100% USD Reserves Offers Zero Benefit In terms of peg stability


#41

I’ll give up NBT as hedge if reserve ratio is low, after all, somebody agrees to let pegging broken! I’ll never risk on it, it’s my money in real world, not game in virtual world.

The custodians providing liquidity will be rewarded extra NSR, just like they get extra NSR benefit from minting/transaction confirmation. Very simple and effective.


#42

At least, do you think that we have to adopt the NBT/NSR leverage as a goal to keep ?
Lets end this conversation with a minimum agreement :smile:


#43

What’s NSR/NBT leverage? Could you explain it?


#44

Its the idea that the system will only be secure and stable as long as the NBT market cap doesn’t exceed the NSR market cap.

Nu will try to keep a voted ratio between NBT/NSR total values, as an additional critical goal beside the price peg, so Shareholders will keep track of this ratio and control the supply with whatever mechanism they have to sustain the targeted ratio.


#45

I like the direction and guess the free market also likes this. But the NSR/NBT cap ratio is determined by free market not us when NBT demands is abnormal high or NSR price supressed by vicious people.


#46

If the understanding of people is touched by the impression that the underlying guarantee for the value of NBT can be found in the total value of NSR, free market will allow only that many NBT to be in circulation that can be backed by a certain ratio of NSR.
But I wouldn’t dare to say what ratio that is - it might be above 1, it might be below.
I don’t think that there needs to be less total value in NBT than total value in NSR.
After all NBT can remain a fractional reserve currency where the fraction would be the ratio between NSR and NBT.
At least my understanding is that this leverage can’t be dictated, but will form as a result of the trust in Nu. The leverage is more an indicator for the health of Nu than a number that should be targeted.


#47

I like the idea of having a Nu health indicator. I don’t like the indicator to be the parking interest rate because it lags behind (the shareholders have to see the problem, which takes time, then react through voting, which also takes time) and parking creates unbacked nubits which makes the indicator difficult to interpret. For example I have little idea how much they should be now, and adjust them accoording to what criteria.

I think the marketcap ratio between nubits in circulation (i.e. out in the wild) and nushares is a good indicator. The ratio of unbacked nubits and nubits in circulation is also good to know.


#48

I decided to see if I could follow the logic of the model, to determine if it supports the claims and conclusions presented in the Discussion. I was unable to do this. I ran into a number of conceptual and mathematical problems, got bogged down, and gave up. Here’s a sampling of my difficulties:

  • p_t is initially defined as K_t/K_(t-1), which is the price of shareholders’ intangible assets at t=0 divided by the price of shareholders’ intangible assets at the previous time step (t-1). Examples of intangible assets are copyrights, patents, brand recognition, and company goodwill. What are the intangible assets in Nu? How are they valued? Or are the intangible assets assumed to be the market cap of NSR themselves? Then in Assumption 2), the model sets this same variable p_t as the claim on intangible assets divided by the claim on tangible assets. What reasoning justifies this equality? And how does this help us understand Eq (2), which was already stated explicitly in the definitions of state variables?

  • Equation (3) for the price of Nubits theta_t is dimensionally incorrect. In the paragraph preceding this equation, tau_t and rho_t are clearly stated as dollar values and the numerator w_t is a number.

  • Equation (4) is the sum of shareholder assets at time t+1. These are the USD reserve [R_(t+1) = R_t - rho_t] plus the intangible assets, presumably NSR. The latter is K_(t+1) = p_(t+1)K_t. To account for NBT repurchases through the sale of NSR, one would expect to subtract tau_t, but this appears as K_t - tau_t inside the parenthesees of Eq (4). I did not see anything accounting for NBT held by shareholders.

Further, I didn’t see anything describing the role of liquidity provider custodians who contribute their own at-risk capital to maintain the peg, i.e. independent funds that are not owned by shareholders.


#49

@masterOfDisaster I also think that inflation (created by fractional reserve) is not bad per, it is only uncontrolled inflation that is.


#50

@mhps How do you define being unbacked?


#51

glad to read all these opposite opinions, they are opinions? right? not facts. i don’t undertand half of what you are writting people!
but i understand this: trust and only trust is the key asset that drives the fiat economy for all these decades. so my question is, are we going to use that trust asset also to NU economy, or are we going to use a more trustless model? can NU becomes 100% trustless today or in the near future?


