Additional types of custodians

[masterOfDisaster]

Introduction

Thinking of how the future Nu ecosystem might look like I came to the conclusion that if

• NuShares are a kind of Distributed Autonomous Bank and
• NuBits are the currency emitted by that bank

Nu might mimick other aspects of the banks we already know.

Interjection

I’m glad that Nu differs from the currently known bank systems in many relevant ways.

• I’m glad that the risk for operation the business is in the first line on the NuShares holders site.
• I’m glad that the NuShares holders can determine the ways of Nu by voting.

Additional types of custodians

But now back to the idea.
I was asking myself (and thExit in the peercointalk chatbox; nice that there’s a history now…) about the flexibility of the custodian concept. This is not meant to be complete. I rather want to start a discussion for future business aspects in the Nu ecosystem.

In the future there might be need for a

Credit Custodian

A Credit Custodian (from now on CC) is elected based on a proposal.
The CC is granted with an amount of NBT.
These NBT are available for loaning business only.
Burrowers’ credibilty is assessed through background checks by the CC.
The NBT are loaned for an amount of time at an appropriate interest rate.

The level of responsibilty of the CC for the granted NBT can be handled in different ways.
I can think of no/partial responsibility: the decisions which granting of a loan to allow and which to deny is relayed to the NuShares holders by a vote (could be handled as motion).
And I can think of extended responsibility where a CC can make decisions of his/her own. Furnishing a security might be necessary in this case.
The fee that is paid to the CC depends on the success of his business as well as the level of responsibility the CC has.
Election period, CC fee, loan interest rate, measurement of success, business areas in which the burrowers are, etc. are subject to discussion.

The business areas of burrowers lead to another kind of custodian. The

Venture Capital Custodian

The Venture Capital Custodian (from now on VCC). Is a special case of the CC. The burrowers are from the venture capital market.
Relevant parts of the VCC’s activity/responsibilty differ significantly from the CC, hence the need for another type of custodian.
Where a CC needs to do background checks of burrowers, the VCC needs to do even more intensive assessments of the business model, solution that is provided, the probability of success of the burrower, etc.
A lot of loans won’t be paid back.
The interest rate of the loan might be very high or the loan might be compensated by an equity holding in that company.
This leads to special requirements for the proposal and the rating of the VCC’s work.

[Chronos]

These are interesting ideas. Risk could be reduced by combining this with the idea of keeping a custodian’s shares as collateral in the case that the custodian attempts to abscond with the funds.

[mhps]

It is likely that the CCs will manage funds way more than their personal NuShares’ worth. We could 1) limit the funds CCs can receive to no more than collaterals provided. Then the fund will probably be quite limited except for the case rich shareholders want to become CCs. Or 2) only give fund to known trustable people. That is OK in short term but would limit decentralization and easily create transparency problems in the long term.

[Indigoman]

I prefer the collateral option to be hoest … the less trust the better. I still believe that we need to get rid of the need for custodians as wrote in another post and providing collateral is basically what my proposal was addressing but from a different view. The collateral isn’t held until the task achieved which would be very difficult on the protocol level and very complex. The proposal I made was put a financial risk on the custodian buy having them in essence purchase the Nubits by paying the network in PPC. Would love to hear your thoughts on it. I’m getting a bit too busy these days but will get back in the discussions of my proposals soon especially after JordanLee posts his protocol changes motion draft for introducing the NBT burn for NSR as a way to have effective control over supply.

[thExit]

I think that the comparison of Nu network to a bank, or a (de)centralized autonomous bank, is quite appropriate. It has been discussed in the first days on Nu and the similarity is apparent. Many mechanisms are in line with banking mechanisms. If Nu is heading this way, it would be beneficial to share more ideas and clarify the picture, choose the right mechanisms, assign proper jobs to proper people. This would be in fact the first DAB ever.

Before we label Nu as a DAB or as anything else, we need to answer several questions. What is the direction into which Nu is heading? What is needed? Do we want to build a structure mimicking an organization (bank) existing in the world external to the cryto realm? Or do we want to build a completely unique structure.

The key matter is sustainability. How to sustain operation under all conditions (there will be unexpected matters cropping up, that’s for sure, so it’s good to be prepared for the worst). Sustainability will require attention on numerous levels (among other):

-technical level
-financial level
-accountancy level
-marketing/PR level
-rate control level

The most basic level from my viewpoint is the financial level. You cannot sustain operation if the network only consumes, if gathered funds are only spent. This way the network is going into a dangerous direction- where gathered assets are vanishing, and the ability to buy back all the NuBits in existence is diminishing. At a certain point this may cause a collapse of faith among NuBits holders who would then massively ride the Nu bank so to speak. After all, NuBits are based on trust, people trust the Nu network that they can get their USD/EUR/BTC/PPC back when needed. With the vault becoming more and more empty, how can the Nu network keep up with the promise? Thus the need for revenue in the network.

