Analysis of Jordan's Custodian Proposal

NuShares
#1

In a recent broadcast message, titled “Plans for the next couple months”, Jordan wrote:

Though I have made decisions about the solution in the past, this is quickly changing with the existence of the RC chain. Shareholders should make as many decisions as is practical directly through motions. I will be completely subordinate to all shareholder motions, and I expect everyone on my payroll to be too. In the absence of explicit direction from shareholders, everyone on payroll should make an effort to act in the interest of shareholders.

In this vein, I’m posting my thoughts on the recent custodial proposal to fund internal development.

I see a couple downsides about this method of financing internal development, and an alternative to propose that shareholders may prefer.

First, the downsides:

  • Those who receive these created NBT in payment will likely sell them for BTC or PPC, putting immediate pressure on the peg that must be supported by Liquidity Providing Custodians (LPCs).
  • The creation of these NBT disincentives LPCs from signing up, because they must, in effect, bear the risk and cost of internal development by buying these NBT with their liquidity capital.
  • The creation of these NBT does not directly benefit shareholders financially.

Now, for the alternative.

The sale of NuShares has, I presume, generated significant proceeds for the project, and will continue do to so, as the network becomes more decentralized. If sold at a price of 0.003 USD per NSR, for example, this would generate $3,000,000 in revenue for the core project.

I propose that NuShares be sold on an as-needed basis to fund internal development. As an intermediate step, the proceeds from the sales would be first used to purchase NuBits from dividend custodians on the open market, which would in turn be used as the original proposal explains. This allows the internal fund to obtain NuBits on an as-needed basis, and provides a steady dividend to shareholders.

The benefits of this approach are as follows:

  • We will get immediate real-world experience with dividend distributions, which will help make the system more reliable.
  • Shareholders will have a direct financial benefit, thanks to the dividend distributions triggered by the NuBits purchases on the open market.
  • We will enjoy an increased demand for NuShares, because of the anticipated dividend distributions.
  • The cost to obtain development funds will remain low, because, as the majority stakeholder of NuShares, most distributions would be recycled back into the project. (For example, Jordan recently mentioned that less than 40% of NuShares have been distributed. This means that over 60% of dividends would return directly to the development purse.)

I consider that this approach may be more beneficial to shareholders, in every regard. I am open to your thoughts. Thank you for your consideration.

#2

Good one.

We didn’t decided yet if payroll must be done in NBT (or did we?) . In case we decide to go with BTC NBT (50 50 ), your solution is also valid, as the sale of shares will generate BTC (or PPC, or dollars).

Whose shares do you have in mind to be sold? The “undistributed?”

Do you think there is enough demand of shares for making funding core-dev a possibility (now) ?

EDIT : I understand the grant proposal is somehow “last-minute” and urgent, but I also propose that, to give a good example, the proposal must be formatted following guidelines and posted on the forum. We need to learn if the template we are preparing works.

EDIT 2 : yes payroll from now on is NBT

#3

I agree with Chronos that paying the salaries in NBT is similar as paying dividends in NBT. You either allow both and accept the influx of NBT (and likely need to park NBT) or you keep them both (mostly) outside the Nubits continuum.
I’m a big proponent of ‘eat your own dogfood’ but not if it becomes an existential threat. This needs to be carefully weighed up.

In the vain of Chronos’ proposal, I like to see at least a bunch of the unsold shares (say 25%) sold on the open market at a certain price to benefit a fund for core development or to support maintaining the market peg across multiple exchanges, whatever has a higher priority in time. This doesn’t exclude custodial grants. I would fund core development from what I call the shares fund and primarily use the custodial grants for marketing, the peripheral developments, riskier, ad-hoc or projects delivering benefits in short term (one-offs).

Anyway, I also think it is too early to allow full trading of all shares as the DAC needs to stabilise itself first, that’s why the 25%, but curious how others think about this.

Just to be clear that I fully support Jordan’s latest proposal as this indeed “last-minute” and urgent as Advanced already mentioned. I also do agree that any proposals after release must be formatted to the guidelines in the forums in order to set a minimum standard. This shouldn’t be overly bureaucratic though.

#4

this indeed “last-minute” and urgent as Advanced already mentioned.

I don’t see any evidence that the proposal is last-minute and urgent. Shareholders should not be rushed into a decision, since none of us would enjoy being rushed into making a decision on $200,000 USD of their own money. As shareholders, we have a responsibility to make an informed decision.

Advanced, the sales would be of undistributed shares. I assume that many core developers have already purchased NuShares, and these initial investment funds can already be used to bootstrap the new process once we have a mainnet exchange. The act of purchasing NBT from a custodian acts as a multiplying effect on the funds.

Example:

  1. 100 BTC is received from sales of NSR
  2. These funds are used to purchase NBT
  3. The proceeds are distributed as dividends
  4. The core development purse receives 100% of the NBT, plus 60% of the dividends due to majority stake
  5. In effect, the money is multiplied by 1.6.

