The buy side of the peg should be kept tight using non-network assets in reserve. I will talk about cryptocurrency assets because they all have similar properties, but other forms of currency have been mentioned, such as USD sitting on exchange. I am attempting to cultivate a general set of rules for any cryptocurrency shareholders wish to hold in T4 reserve.
Multisig. There are technical challenges associated with any new blockchain. It might be best to open up a SLOT (second liquidity operations team) to handle the multisig and blockchain for each new crypto.
Max % of circulating NBT. If the reserve exceeds this value, an overflow will be used to buy BTC similar to how share buybacks are done.
Min % of circulating NBT. This is actually an open question. It is tempting to say “if the reserve drops below this value, start buying” but that means we subject ourselves to every black swan on the market. Instead, we should only buy altcoins with the BTC overflow.
The end result looks something like this:
Each week the T4 people all figure out how they are relative to their targets. Any altcoin with overflow sells for BTC. If BTC has overflow, it gets divided into different streams. The streams can be updated by motion each time a new SLOT is formed. For example, 10% of the BTC overflow could be used like this:
5% NSR, 2% PPC, 2% LTC, 1% BKS
Now, this would have a very interesting effect because if both the altcoin and BTC are overflowing, T4 custodians will end up buying and selling a coin at the same time. However, this is preferred because there is the possibility that they will both buy and sell at a spread rather than simply to each other.
4) If T4 BTC funds drop below x%, start mortgaging altcoins.
Diversification is always good!
In my view this is rather an insurance for a catastrophic BTC failure than for BTC volatility. Is that your view as well?
I mean, most cryptocurrency (assets) are priced in BTC (and not in USD) and if BTC/USD drops, so do they.
If it were possible to find assets which are not priced in BTC, but rather in USD, they would fit very well in this basket!
BKS might be such a candidate, because it was priced in USD from the start and the only exchange trading BKS so far has a BKS/NBT pair with more trade than the BKS/BTC pair.
Let’s look at LTC. Why would we keep funds in LTC? If PoW fails, LTC will fail too. Basically, the reason is that this type of reserve actually ends up causing Nu to buy low and sell high. If both LTC and BTC drop in value, there will be no overflow so nothing will happen. If both LTC and BTC increase in value, we will end up buying and selling LTC at a spread or to ourselves. However, if LTC moves up relative to BTC, LTC will overflow and cause us to sell it high for BTC. If BTC moves up relative to LTC, it would trigger BTC overflow without triggering LTC and we would end up net buying LTC low.
This is basically it. Investing in altcoins is a great way to get a good portfolio going.
I’m interesting in more convenient alternatives to the method by which I’m proposing we use BTC overflows. If there is some idea that doesn’t require continuous redefinition of the %'s for each new SLOT or won’t result in us buying from ourselves and paying exchange fees, I’m all ears.
OK, so, PPC multisig address - what would it take to set one of these up? Let’s increase our T4 reserves by holding something other than ppc. I’m looking to do 5% of circulating nbt in ppc in addition to the 15% already in btc.
I think this is a great idea. It diversifies the types of funds on T4, increases the total value of T4 buy side and the PPC on T4 buy side could even be used for paying dividends under certain circumstances.
For example if PPC surges in value (and T4 buy side PPC funds are way above 5%) a part of the funds can be distributed as dividends.
I like both the diversification aspect and the increased total T4 buy side value by introducing another asset that has different technical and economical risks.
This could be another important piece of peg security even if Nu manages to get T4 buy side funds in USD either by shifting BTC value to USD or adding USD on top of the BTC funds.
This would mean an increase in funds reserved for buy side support to maintain the peg, it would also require a hierarchy of what assets to sell first when we need funds to support the peg. Is my understanding correct that you propose to have additional funds reserved for buybacks on top of the 15% we are already supposed to hold?
This is point 2. The answer is yes, we pick a % to hold in PPC and a % to hold in BTC, so the total T4 buy support will be the sum of those two numbers.
This is point 4. There is no need to develop a hierarchy. Instead, we can auction off both LTC and PPC at the same time and just specify the relative rates. Then, we will dip into all alt-coin reserves at once with different, shareholder determined, market velocities. The velocity should be a combination of concerns about how thin the respective order books are as well as shareholder preference. But for now, with only PPC on our thoughts as the first alt-coin held in T4 (NSR is T6), we just have to think about the x% to start mortgaging at and y market velocity to determine the speed to bring funds to market.
Dipping into all altcoins at once gives the benefit of both leveraging multiple markets and calling upon multiple groups of signers so that we are more sure of getting a response from the network when the peg is in trouble.
Yah, i meant selling, sorry bad language. I was thinking like 10%. We should discuss the velocity too, because a % depletion would asymptote to us always holding some in reserve while specifying y number of PPC would not scale well.
This is meant to compliment NSR buybacks (and yes, reduce their magnitude as long as our T4 reserves are not full):
I was referring to point 3, where we purchase PPC. Point 2 is where we determine the total reserves.
There is a key complexity here that I think the readers are missing, cause it’s kinda interesting. I’m going to start throwing out some numbers:
If we have more than 15% of the NBT supply in BTC, use 7.5% of the overflow to buy NSR and 2.5% of the overflow to buy PPC. If we have more than 5% of the NBT supply in PPC, use 10% of the overflow to buy BTC. If we have less than 10% of the NBT supply in BTC, start selling PPC (unknown velocity yet).
Using this model, we reach a steady state when we have 20% of the outstanding supply, 15% in BTC and 5% in PPC.