Balance Sheet Attacks

NuBits
#10

What you described is the common way to attack a partial reserve pegging system, this is well demonstrated by George Soros in South East Asia financial crisis in 1990s and UK attacking.

This is related to impossible trinity.

BTW, this community is full of economics laymen. Most of them believe/dream they can invent a successful system quite different from Satoshi’s fixed supply model, however, their economics knowledge is high school level.:grinning:

So they are and will be in trouble, unless they follow a decent powerful theory. But, they are too boastful to realize it.

In my thread of “Plan B for Nu”. The Hayek’s short-term lending model can avoid this kind of attack as long as NSR is accepted as the sole collateral (BTC not accepted）.

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#11

As stated by Paul Krugman in 1999:[9]

“ The point is that you can’t have it all: A country must pick two out of three. It can fix its exchange rate without emasculating its central bank, but only by maintaining controls on capital flows (like China today); it can leave capital movement free but retain monetary autonomy, but only by letting the exchange rate fluctuate (like Britain – or Canada); or it can choose to leave capital free and stabilize the currency, but only by abandoning any ability to adjust interest rates to fight inflation or recession (like Argentina today,[10] or for that matter most of Europe).

When Jordan designed Nu, he wanted the 3 goals simultaneously：

  1. fixed exchange rate: 1NBT= 1USD
  2. fre e capital flow: people can buy and sell as they wish
  3. independent monetary policy: parking rate determined by shareholders not FED.

So we know Jordan has bad economics background, he may be an excellent IT expert, but this cannot guarantee success. We are playing financial game indeed.

Now Phoenix tends to capital control: to punish those bad guys’ NBT/BKS addresses.

Well, watching some laymen struggling with basic economics rules is also a funny thing. They believe they’ve mastered C++ so they can control economics, what a joke!

Impossible trinity stands in real world, because governments cannot shrink domestic currencies in short term. While with Hayek’s model, we can shrink total NBT in circulation to Zero within short term.

A master is a master, the real Nobel Prize Winner.

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#12

I believe this risk has been raised a couple of times. The only defence is indeed 100% or more reserves.
The challenge is in how Nu can recognise someone taking a major position over time and still have a fractional reserve. This will be a hard nut to crack I believe when it is done over a longer period of time. Therefore I suggested earlier that we should explore how we best can hold those (100%) reserves and make some money out of it e.g. as peer-to-peer short to mid term loans.

Not sure if I agree with Phoenix about managing the level of reserves manually without having good and reliable indicators when an attack is imminent. It may be an interesting play to have with potential short term gains, but when one of the parties blinks one time too much they will loose. Interesting to play such a game maybe, but the risk are major loses for Nu. Not an attractive play from an economic perspective imo.

Agree

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#13

Name just one game Nu plays, in which it is not at the wrong end of the stick from an economic perspective.
I’m not asking about a future vision. I’m asking about the games Nu plays or has played so far.

#14

I was referring to the game of someone “attacking” Nu and buying a significant number of NuBits, with that pump the shareprice and dump the coins once the reserves are relatively low. Phoenix said that he would be prepared to play that game, but I believe you may win that over a short time period by holding more reserves (resulting in less pumping) but for attacks over a longer period it would be hard to win unless maintaining a close to 100% reserve in BTC or fiat.
That’s why we shouldn’t make profits which pump the shares directly but indirectly my making profits out of the reserves (future vision).

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#15

Yah, we all should rely on this single, wise, and never failing protector of the peg.
At the moment and looking at the situation of Nu regarding control it looks more centralized than Tether. At least there you have bank accounts involved and if a person gets hit by the bus, the funds aren’t lost.

You can’t hold a 100% reserve in BTC unless you continue selling NSR.
Exchange trading at close spread drains funds from Nu.
I believe, it’s the only reason why the NAV from trading doesn’t get published. It would look devastating. The liquidity officials can prove me wrong if they like. I’ve explained more than once why my claim is rational.

That leaves you with a 100% reserve in fiat, USD for US-NBT, which poses other challenges and threats.At least it would be compliant with the design to trade US-NBT/USD and not US-NBT/BTC.

One solution was proposed by @Sabreiib (pledging NSR to receive NBT) and NBT/NSR swapping in seeded auctions was proposed by @Nagalim. There have been some more ideas to mitigate reserve risks. NuSafe was another.
It’s not that there are no people understanding the problem and proposing solutions.
If you don’t want to change anything, another easy way out is to increase the spread. If you can’t sell you product then, you have no market in which you can prevail. In a nutshell it’s as simple as that.

@Phoenix is good with bold claims, rhetorics and accusations.
He stays silent, if proposals that reform Nu, but take away direct control from him are the matter or when questions about the “attacks” on Nu funds under his control or how many NSR he lost are asked.

Agree:

If you manage to lend money (NBT) at a fee and do something useful with the collateral, you can make double profit.

