Can NuBits withstand a hyperinflation?

[crypto_coiner]

Tweet by @IdealReserve:
https://twitter.com/IdealReserve/status/587843300838653952

Can #NuBits #withstand a #hyperinflation? #Will the #high #InterestRates feed more #inflation after #maturity? #cryptocurrency #currency

[Nagalim]

Any NBT inflation can be assumed to truly be NSR inflation if there are sufficient pathways between NBT and NSR. Therefore, the question is “Can NuShares withstand hyperinflation?” Sure, why not, it’s price will just be low and investors will be bummed out. It won’t break the peg, though, unless it causes a great outflux of custodians.

[nikolaso]

it’s price will just be low and investors will be bummed out.

It is right time for investors to come in, price is being dumped whole day on all markets.

[crypto_coiner]

Where’s the bottom, they re asking?

[GreatScott]

Sure, why not, it’s price will just be low and investors will be bummed out. It won’t break the peg, though, unless it causes a great outflux of custodians.

There is no reason for speculators to buy NuShares while it is likely shareholders will be selling it for under market rates in the near future. And without the speculators, we will need to keep printing more and more NSR to maintain effectiveness as the share price falls. It seems the strategic way to speculate on Nu is to be the last to buy NSR in times of distress as market share has the possibility to drastically diminish the longer the rough patch ensues. While I see your point that the NSR price doesn’t really matter, there may come a time when we run out interested buyers of NSR inflation or none step forward with what shareholders feel are reasonable offers. What happens then, as this is our last line of defense for the peg?

[Nagalim]

To keep the nbt peg effective we create nsr, I agree, but we do it by burning nbt. If nsr price goes to true zero, most if not all nbt should be burnt by that time. In the event of continuous share decline, the number of nbt on the market should spin down. As long as there is interest in nbt we can leverage it for a higher nsr price.
Clearly disinterest in both nbt and nsr spells the end of the system, but it should never spell a broken peg.

[GreatScott]

If nsr price goes to true zero, most if not all nbt should be burnt by that time.

There may be some confusion about it, but the NuShare price does not reflect the amount of NuBits in circulation. NuShares are not pegged to anything, and the price is the result of traders’ actions. The price could drop to 1/10 of what it is today and it would not mean anything regarding the amount of NuBits in circulation.

[Nagalim]

Ultimately, you’re right. Currently, there is no true link between NSR and NBT other than burn motions. Since no motion can pass fast enough to keep up with a black swan event, there is effectively no link between NSR and NBT in the short term, as you point out. I suppose I’m reacting more to what should be than what is. I believe currently Nu cannot survive NBT hyperinflation.
I am and will continue to argue for frictionless burning and a floating NSR/NBT peg for a true link between the circulation of the two currencies.

None of this is to say that Nu can’t overspend. The real Nu inflation rate is the total payouts for liquidity and dev services plus minting minus all transaction fees all divided by NBT+NSR market caps. This inflation rate can be converted to NBT, NSR, BTC, or Euro, it means what it means. What I’m saying is that with a true and continuous link between NSR and NBT the inflation rate should be purely cornered to NSR and should have no effect on the NBT peg.

[cryptog]

plus minting

You probably mean NSR minting because NBT minting does not exist.

[Nagalim]

Yes I do, thank you for clarifying. Any inflation in the system counts against us, though minting is of course necessary.

[GreatScott]

I am and will continue to argue for frictionless burning and a floating NSR/NBT peg for a true link between the circulation of the two currencies.

I don’t understand what makes certain that there are NuShare buyers or sellers at the pegged price.

What role does the custodian play in your NSR/NBT pair?

[Nagalim]

The burning and the peg are two sides of a coin controlled by custodians. The NSR/NBT peg is like BTC/NBT for all intents and purposes, it draws on the NSR/other markets for stability (just as we use BTC/USD at bitfinex currently). The burning, however, allows the custodian to travel outside the market on the return journey. This means that whether there are buys or sellers there or not, the custodian can move liquidity from one side to the other. This is what links the circulation between the two currencies.
We’ve already done this by passing the burn motion. I haven’t invented it, I’ve just taken it to what seems to me a logical conclusion.

[GreatScott]

The NSR/NBT peg is like BTC/NBT for all intents and purposes, it draws on the NSR/other markets for stability (just as we use BTC/USD at bitfinex currently).

I think when you say it draws on them for stability you must mean price feeds. The NSR market is even thinner than that of PPC. So I feel a system setup like that might suffer the same fate, and benefit some skilled traders as opposed to shareholders or the peg. Even the BTC/NBT custodians are suffering losses for these reasons.

[Nagalim]

They are suffering because we cannot control BTC/USD via burns or anything. NSR/NBT is our market, we should be using our liquidity to stabilize it rather than handing it over to bitcoin miners. I agree that the liquidity operations will need to be much smarter for NSR/NBT than NBT/USD (which of course would still need its own liquidity operations to be held as a static peg). In my mind, the NSR/NBT liquidity would have dual side for stable situations and single side during peg-break situations, where we will pay extra for people to place orders against the offending wall (for instance placing a buy order at .00299 if there is a sell order at .003 and the price should be .0032) to stimulate market movement.

The point I’m trying to make is that we need to own the NuShare price. The burn motion means we are going to leverage the NSR/NBT market, so there is already a weak link there. I say we own it. We don’t need to upend everything, just maybe we should try to find a better way to decide on the NSR/NBT price for the burn motion at least.

I love the idea of auctions, maybe there’s a way we can automatically auction off burns or something?

[GreatScott]

The point I’m trying to make is that we need to own the NuShare price.

I think we can all agree to peg NSR to 10 NBT, but it won’t work for the same reasons any other price won’t work. It is just a volatile asset subject to the whims of the market. We’d lose trying to control it like that.

[Nagalim]

That’s why you don’t arbitrarily peg it. You peg it to the NSR/other market so that it recursively affects the true price of NSR. You basically peg NSR/NBT to NSR/USD and it acts as an economic lever for NBT/USD.

For example: If NSR/BTC shows NSR valued at $0.002 and NBT/USD drops to $.5, the peg will be at NSR/NBT=0.002 so that people will burn NBT for NSR because the open market has NSR/NBT at .004. As people sell NSR for BTC, then BTC for NBT, the NSR/NBT price will get lower and the NBT/USD price will get higher.

Edit: I was double counting the NBT/USD factor in my equations; it’s actually simpler this way.

Pegging is useful for day to day operations and in the event of a black swan, where custodians are paid to put orders up against the tide, burning their way back to avoid traveling through a thin buy side.

[GreatScott]

What would be the purpose of dual side liquidity on NSR/NBT during stable times for the peg?

[Nagalim]

If the NSR price becomes stable soon, I’ll eat my hat. That said, none as far as I can tell.

[GreatScott]

The peg that our customers are depending on, NuBits.

[Nagalim]

To avoid black swan and to allow continuous restabilization of the NBT/USD peg, and general sensitivity of the NSR price to the pressures on the NBT peg.

Also, with lots of NBT dualside liquidity, to leverage the stability of the NBT market into stability for NSR.