It’s true that my proposal involves more parameters than option #1, but the primary difference is that it requires a person to successfully mint a block in order to earn the right to burn a set amount of NuBits for NuShares. NuShareholders would determine the amount of NuBits that could be burned per solved block as well as the number of NuShares that would result from burning that amount of NuBits. Under non-emergency situations, the amount of NuBits able to be burned per block would likely be very low (including 0). This aligns the interests of NuBit burners with NuShareholders, and also allows all minting NuShareholders to recapture a proportional amount of value that they lose to the dilution cost from the creation of additional NuShares.
The other difference is that the burn rate would adjust according to whether or not minting NuShareholders choose to burn NuBits for NuShares at a given rate. If someone chooses to burn NuBits for NuShares at the current rate, we know that the rate is at least high enough for one person to think it’s a good deal. Each time someone chooses to burn NuBits, the rate would be decreased by some percentage (since the current deal might be too good). Each time someone chooses not to burn NuBits, the rate would be increased by some percentage (since the current deal might not be good enough to be worthwhile). The end result is that the burn rate would converge to point where minting NuShareholders choose to burn NuBits for Nushares roughly 50% of the time, which would hopefully be a very fair rate according to current market conditions (accounting for future predictions of minting NuShareholders).
Lets say that something like my proposal were implemented. Shareholders would vote for how many NuBits (N) can be burned for NuShares per solved block, how many NuShares (S) would be earned by burning that quantity of NuBits, and the rate ® at which the number of NuShares earned (S) changes when a block is solved. There could also be an acceleration (A), that could allow the burn rate to adjust more rapidly to turbulent market conditions.
Shareholders might initially set N and S to 0, or they might set N to some small number (so a fair burn rate could be established) such as $0.10 and S to some amount that is likely less than the number of NuShares that can be purchased with $0.10. Since the burn rate is low (in this case), no one would opt to burn NuBits for NuShares because they could purchase a greater number of NuShares for the same amount of NuBits (unless they wanted to test the system). However, each time a block is minted and NuBits aren’t burned, the quantity of NuShares (S) earned from burning N NuBits would increase by R (and R may increase by an acceleration rate if several blocks in a row opt not to burn NuBits). This would continue until S is high enough to convince a minting shareholder to burn NuBits for NuShares (in this case, they would only be able to create a very small number of NuShares; perhaps roughly 10 if NuShares can be purchased for $0.01). At this point, the quantity of NuShares earned by burning N Nubits would be decreased by R and acceleration of R would end. In subsequent blocks, now that the burn rate is closer to being a fair rate, it would tend to converge to something close to market value (either at a slight premium or discount depending on NuShareholders). If roughly 50% of minting blocks choose to burn NuBits, it would increase NuShare inflation by a fairly small, but not insignificant amount (40 NuShares rewarded per block to 45 on average). This inflation would be controlled by NuShareholders voting to change N. An additional benefit is that NuShareholders would have an incentive to purchase NuBits in order to take advantage of good burn rates (which ultimately helps account for the inflation cost). A potential flaw is that minting NuShareholders would have an incentive to increase N, especially if only a minority of NuShares are minting. However, this also means that there would be an additional incentive to mint, which could help account for this flaw.
The primary benefit of an automatically adjusting burn rate is that it would be better able to adjust to a volatile market in an emergency. NuShareholders (or any group of people for that matter!) would struggle to choose the correct burn rate in order to stabilize NuBit value in an emergency situation. They are very likely to either underestimate the burn rate, and lose precious time when prompt action is required. Or they will overestimate the burn rate and pay a far greater dilution cost than was necessary to stabilize the price.