#16

It’s Hayek’s mechanism, not mine.

Satoshi gives up “fixed exchange rate” then BTC has other two:

  1. independent monetary policy: 21M total and reward halves per 4 years.
  2. Free capital flow: anyone can buy/sell BTC as they wish, no worries about being filtered out with their addresses.

Nu’s trouble is to challenge the impossible trinity, although Nu tries to shrink NBT in circulation by raising parking rate(independent policy), the free market doesn’t like it.

Impossible trinity’s principle is well demonstrated below:

Assume that world interest rate is at 5%. If the home central bank tries to set domestic interest rate at a rate lower than 5%, for example at 2%, there will be a depreciation pressure on the home currency, because investors would want to sell their low yielding domestic currency and buy higher yielding foreign currency. If the central bank also wants to have free capital flows, the only way the central bank could prevent depreciation of the home currency is to sell its foreign currency reserves. Since foreign currency reserves of a central bank are limited, once the reserves are depleted, the domestic currency will depreciate.

Hence, all three of the policy objectives mentioned above cannot be pursued simultaneously. A central bank has to forgo one of the three objectives. Therefore, a central bank has three policy combination options.

This is exactly what’s Nu’s crisis. For some reasons, investors want to sell your currency for another high liquidity currency, such as in 1997 south east Asia’s hot money wanted to leave and transferred for USD, or in 2016, when BTC price went up so investors wanted to sell NBT for BTC.

After the limited (partial) reserve is depleted, the peg failed.

So Nu’s crisis is just another typical “financial crisis” like The Mexican peso crisis (1994–1995), the 1997 Asian financial crisis (1997–1998), and the Argentinean financial collapse (2001–2002).

@Phoenix If you cannot shrink your money in circulation effectively, you cannot challenge the “impossible trinity”. Nu’s fate depends on whether you can find the way, while Hayek’s mechanism is a good option.

#17

In 2016, we did in fact reduce circulating US-NBT supply from 821,000 to 133,000. That was a rapid 84% reduction in the circulating supply. Nu has amply proven its capacity to shrink the supply of NuBits.

#18

Liquidity engine is proven to be a not-so-good method to shrink your money supply because it takes one year to recover from the crisis. I believe with Hayek’s, you can shrink effectively within 1-2 month.

#19

This is not true. There was ample reserve available at the time of peg failure, and plenty of capacity available from park rates and NSR sales. In the most direct and brazen violation of Nu contracts that could be possible, multisig signers decided to lock all funds down and cease operations. This decision, and this decision alone, was the SOLE cause of the temporary peg failure. There was no financial component or deficit involved.

Nu clearly had all the funds it needed to keep the peg, but some unsteady authoritarians opposed to the rule of law refused to use them for reasons that are not clear, but it appears to be due to the tendency authoritarians have to “hunker down” and change all the rules when they feel fear. Nu has learned its lesson about how damaging authoritarian signers can be.

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#20

FLOT’s failure is just one factor, if they follows your plan, the more NBT selling order will continue until FLOT’s 16 BTC is completely consumed and NSR price dropping a lot.

Your accusing to FLOT reminds me of “Captain Sally” , if Sally immediately flies his plane to airport after bird strike, he can land safely on the ground. But you “extract all the humanity out of the cockpit”, human beings are not machine. I strongly suggest you watch “Captain Sally” movie again, then rethink your attitude to FLOT.

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#21

@Phoenix, in 1997 SE Asia financial crisis, you can blame George Soros’ attack and some mistake/slow reaction of Thailand central bank, however, these are not the main problems, the basic rule is “impossible trinity”, the design architecture of Thai Baht.

If you cannot shrink NBT circulation quickly enough, i.e. within one month, your system is problematic.

#22

This is also incorrect. We started operations with a price of $0.20. Using a modified approach to liquidity (aggressive floating support), we increased the NuBit price by 400% in about 75 days, completely reversing the hyperinflation cruelly imposed by the American and Chinese signers that exhibited authoritarian behavior.

#23

From 2016 June till today, almost one year and Nu still in recovering, liquidity engine is indeed a method to shrink the supply, but when a better option available, why not give a try?

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#24

@Phoenix I understand that all the crypto projects you are running must be time-consuming. Nonetheless, could you please answer my question once? I would like to know whether you are giggling while you are figuring out your posts. I need to know that, just whether you are giggling or not. When I read your stuff it puts a smile on my face. Are you also smiling?

#25

@Phoenix, to avoid conflict with “impossible trinity”, we should give up independent monetary policy, cancel the parking mechanism because free market decides the rate not shareholders. Also adjust the NBT circulation quantity as per free market, liquidity engine is a slow engine, not agile as Hayek’s short-term loan.

#26

You never get tired to tell that lie, to create that narrative?
The reserves were all but depleted, NSR sales were being conducted (afair according to the Standard and Core motion, the park rate was not raised very much.
The failure was in the design.

