[Discussion] Nusafe - Hedging 50k tier 4 funds in USD

[mhps]

I really worry about your exchange USD. It may look ok month after month until needed to be used, because the exchange has become insolvent.

[Dhume]

Due to security/privacy issues I won’t entail exactly how I plan to hold the USD but insolvency won’t be a problem. You don’t park large amount of dollars on small illiquid exchanges.

[Dhume]

If there are no further objections I will hash this later tonight and update to voting.

[ttutdxh]

This is remarkably similar to what I propose here, but in my opinion the current proposal adds a fatal flaw.

• Nu can’t control the value of the collateral. The current version is basically exchanging BTC risk for BKS and NSR risk. Nu business risks would not be improved.

If I were to choose right now were to store 50k USD I would certainly not save them as BKS or NSR. First option would be NBT and then BTC, by far of any other crypto including BKS and NSR.
Reasons for this:

• Slippage in a trade would drive prices to insanity in either direction, and I would instantly loose money.
• Risk. As mentioned by others, BKS is a share of an unfinished product. I understand there is potential, but the current price reflects the level of risk. It is potentially worth orders of magnitude more, but it is just that, potential. Storing wealth in potential is just investing, not hedging. And in this case Nu is hedging against @Dhume.

I would only support this if the collateral were burned NBT, like this. Safer, cheaper and simpler for both sides.

[Nagalim]

Burned nbt completely defeats the purpose of this proposal. We are not storing the money as BKS, we are simply using them as collateral to avoid dhume running with the money. The money is stored as USD, not BKS. To burn nbt would completely defeat the purpose of having a buy side, and would end up with a peg breaking upwards.

[ttutdxh]

To burn nbt would completely defeat the purpose of having a buy side, and would end up with a peg breaking upwards.

I don’t think so. That is exactly the purpose of NBT. What are we doing here if we can’t support a 50k NBT sale?
It will not be possible to purchase it in one trade, but that is because we have a tier and reserve system preventing just that. And it is working.

Ideally these large trades would be arranged directly off exchange to prevent lowering walls, but you can just buy whatever is available, then traders/tiers/FLOT/JordanLee reserves/other members will come up to refill the demand, take the profit on the spread and everyone’s happy. That is exactly Nu business model.

We are not storing the money as BKS, we are simply using them as collateral to avoid dhume running with the money.

Merely taking the collateral will be a trade to Dhume without slippage. Is is instantly a wining trade for Dhume.

[Nagalim]

we can’t support a 50k NBT sale

So you propose that we take 50k NBT, sell it for BTC, give the BTC to Dhume, and tell him to buy 50k NBT and burn it? I’m really not getting the point here. How can you possibly store buy side funds in burnt NBT? You can only store sell side funds in burnt NBT. Burnt NBT is not buy side support, it is a reduction in sell side supply.

[masterOfDisaster]

Burnt NBT is not buy side support, it is a reduction in sell side supply.

What about parked NBT then?
Can a reduction of sell side supply not be buy side support?

[Nagalim]

Can a reduction of sell side supply not be buy side support?

no

We aren’t talking the global peg, we’re talking T4 funds. If you were to take all the T4 buy side and buy up a bunch of NBT and burn it, would we therefore be storing T4 buy side funds as burnt NBT, or would we just be breaking the peg and the whole tier structure? When someone buys NBT from us, do we just buy it right back from them to burn because it’s the safest way to store it?

[ttutdxh]

So you propose that we take 50k NBT, sell it for BTC, give the BTC to Dhume, and tell him to buy 50k NBT and burn it

Not exactly:

1. Dhume has 50k USD
2. Dhume buys 50k NBT with that (over a week, from reserves, whatever).
3. (Motion) Dhume agrees to burn 50k and get equivalent of BTC. He also agrees to have the USD available on short notice.
4. The burn and sending of BTC funds takes place (or PPC, or anything else. This is only a method of payment of the 50k USD).
5. Now part of Nu reserves in BTC are now in USD, and Dhume can profit from it every month.
6. USD in dhume pockets is effectively buy support, because he is committed to send them back to Nu or buy NBT at market on short notice.

I would be happy with a smaller amount, just to prove it works and is profitable before going deep.

Can a reduction of sell side supply not be buy side support?

no

We aren’t talking the global peg, we’re talking T4 funds. If you were to take all the T4 buy side and buy up a bunch of NBT and burn it, would we therefore be storing T4 buy side funds as burnt NBT, or would we just be breaking the peg and the whole tier structure

Point 6 address that concern.