#52

I was thinking the unbacked nubits include

  • those that have entered or free to enter circulation without being sold for USD at $1 (e.g. rewards and parking interest)
  • plus dividends distributed to shareholders,
  • minus trasaction fee,
  • minus the ones permanently lost for any reason.
    I guess the ratio is about 10% ?

#53

of course no one likes to see their savings and income shrinks. instead, everyone would like to drink their coffee without
doing anything and just see their savings increase due to interest. But at the end it seems that this interest is coming from thin air!


#54

When you do nothing, you get nothing, neither should your money get deflated nor inflated. This is fair.


#55

Your savings in the bank becomes capital that enables some borrower to do his business which he otherwise couldn’t. After he made money your bank get investment profit and you get risk-free interest. Investment has risk and needs diligence and above all, work. So in an ideal free market capitalism world your interest is not printed out of thin air.


#56

i wonder, fair to whom? if i borrow 1 btc without interest, i can keep it without doing anything and then give it back, no harm done. also no work,no development, no nothing. there has to be a mechanism to force me do something with it, and that is interest. perhaps there could be other mechanisms more fair? (again, fair to whom?)


#57

In such a scenario the interest rate is compensation for the risk of not getting the lended money back.
I agree that this sounds unfair, because it helps those with money to hoard more and more by lending it to borrowers and receiving an interest rate for that.
But the assumption that they do nothing for that is flawed; they need to risk their money for that gain!

From a radical point of view you could argue that this gain is only possible, because wealth is spread so unevenly. There are people who have money and can “afford” to lend it for an interest rate. You could further say that interest rates for loans are like “mico slavery”, because that interest is taken from workers who have no chance but to work and that interest rate is taken from their work without compensation, making them “part time slaves”.

But this discussion should be continued in the “social” section. We might need to have one created if there is not already such a category.

I’d really like to continue a discussion on that topic, because I think that this is an area where Nu can help a lot. Nu might not be able to solve the problem of uneven wealth distribution (albeit can ease some of its effects).
It can be able to reduce the minimum interest rate for loans (making it cheaper for those who need money), because loaning with Nu eliminates lots of participants in the loan business that normally take their share (decreasing the rate of "part time slavery).
With Nu cheaper loans (than in traditional loan busoness) are basically possible. This business needs to be developed, though…
…loan business with Nu can be good for people - for hose who need money and for those who own NuShares :wink:

You might forgive the polarizing words I chose in this post; I really like to stimulate a discussion :wink:
If you find it hard to forgive me that: Merry Christmas!


#58

Personally i am against any interest based on just lending money, as it is actually risk-free, usually every loan is guaranteed with some kind of asset.
Still Crypto-Economy has the potential to facilitate investments in much efficient way, i mean Nu is a living proof, the main difference here is the participation in both profits and loses, then investor will be rewarded not for being rich but rather for being smart and cautious, and most of all for providing some real economical value by supporting some useful activity.


#59

I have read the paper.

Very interesting.

Tks a lot @Benjamin

Which makes me wonder about the following.

  • If revenues of Nu are the sales of NBTs and transactions fees (I am not keen on negative interest rates since it would be a break to NBT’s adoption by users, I believe, although the ECB has started to implement that on the EURO!) and other sources, what are the costs of Nu?

Nu is a decentralized company whose goal is to make profits for the shareholders, besides all the philosophical goals implied.


#60

This paper assumes shareholders are lawless bunch of scambag-if-given-a-chance’s. Interestingly the author calls them “rational”. Well the reality I perceive is that it is better to assume there WILL be laws and regulations against shareholders if no bona fide good effort has been made to make Nu a legit business. Those users who see their Nubits turning to $0 WILL feel entitled to use all methods, Including legal AND illegal ones, to get their money back from anyone the users can get hold of (custodians, known shareholders, and the devs are first in line). The shareholders cannot get aways with saying “Oh sorry, but we just decided to let the peg fail.”, or withholding the USD reserve seeing that the peg is failing, which is basically why the author claims even a 100% reserve wouldn’t work. If the shareholders could get away with it, the public and competitors would see this from 20 miles away and Nu would never take off more than an average altcoin. The rational shareholders, facing the reality, for the sake of their investment, their reputation, and their peace of mind, would try hard to make Nu a profitable enterprise.

The simulation analysis in the paper, without presenting quantitative details for examination, brings some we-sort-of-know-already small conclusion points. Due to the problem of basic assumptions above, the exercise is useful but mostly GIGO.


Regarding reserves and fractional reserve