Disclaimer: This post is just a collection of my personal thoughts from the past few days. It is not a draft motion or even a suggestion of a course of action. It is an assessment of business potential from the perspective of an individual NuShareholder.
Fundraising for B&C Exchange stands at approximately $95,000. It appears to have tapered off after the initial wave of purchase requests on Day 1. While I don’t have access to any of the purchase request information, it appears to me that there is a risk of $200,000 not being raised and B&C Exchange not being developed, although that’s only speculation. In that scenario NuShareholders would get nothing.
This discussion is about valuing B&C Exchange from the perspective of our Nu network. What is it worth to us to have a flagship decentralized exchange using NuBits as a base pair? What are the advertising benefits? How might it increase the userbase of NuBits and NuShares through acquisition of new interested users? And conversely, what are the risks of an exchange failure on the Nu network?
Those are questions that will have a wide variety of opinions and almost certainly no absolute consensus among our many shareholders.
With that in mind, I wanted to share one potential idea I had about how NuShareholders could capture a larger stake of B&C Exchange. If the response is generally positive I can look into writing a draft motion, and if the response is generally negative the time will still have been well-spent practicing valuations of external projects for future opportunities for our network.
The Idea:
NuShareholders are currently scheduled to receive 50% of all initial BlockShares if fundraising is successful. I believe we could raise that to between 71% and 78% through two sequential hypothetical motions, and simultaneously improve the odds of the $200,000 B&C Exchange goal being reached. If the first hypothetical motion presented below passed, the second would be introduced afterwards.
The actual BKS supply numbers used below are slightly different in reality, but let’s simplify the example down to 80,000 BKS for public purchase, 80,000 BKS for NuShareholders, and 2,000 BKS for Bitcoiners, for a total supply of 162,000 BKS. It is a simplified example intended to generate a discussion on the broad merits of the idea.
Hypothetical Motion 1:
SAMPLE HASH========
NuShareholders commit to raising either $50,000 or $100,000 from the sale of NSR in auctions over the next four months. Exactly $12,500 or $25,000 would be raised each month. These auctions would be held once per month with a simple Dutch auction taking place over seven days.
Day 1: Market price + 10%
Day 2: Market price + 5%
Day 3: Market price
Day 4: Market price – 1%
Day 5: Market price – 5%
Day 6: Market price – 10%
Day 7+: Open bids for each day 24 hour periods until $12,500 or $25,000 is reached.
Should an automated solution to NSR auctions be implemented during the lifespan of this commitment, it would immediately be used in place of the relatively inefficient manual method above.
Jordan Lee or a representative would be required to privately share the results of the bids with an established community member to ensure transparency and fairness. This community member would be ineligible to bid, and must be declared in advance.
These auctions would be a lesser priority than NSR auctions for the purposes of NBT peg maintenance. Should a peg-maintenance auction be required, shareholders can defer this auction by default until the peg maintenance auction is complete or conduct it simultaneously through an authorized motion.
In return for $50,000 or $100,000 in commitments from NuShareholders 10,000 or 20,000 BlockShares would not be created at $5.00 per share. This will increase the proportional amount of the network NuShareholders will control.
END SAMPLE HASH================================
It should be pointed out that @Nagalim’s original suggestion for using a Dutch auction in the peg maintenance auction is one I actually quite like in theory. The structure above would be slightly simpler than the auction presented there however and is one I favor. Specific advantages include that there would be one price per day, it wouldn’t require 30 days of effort from Jordan Lee or his representative, and it would reduce the regulatory risk of selling shares on an open exchange as opposed to business partners in private. Credit should be given to @Nagalim and others from his thread for the idea of Dutch auctions here.
In the scenario where $50,000 is pledged: 152,000 BKS would be created instead of 162,000 BKS. This would raise NuShareholders’ effective stake from approximately 49.3% (80,000 / 162,000) to 52.6% (80,000 / 152,000) of the BlockShares network.
In the scenario where $100,000 is pledged: 142,000 BKS would be created instead of 162,000 BKS. This would raise NuShareholders’ effective stake from approximately 49.3% (80,000 / 162,000) to 56.3% (80,000 / 142,000) of the BlockShares network.
