Balance Sheet Attacks

NuBits
#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?

#32

The circumstances of the theft remain indeed very unclear to me too.

#33

Reading the FLOT BTC operations thread, I was wrong about FLOT not signing before the peg broke and I conflated the peg breaking spreads by liquidity providers with FLOT’s performance. I apologize. I’ll correct my statements where if I’ve spoken with this assumption when I come across them.

Nu has always advertised a $1.00 peg as what customers should expect their US-NBT be valued at. The plan had been for a long time if not forever to use NuShare sales for peg support. Not recognizing this means a failure to understand the NuBit reserve model in its current state.

Velocity of FLOT’s peg support can be argued to have been too slow with the expected signing intervals. If signing is expected less often, increase the amounts. That’s easy to say, but there’s always a limit. It was a stressful situation and I didn’t do much better as part of FLOT BTC until after the firing motion and peg break when only 3 out of 8 signed (of 5 required) to release funds to NuBit holders.

It’s a way, but not the expectation of NuBit holders or according to the NuBit liquidity model.

FLOT NSR might not even have needed to sell NuShares more aggressively had the proceeds of the only sale not been kept away from NuBit holders and FLOT released all reserves.

The spreads were set breaking the expectation of the $1.00 US-NBT. That must have eroded confidence more than anything. It’s not shocking to me in hindsight to see the firing motion. An action to fix the underlying problem can not be blamed for symptoms that were only a matter of time.

We need to be clear with what happened and what didn’t to know which conclusions we’re able to draw.

When did the tier 1–4 reserves go below 20 BTC? July 3 there was 25.74 BTC in FLOT BTC multisig and about 13 BTC at @masterOfDisaster’s gateway.

The core design has not been shown flawed by the events, not even the implementation. I thought FLOT wasn’t up to speed, but they actually may have been after all, just they didn’t use the acquired funds and continue operations.

There has been no lost shareholder funds in Nu with @Phoenix as Chief of Liquidity Operations as far as I’m aware. The B&C Exchange development fund is not Nu’s. Nobody has explained where funds would have been lost. It’s stubborn hearsay for what I can tell.

Thank you for a post with real substance.

2 Likes
#34

I don’t have more information on the first theft than anyone. Such a large loss could have a significant negative effect on the NuShare value, which is in shareholder interest to protect.

#35

Hey you are also still here, nice flair. Are people still buying that you are just a naive observer who wants the best for the project?

#36

Which is better: a 1% peg which couldn’t be kept becuase there is no mechanism to keep up faster than ~1 week and has 0 profit, or a 5% peg that can be on all the time and earns profit to last?

That was not the indicator i looked at. I was saying the 3Hik address. It had less than 20 at some point.

I don’t agree. The missing part was an automation infrastructure at T2-3 that allowed human FLOT to only sign once a week, mostly mechanically as a gatekeeper.

#37

That’s beside the point. US-NBT were expected to be worth $1.00 (not $0.975–1.025) and supported at that price until no support remained. That’s the model. It can be changed, but devaluing currency is a strong action.

It would be interesting to see a stable currency with 5% spread, but US NuBits is a stable currency with 1% spread or less.

I find that the implementation fell by human error. Acquired tier 6 funds weren’t used (they were placed at 90% devaluation). The system should be improved anyway. Right now I lag behind with refilling walls several times a week.

A server (which could be run individually) tracks network liquidity and shareholders directives such as reserve ratio and equilibrium velocity. When it senses an exchange running low, it sends a push notification to all its subscribers with the exchange name, the asset, and an amount it calculates automatically. The signers open the notification to verify, sign, and distribute the signed transaction.

The notification may open a local or online coin utility (Cointoolkit). Exchange names are mapped to addresses in the utility to avoid trusting the more complex and vulnerable server that sends the call to action. Distribution of each signature can be done via blockchain or a central server. They can be merged and the transaction broadcasted by anyone.

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