This decision didn’t happen.
Nu was bankrupt. At least for the time being.
What made recovering hard was the shit storm initiated by JordanLee that alienated a lot of the community:

This hamstringed FLOT and made a lot of former supporters turn away.
Before they were quite active. FLOT acted according to their mandate and often far beyond that.
Don’t blame them for a flawed design and the results of the architect’s witch hunt at the worst possible time.

You managed to rob B&C to achieve this.
BKS holders were caught between a rock and a hard place. You took advantage of that.
I mean, for some actions there were at least motions.
But it’s not true that Nu did it by itself.

For the next crisis Nu will have no scapegoats and no extra funds to tap in.
Who are you going to blame then? Jooize?

@Phoenix, continue with your narrative built upon lies. I’ll chime in to correct the worst of them from time to time.
In between you might find time to tell how many NSR you “lost”. In difference to the lies you tell, it’s true that you lost Nu funds. Are you contrary to that?

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#27

There was at least $25,000 withheld from NuBit holders.

Investors later covered all US-NBT leaving circulation albeit partially at some devaluation, meaning there was will to buy NSR and bet on future success of Nu at some price point. There was at least 21 BTC of buy side support just before the peg break. Nu is still alive at 300x lower NSR value than the time. Did the Standard and Core motion prohibit sales exceeding The Standard? Even if it does, that can not be said to be the cause because the proceeds weren’t used and no further sale was performed.

FLOT sent NuShares to @masterOfDisaster who placed them on the orderbook. Proceeds were 6.9 BTC, which he offered to NuBit holders at 90% devaluation of their US-NBT.

You blame the reaction to his actions. Saying that the firing motion made FLOT not do its job is false, as they already didn’t. If they refused to do their job because they were hurt by angry words (which of there wasn’t even any) that’d be even more incompetent.

I keep saying incompetent because it remains accurate by the terms I uncover. I harbor no hard feelings for most of FLOT because I think they meant well. I don’t understand how you can consider 90% devaluation to be doing the job of liquidity provision (before a peg break).

Creator of the Standard and Core motion said that at least 2,400,000 NSR should have been sold that week, and more being allowed if deemed necessary. Please correct me if I misinterpreted.

@ConfusedObserver

You make Nu appear as a scam with your lazy slander. Beyond what you never make any effort to prove, you simply question the model and spread uncertainty across the forum. You take anything we haven’t proven in detail and use it to say we’re hiding something.

I’ve taken on the task to determine the loss, and only recently the block explorer was fixed, enabling me to. I have not been able to do it yet, unfortunately. In a reply to you earlier I told you no Nu shareholder NuShares appear to have been compromised.

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#30

This is not true. FLOT did what they promised: act according to shareholders will and sign with a specified effort (once a week for me. I even asked @JordanLee the required reaction time before signing up, and he said about a week). As it turned out the shareholders including JL were mostly silent on specifics of operations. The FLOT had to invent rules as they went. For example there was almost no feed back beyond the FLOT on Standatd and Core.
When JL came with the firing post I clearly remember myself hesitating initiating actions because I didn’t know if I was supposed or still authorized by the community’s consensus to do anything. JL was enormously respected by the community at the time. If he said no to something, people took it seriouly.

Then in a few days I realized other FLOT members were doing the same and that the fly-by-micromanagement Nu machine had stopped functioning. I realized that it is a matter of time when the peg broke below 0.9, where I had expected panic would ensue and the peg would head to irrationally low points. I thought aboutt this sequence when the reserved was below 20 btc which was about one week;s need to feed the peg machine in the then-mild btc bull trend.

After seeing only several btcs can be had in a week selling nsr (by @masterOfDisaster) I saw that several btc/week rate was the best FLOT can do with its signing speed and Standdard and Core mandates. I suggested him to place a second line of defense at $0.1 so that if the first line is lost, Nu would get 20 - 30 btc worth NBT back per week, which is an viable way to rapidly reduce Nu’s liabilty.

FLOT showed that the design of Nu was not up to the speed requirements of an effective peg, @Phoenix with @jooize assisting proved it by taking a centralized approach, which did restore the peg in several months, but has shown risks such as unexplained missiing funds, a result of unchecked one-person operation, which doesn’t inspire confidence as a money issuing business.

FLOT is needed but don’t expect the Nu version FLOT could do better.

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#31

I think I misunderstood earlier.

was nowhere saying it were private funds. How could I have imagined that the Chief of Liquidity Operations bothers Nu with his private problems.
Do I understand this right: @Phoenix lost own funds and caused that mess with urgent, unscheduled client updates?

Now I understand why he didn’t answer this question

I seriously didn’t understand that @Phoenix bothered Nu, all NSR holders who run wallets including exchanges with a personal loss.

Who paid Sigmike? @Phoenix or Nu? Thanks for all the transparency.

And now you are determining his private loss?