In this case we are exchanging BTC volatility risk for the risk of dhume default.
But dhume default and the decrease in sell side is covered, because the decreased buy side can be easily paid for by the collateral held by Nu, marked as “Funds locked the entire month” in the example spreadsheet.

All of that without relying on other cryptos price, liquidity, potential, hope.

[Nagalim]

Dhume agrees to burn 50k and get equivalent of BTC.

Right, so dhume buys nbt, then sells them for btc. He now holds btc not USD. The USD is given to the people who sold dhume his nbt, i.e. they are no longer in the network. Now, dhume is essentially acting as a T4 btc buy side custodian without multisig. Therefore, that method is strictly worse than dhume doing nothing at all.

As far as is point 6 is concerned, dhume sold all his USD, they aren’t in his pocket anymore. How do we get him to use the usd in his pocket without holding his collateral ransom?

[ttutdxh]

No, BTC is the method of payment. Dhume owes USD to Nu.

He can make whatever he wants with that BTC, sell them, trade them. But the moment he is required to pay back he will have to be able to pay 50k USD. Again, in any way we agree like BTC, PPC…

[Nagalim]

Why would he pay back the USD, what would he get in return? Nbt? So he can choose not to at any time and lose nothing.

All Nu’s done in that case is buy back nbt with our own btc. Dhume isn’t even useful in that situation.

[ttutdxh]

Why would he pay back the USD, what would he get in return? Nbt? So he can choose not to at any time and lose nothing.

He gets the interest, paid by Nu, and his collateral back. Again, in BTC, PPC, NBT… Anything at current prices can do as a payment gateway.

All Nu’s done in that case is buy back nbt with our own btc. Dhume isn’t even useful in that situation.

Whatever BTC price does, Dhume stores Nu 50k USD flat. As a “NuSafe” like he called it.

[Nagalim]

So we are buying back nbt then offering to sell dhume nbt for cheap for no reason? He could also just take the btc and walk away. Are we then willing to offer the interest to anyone who can put up $50k? So then we’re just selling nbt for <$1 to anyone.

Without collateral or punishment for default, dhume has no contract. The only way this would work is if we gave dhume $50k minus the reward and expected him to pay back $50k at the end, which would of course make it pointless for dhume.

his collateral back.

So your proposal still has the collateral? How is it different from dhume’s then?

[Nagalim]

It might work if we do this:

Dhume buys 50k nbt and burns it. Nu pays dhume $45k btc. If Nu asks, dhume supports the buy side. At the end of the contract, Nu pays dhume an additional $10k (plus any $$ used supporting the peg) as long as he supported the buy side during the contract. Therefore, dhume fronts $50k and gets paid $5k total. No collateral used. (The numbers aren’t right, but you get the idea)

Sorry if that’s what you were saying. Basically, Nu doesn’t have any risk and dhume gets paid for the risk management.

[masterOfDisaster]

I thought I might have got lost, but this last post finally found me
With this proposal @Dhume has quite an incentive to stick to the agreement.
He only needs to get sufficient compensation for the risk management to make the deal.
Sounds like a potential win-win situation for @Dhume and Nu!

[ttutdxh]

He could also just take the btc and walk away.

Dhume buys 50k nbt and burns it. Nu pays dhume $45k btc.

That is exaclty what is described in the other thread and marked as “Value of funds received in BTC” if you take a closer look at the spreadsheet

Sorry if that’s what you were saying.

Yes it’s alright, I think I have not made it very clear on the other thread and that other members are generally not absorbing it either, but I really don’t know how to express it simpler. Improvements on the explanation are welcome.

[Nagalim]

DR - Distributed reserves

If the custodian decide to end services at any moment the debt is paid or burned and the collateral returned through a grant.

That is my issue. What we are saying is subtly different. In my new model the burned NBT are not collateral, they are gone forever. The custodian ends the contract simply by not providing funds when Nu asks, thereby sacrificing both the reward and the difference between the NBT burned and the worth of the btc at the beginning of the contract.

[ttutdxh]

custodian ends the contract simply by not providing funds when Nu asks, thereby sacrificing both the reward and the difference between the NBT burned and the worth of the btc

I don’t think that works, if BTC goes to 0 the loss for the custodian is the 100% of the investment. The point is that BTC disappears from the picture after the payment is made. It is only a payment method.