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

tomjoad 2014-12-31 08:52:10 UTC #61

How will this be done? Shareholders are a decentralized group that have private holdings. The front page of the website has a very clear disclaimer that the value of NBT could crash to zero tomorrow and that nobody should entrust the network with funds they cannot afford to lose. There are no promises of eternal peg maintenance, and the decentralized nature of shareholder operations would make it very difficult for an entity to impose itself on the network.

I think shareholders will attempt to maintain the price peg because it is very profitable to do so. The value of the network is maximized with perfect stability. However, it would be a mistake to assume that shareholders will behave altruistically (eg. inflict financial self-harm for the benefit of others). I think the assumption should always be that groups of individuals will act rationally as opposed to altruistically when it comes to financial decisions. Benjamin raised a good point that in many cases it would be more profitable for shareholders to cash out reserves rather than saving a collapsing currency (should that scenario occur). I suspect this is a reason why Jordan Lee’s vision for NuBits is one without USD reserves, or at least one where NSR are considered the higher-quality reserve backing. The challenge will be to create mechanisms, such as NBT-for-NSR burning, that are automatically triggered for the protection of NBT holders, rather than relying on the voluntary goodwill of NSR holders.

mhps 2014-12-31 11:13:45 UTC #62

Running a legit business doesn’t mean the business has to promise an eternal peg. In a court if I can show that I had the good intention, a business plan for it, and have put a good effort to run it, it would be a good enough proof I am not a crook. On the other hand if I am shown to accept unqualified “Let’s take the reserve and run” as an option from the very beginning, I am having fraud written on my face.

“the value of NBT could crash to zero tomorrow and that nobody should entrust the network with funds they cannot afford to lose” is a good disclaimer. But let’s not make it self-fulfilling.

I am not assuming shareholders will behave altruistically. I am trying to point out that financial harms is not the only harm shareholders could face.

Suppose nubits are widely used that billions is transacted on it everyday. Then the shareholder see, before anyone else, that the system is on the verge of failing, so to maxmize their own gains they pull the plug to let the peg fail, withdraw $500M reserve and split it among themselves. What do you think those who lost billions will do? Someone will post a bounty of 50% to get the top shareholders and extract funds. More likely people will sue from anywhere the law is to their advantage. Nubits users will be from many countries and states around the world. Applicable laws and regulation can be very different from country to country. In many places laws have a long memory. Every shareholder, custodian, and developer, unless having ironclad confidence that he/she is annonymous against public prosecutors and private bounty hunters, will have to worry for a long time if she/he will be stopped at the border or just at home, and go to the court to explain themselves.

It’s nothing altruistic or voluntary to try very hard to maintain the peg. Once you sell the peg to the public, it just prudence. It is rational. It’s for the shareholders’ own good.

I agree with improvement of backing quality, revenue generation, burning etc. They effectively improve the reserve. Claiming that 100% reserve offers zero benefit in terms of peg stability shows a mechanical and disconnected understanding of how the real world works.

Regarding reserves and fractional reserve

cryptog 2015-01-01 05:28:28 UTC #63

I tend to agree.

One example is bitcoin and mtgox in Japan.
Japan does not have any laws yet regarding cryptos.
The overall stance is: trade with your own responsibility. We won t protect you in case of fraud.

Yet, after the mtgox fiasco, some people started to sue Karpeles, a committee of Mtgox creditors started to be formed, with two official meetings with mtgox and a police investigation was started.
If there is a fraud, there is always a means to use one or several of the preexisting laws, I guess.

Result is this: http://the-japan-news.com/news/article/0001825662

I guess the same would happen with Nu in case there is a fraud but of course Nu is not Mtgox…

zoro 2015-01-01 10:13:40 UTC #64

the disclaimer “we will not protect you in caee of fraud” is not the same as we will cross our hands and do nothing in case of fraud. it is rather a warning that we may not be able to protect you but we will do our best. we are living in a lawful society, every form of fraud is panished one way or another. i hope they find the mtgox fiasco responsibles.

Phoenix 2016-09-06 02:17:58 UTC #65

This deserves a lot more discussion in light of our current situation. @Benjamin argued long ago that reserve assets cannot be reliably devoted to peg support. In our recent governance crisis, reserves dedicated solely to peg maintenance were not used for that purpose. Shareholders have lost control of the reserves. The funds don’t move at the command of shareholder motions. Had those reserves been placed in the NuShare market cap, they would in fact be under the control of shareholders. I have tremendous respect for @Benjamin and the rigor of his arguments. I hope he will come back and tell us what he thinks of our current situation and what he believes should be done going forward.

I will remind everyone I support zero reserve in theory. In practice, some additional systems need to be developed to make that practical. Considering that we have now extracted nearly $300,000 USD in NSR sale proceeds in 60 days from a $400,000 USD market cap, it may be time to consider moving our reserve target down from 100%. There is good reason for the market to have confidence we can maintain a peg with NuShares now that our governance flaws (particularly in regard to liquidity operations) have been fixed. We raised funds equivalent to 75% of our market cap in just 60 days. These facts combined with the fact that we lost control of our reserve provide compelling reasons for a reconsideration of reserve policy.

What does everyone think?

PoP 2016-09-06 06:55:23 UTC #66

Propping NSR would be a huge step toward driving interest back into the nu community. NBT has been propped up quickly and effectively, this has been proven. If NSR were to recover as well, it would bode well for Nu as a whole.

It is also important to note that USDT is vulnerable now due to their bitfinex association. If NSR were to recover to the 300-500 sat range, pump interest alone would bring Nu back into the spot light. From there more interest/trader research will show the masses that NBT/NSR are the most viable tether providers out there. It would also drive attention toward NBT-CNY development. It would be important to strike while the iron is hot and capitalize on USDT’s uncertainty to dethrone it as the tether go to.

This initiative could also be run in tandem with some form of incentivized NSR burn program. Maybe a burn lottery in which participants pool NSR into a lottery. Winner takes x amount of the pool and the remainder is burned. This could compensate for inflation which occurred during the NBT rebuild/auction period.

Phoenix 2016-09-06 12:04:01 UTC #67

I agree. The only way to sustainably raise the NSR price is to increase demand for NuBits. We need the community to help us create demand for US-NBT, CN-NBT and a little later EU-NBT. We need the community to help us get the new currencies released. Let’s resolve to stop reducing the US-NBT money supply now by creating demand for US-NBT. It is time for the gloom and doom to stop. As everyone knows, I have always been optimistic about the prospects for a large US-NBT supply and a small NSR supply.

With reserve policy being reviewed for revision, there are possibilities for a faster turnaround in the NSR price than most market participants expect. Parking rates can also be brought back in as we approach our peg target. Let’s explore and maximize those possibilities.

It occurred to me that they have experienced some problems but I haven’t done the research to learn exactly how the loss effects USDT. Did they lose any funds? Did people with USDT on Bitfinex lose some of their USDT? Do you know more @PoP?

ConfusedObserver 2016-09-06 12:18:20 UTC #68

There’s no revenue in sight. There’s no reason to stop.

Your pumping is based on this optimism, although there’s no sane reason for optimism.

This is nothing but pumping.

Explore and maximize revenue instead!