Post- Hypothetical Motion 1: All outstanding BKS purchase requests are collected by Jordan Lee. $200,000 is reached between public BlockShares purchases and NuShareholder commitments. If (and only if) this occurs would Hypothetical Motion 2 be introduced, to prevent BKS purchasers from renegading on their purchase commitment. If $50,000 is pledged by NuShareholders, $150,000 would be required from BlockShare purchasers, and if $100,000 is pledged by NuShareholders, $100,000 would be required from BlockShare purchasers. Note that at a NSR commitment of $50,000 the Hypothetical Motion 1 would not be put to a vote until nearly $150,000 is pledged by public BlockShare purchasers. At $100,000 from NuShareholders, voting could begin almost immediately because $95,000 has already been pledged publicly.
Hypothetical Motion 2: NuShareholders would now control a majority of BlockShares voting power that will exist on day one of the BlockShares network. As a result, the outcome of a NuShareholder motion could be considered a majority proxy for BlockShares in the absence of a functioning network.
SAMPLE HASH============
Jordan Lee should immediately cease selling all unsold BlockShares as of the date and time that this motion passes, provided at least $200,000 has been collected from BlockShares purchases and pledged by NuShareholders.
END SAMPLE HASH=================
Assessment:
A successful Hypothetical Motion 2 would be a win for both NuShareholders and for external BlockShare purchasers and is unlikely to be controversial for either group. Hypothetical Motion 1 would be the controversial point for NuShareholders.
The BlockShares network would now have 112,000 BKS (at $50,000 NSR sold) or 102,000 BKS (at $100,000 NSR sold) in circulation plus any BKS sold prior to the passage of this motion that were in excess of the $200,000 goal. 30,000 or 40,000 BKS would have been removed from the final BlockShares blockchain.
It means NuShareholders would now either have a 71.43% stake (80,000 BKS / 112,000 BKS) or a 78.4% stake (80,000 BKS / 102,000 BKS) in the BlockShares network.
BlockShare purchasers from Bitcointalk would also see the value of their purchased shares increase. 1000 BKS would go from being 0.617% of the network to 0.980% at a supply level of 102,000 BKS. That is a significant increase in value for this group too.
It is important that the sequence of events occur as described above in Hypothetical Motion 1 -> Post Motion 1 -> Hypothetical Motion 2. It would prevent any group from trying to increase their payout by defaulting on a commitment. Motion 1 is a better outcome than no Motion for NuShareholders and BlockShares purchasers if $200,000 would not be raised without the help of NuShareholders. Motion 2 is a better deal than Motion 1 for both NuShareholders and BlockShare purchasers if $200,000 has been confirmed to be raised prior to its introduction.
The only group of users that suffers a “loss” in this new plan would be developers who will build B&C Exchange for $200,000. It means less paid work for contributors, but since it means a higher percentage of equity for both NuShareholders and BlockShares purchasers it will be considered desirable on the whole by ownership. The minimum amount required to build B&C Exchange would be collected and future B&C development beyond the minimum products would be done with BlockShares custodial grants.
Risks: This plan almost certainly works well in a period of cryptocurrency growth. As the price of NuShares increase, fewer would be needed to be sold each month to reach the $12,500 or $25,000 requirement. This would occur only if the market finally begins to realize that NuShares have tremendous value beyond its own network, when it becomes clear that NuShareholders may be rewarded with equity in new projects like B&C Exchange and (presumably) future Peershare projects.
The major risk I see is that if the cryptocurrency market continues to stagnate or deflate, we risk requiring an amount of NuShare dilution that may exceed the comfort level of shareholders. For example, if the price of NuShares fell to 0.0010 USD then 25,000,000 NSR would be auctioned each month to reach the larger $100,000 commitment. Conversely, if the price of NuShares rose to 0.0050 USD then only 5,000,000 NSR would need to be auctioned each month at the $100,000 commitment. There is a huge amount of potential variance in this plan, and the unpredictability of this variance is a risk. Perceived scarcity has been proven to be important in cryptoassets and a larger-than-expected dilution would impair that perception.
Final Summarizing Thought: Is selling $50,000 or $100,000 in future NuShares worth increasing the stake in B&C Exchange from 50% to either 71.43% or 78.43%? Is there a risk NuShareholders get 0% of B&C Exchange if the current $200,000 goal is not reached?
Thank you for reading. Even if the general consensus is that this idea is not financially responsible for our network, I think it is worthwhile practice for shareholders to assess external opportunities and weigh the benefits and risks of diluting the network to capture those stakes. I hope this discussion will serve as a baseline for other shareholder assessments.