Creating sources of revenue different than the exchange of USD/EUR/BTC/PPC for NBT would be a factor contributing to the stability of the network and increasing the trust and belief of the users. There is though risk associated with external sources of revenue (as funds need to be invested/the control over funds must be given to a person acting as a Custodian), how to mitigate that risk? Collateral is one of the options. Also, in terms of revenue, NuShares are one of the most valuable options, but there might be other options and this is where our discussion stems from. We’re at a conceptual stage, so it’s too early for specific solutions, but this is the right time for ideas and conversation.

As mentioned by @masterOfDisaster there is room for additional Custodian roles. Besides those mentioned, I thought about an accountant Custodian (AcC). I don’t want to get into details about how accountancy is carried out at this point, it’s not my business, but we may consider assigning the role of accountant(s) to the right people, so that the Nu network may stay in balance, financial balance. Reports from an AcC could be a valuable asset for shareholders.

Also, there is the issue of trust. How to trust a new person joining the community. How to verify their credentials, or even personal data. Should we do that? Should this solve the issue of trust? Should we ask the custodians to put their funds at risk when working for the Nu network? Will it be worth for them? Those are the questions that should be asked, and I believe that in the future we’ll get the answers.

An idea about DACs to consider- PeerTracks:

http://www.coindesk.com/crypto-2-0-roundup-overstock-effect-counterparty-debates-crypto-itunes/

http://www.peertracks.com/index.html#2

http://www.bitsharesmusicfoundation.org/

[Ben]

I moved 7 posts to a new topic: Personal Sidebar: Moved from “Additional types of custodians”

[Ben]

I’m going to clean up the topic and move the last couple comments to a separate topic. Now, back to your regularly scheduled topic, “Additional types of custodians”…

[desrever]

Creating sources of revenue different than the exchange of USD/EUR/BTC/PPC for NBT would be a factor contributing to the stability of the network and increasing the trust and belief of the users

I like this point the most, and I would like to contribute to that. There are other things that Nu could potentially monetize on. In my opinion some of them can be built on top of the parking mechanism used as a SPAM control system.

[thExit]

In my opinion some of them can be built on top of the parking mechanism used as a SPAM control system.

Could you please elaborate on this topic? Sounds interesting.

[masterOfDisaster]

If you utilize “Proof-of-Park” (park a given amount of NBT for a given time frame) to restrict access to services, you can limit SPAM by that.
…I think that is what @desrever is talking about…

[thExit]

“2000 to implement a proof-of-park baked spam prevention API”, a quote from the bounty-program thread.

I gave it a thought when walking my dog out, I guess @desrever is talking about the concept of Bitcoin micropayments used as a spam email control mechanism, but there you’d actually need to pay for emailing, with PoP your funds just get frozen (or you actually make a microprofit). This would prevent huge spammers from their huge spamming operations, as they would need significant funds to keep sending. It would be great to hear about some details.

[desrever]

Exactly that. But remember that SPAM is not only an email thing. It can be apply anywhere a filter is needed to keep the good and the artificial as separated as possible. It could be implemented anywhere we see a submission : online polls, reviews (tripadvisor), mechanical turk tasks, task rabbit, ebay , … you name it.

Where is the profit part for Nu? I believe that an enterprise level anti-spam system could be SaaS’ed, while a free-to-use alternative must be released open source.

[masterOfDisaster]

I believe that an enterprise level anti-spam system could be SaaS’ed, while a free-to-use alternative must be released open source.

For sure companies have some money available that they can spend for enterprise level anti-spam.
But I don’t understand why free-to-use alternatives need to be open source.

I mean, it raises the bar far above the decryption of captchas if you want to limit access to resources by Proof-of-Park (e.g. park 5 NBT for 1 week; how to verify?).
And I don’t see why using closed source for that is a show stopper.
It’s rather reducing the rate of adoption, but it can’t completely stop it.

I’m looking forward to the time when the Nu client is open source because this will be the time when there’s already that much adoption that keeping the first-mover advantage needs no longer be protected by restricting access to the source code.

I doubt that we should wait with developing PoP mechanisms until then.

[desrever]

Lets discuss open vs closed source after we’ve good a proof of park system in place.

I like the comparison with captcha that you just did.

Sorry for going off topic

[thExit]

How difficult is making the PoP mechanism work? Some while back I went through this thread:

https://bitcointalk.org/index.php?topic=736447.80

and especially through the heated discussion between Ohad and HunterMinerCrafter, I was researching Zennet as they were looking for funding. They were still in the conceptual stage and thought that they found solutions to long-standing problems, but after reading the debate I started doubting. I’m guessing that PoP is a much simpler mechanism