I don’t see any reason that we would be forced into approving this grant simply due to its urgency. NuBits can be obtained on the open market for payroll purposes.

Is there a way to view the voting record yet, to see what percentage of shares are already voting on this proposal?

#5

There are some important points being discussed here, but I’d like to try and look at this from a different angle.

First, this discussion is probably too late to affect the outcome of the custodial grant in question. It will probably pass and this will probably continue to be the way Jordan raises funds for payroll.

I do not think that contractors who are on Jordan’s payroll will be immediately forced to accept NBT for 100% of their pay. Contractors will most likely agree to accept a percentage of their choice in NBT. Personally, I would be willing to accept a percentage that I can afford to park, since parking is pretty much the only useful thing I can do with a NuBit, at this point. I think this is an important point to consider.

Who, outside of this team, will consider buying NuBits on first day of release? There probably won’t be any merchants accepting NBT at that point, so the answer is speculators. What do they have to speculate on with a crypto that’s pegged at $1.00? Parking interest.

What we need to be doing is thinking about how to create demand on day one. The most direct approach to this is creating an attractive park rate before we go live. My idea of what attractive means would probably be considered extreme to most of you, but think about these points …

  • If NBT is pegged at 1 USD, this means it’s actually losing at least 3% of it’s value annually.
  • Like many others, I am perfectly happy to search the webernets for interesting markets to speculate on and <5% APY dose not get me very excited as an investor.
  • Day one, it would be better for the interest rates to be too high than for them to be too low. Worst case, we have higher than expected demand, have to lower rates and elect a new liquidity custodian. This would be good for share holders.
  • Voting for a high rate on the 6 month, 1 year, 2 year and higher durations would be best. This is because the first speculators will be buying to park and that means they’re invested long term. With more players having skin in the game, long term, we’re more likely to have continued community involvement.
  • Having a high interest rate on day one would allow a few lucky speculators to enjoy a higher than average rate and allow share holders to enjoy earlier than expected dividend payments. This will prove to the world that Nu is an excellent tool for creating wealth.
  • We can drop rates to zero in 1000 blocks … less than one day.

I have known very few people who care as much about making good on their commitments as Jordan Lee. I trust that this person has the best interest of the network in mind. I believe that our time would be better spent talking about how we’re going to create demand for NuBits on day one. We have the tools to do it.

4 Likes
Helping the initial buy pressure on NuBits
#8

@pennybreaker I believe that this is so important that it deserves a new topic to discuss how to create such pressure. If you open it and refresh some idea from this topic, I will be glad to shoot some ideas around!

EDIT: I created the thread , please move discussion over there Helping the initial buy pressure on NuBits

I still would like to read a discussion about @Chronos proposal of generating 1.6x of the original value.

#9

First of all, I would like to thank all of you for your critical analysis of my proposal.

I think the most important reason to elect me as a custodian regards redundancy and decentralization. It might be lost on casual observers that there can be as many custodians as shareholders elect. If we start the system with only one person managing funds it looks very centralized. And it is. What happens to the peg if KTm or his funds become unavailable for a time? No one (or at least no custodians) will have any NuBits, and we will have no short term method of suppressing the price.

The objection that it will put pressure on the peg or dissuade LPCs because people will immediately sell for BTC or PPC is not an issue in light of KTm’s proposal to also recycle most of the proceeds of the sale of NuBits for use as an LPC. BTC and PPC from NuShare sales can also be used to support the peg by purchasing NuBits if necessary. The benefits Chronos listed are mostly negated by KTm’s proposal as well. In fairness to Chronos, I had the benefit of understanding the details KTm’s proposal when making my own proposal, while Chronos was not yet aware of KTm’s proposal when critiquing my own.

The point that paying salaries in NBT is like paying dividends in NBT is not correct. If we presume development will be funded with NBT long term after NuShare proceeds are exhausted, then selling for the purpose of dividend distribution (in another asset such as Peercoin) is the only way to put a sell wall up that can quench any degree of NuBit demand reliably. Using NuBits to fund development does not alter the potential for a dividend custodian to meet NuBit demand quickly and decisively by placing them for sale. Distributing dividends in NuBits would prevent a dividend custodian from quickly and reliably meeting NuBit demand with a sell order.

Chronos correctly points out that funds will be multiplied by 1.6 if NuBits are purchased with NuShare proceeds to make payroll. But funds will be doubled if NuBits are created and used directly for payroll, because you have the NuBits in addition to the NuShare proceeds.

Obviously the NuShare sale proceeds will need to be spent on development, so we won’t want to always create NuBits to fund development. But right now we need more than one custodian as a matter of redundancy and decentralization. We also need to push NuBits into circulation and create demand for exchange services.

Finally, some are wondering whether there will be enough NuShare sale proceeds to pay for all development in the short and medium term. I’m confident there will be, so this is not a reason to use NuBits, but I think the other reasons I have outlined are compelling.