I would like to re-examine this problem in light of Jordan’s Finalized evolution of liquidity operations proposal, which proposes to provide deep liquidity across many major exchanges. If the proposal is implemented, the scenario with PPC can well happen in the NBT/BTC market in a proportionally bigger scale.
In a major market crash, sellers could be collectively dumping several 10k btc in a short period. Daily volume on BTC-E alone had been 70-150k btc, so having 10k exiting volume on one excahnge is very possible. If Nu operates NBT/BTC bots with deep liquidity, I think we could see our reserve shrink by a significant amount quickly. Bitcoin had gone up to $30 before crashing down to a few dollars and stay there over over several years, then to $260 back to $60. Now bitcoin price is coming down from $1000 to who knows where.
To run some numbers to get a feel of the problem, suppose a total of 50k btc exits, from several exchanges, via NBT/BTC, in a market crash that went from $320/BTC to $170, with an average selling price of 270 NBT per BTC. In the end the bots lost $5M worth of reserve (because they sold 50k x $270 worth of NBT and in the end have 50k x $170 worth of BTC in hand). This could put Nu from deep liquidity to deep in debt overnight. Due to its inherent problems, bitcoin price could well go down to below $100 forever. It could be very hard to recover to previous price level.
On the other hand only operating NBT/USD bots will insulate Nu from such market crash because anyone want to sell BTC for NBT has to buy NBT from someone who has paid $1/NBT to the bots.
I do recognize the value of providing BTC/NBT liquidity by Nu bots. Maybe the best way is capping the liquidity of BTC/NBT to limit the exposure to BTC price that Nu reserve would face?
I think the danger is real. The issue should be addressed as soon as possible. Offering high liquidity is nice but at what cost? Right now the risk of a loss could be substantial in a market crash but the spread (between sell and buy walls) is very thin, which means that users (traders) pay almost nothing for accessing this liquidity.
That is why offering liquidity on NBT/USD should be the priority over NBT/crypto but the issue is that most of the exchanges in which NBT is traded do not have a large USD volume…
Getting NBT on BTC-E should solve the issue.
In the mean time, in order to deal with the risks of losses for custodians, capping (alleviating the risk) or increasing the custodians fees (counterbalancing the risk but more expensive to shareholders) or increasing the spread ( counterbalancing the risk but more expensive for traders to use NBT) should be considered.
According to this Nu perhaps has several times more in cash than all nubits on offer by custodians. So Nu is quite high above water. But if a lot of vote-generated NBTs start to be ready to enter NBT/crypto market, the situation could change.
edit: I checked proposals of KTM, jmiller, and Jordan’s strategic reserve. These proposals received about 6 millions NBT generated by voting. That exceed the reserve Nu has. I think we should choose to err on the safe side and curb NBT/BTC if the market keeps going down.
How do they compare to the 500k in “Whether we have fractional reserve and what that fraction is depends the value of NuShares + reserves (such as USD, BTC and PPC) / NuBits in circulation. For example, right now NuShares are worth about 3,000,000 NBT, reserves are approximately 600,000 NBT (total of BTC and PPC held by KTm, Julie Miller and myself), and I believe outstanding NBT is around 500,000. 3,600,000 / 500,000 = 7.2”
Do you know what is the difference between those 2m and the 500k mentioned by JL?
Another way to formulate the question is what is the meaning of outstanding in “I believe outstanding NBT is around 500,000”
Tks for the clarification.
Those 2m must be corresponding to the 2.2m in coinmarketcap. -->$ 2,248,306 .
Anyway, that would be great to have a real-time tool that lets shareholders know how many NBT are for sale…
Perhaps such an information would be included in the tool that was talked about by @ben .
I assume that there is no command in the debug window of the Nu wallet that lets you get to know about that.