletion.
The key advantage of this approach is that it is as large as required, subject to the reserve. Also it places the onus back on the shareholders, who have been beneficiaries of creating the original excess supply.
In principle, I think the reserve should sit in fiat USD, so that the reserve is not subject to volatility, and as a potentially big bonus the market would see this as true financial backing for the peg.
Such a mechanism would replace parking of NBT for interest. Parking would no longer serve any function, and in fact would merely counteract this mechanism. (Down the track there may be a place for a lending and borrowing market in NBT, where lenders could earn interest from borrowers with no change to NBT supply.)
The main disadvantage I see (with all these approaches in fact) is that NuShares starts to feel more and more like a central bank.
@Jonza One of the challenges to any reserve account is centralized trust. What if the n holders refuse to burn the NBT, and run off with the money, instead? What if they claim it was stolen? We want to minimize the need for trust in a decentralized system, as much as possible.
I assume there is a mechanism in place right now to prevent Kiara Tamm from doing the same thing with money raised from NBT sales is there not? How was that dealt with?
Perhaps the n holders could be diversified enough such that collusion is nearly impossible? Perhaps the n holders could be Nu shareholders or trusted representatives of them that can be voted out at any time? I agree the idea is to not have to rely on trust, but I imagine the solutions to deal with this are already out there, though I’m not an expert here.
Given the problem already exists for custodians, and is relied upon at the moment for buy-side liquidity also, people here or the devs should probably think of a way to deal with this type of important issue. Then maybe that solution makes the idea of a reserve worth considering.
My major concern is less about the human element (such as a custodian), and more about what the assets can be stored in that won’t lose value over the time that they needs to stay in storage.
It’s not possible to store it in NBT, because that’s what it is intended to back-stop (should it be needed). BTC or another crypto are too volatile to make it worth while. USD or another fiat is possible, but storage becomes a major headache unless the network was able to come to an agreement with a semi-autonomous bank in a region of the World that was mostly stable.
I’m open to listening to all sorts of ideas, so if I’m missing an obvious storage mechanism, I’m all ears.
