Yes, there are issues. But if poloniex falls, we lose nulagoon, alp, and gateway funds. Is trusting like $10k to bitfinex surviving that bad? We can always pull if we sniff trouble. How about $20k? And so on, there’s an optimal number there somewhere.
So I want to make a definitive distinction between two types of FLOT reserves: Dynamic and Stable.
Price-volatile coins, your btc and your ppc and what have you, are dynamic and require either extreme over-collateralization or constant market involvement. This is in fact desireable for our core reserve (btc) because we are actively involved in the market with it anyway.
Price-stable mechanisms (NuSafe, tether, bitusd, etc) allow for extremely little market involvement. By doing so they drastically lower the costs, but show all the issues inherent in their individual protocols.
I would like to change the terms of NuSafe and all future price-stable mechisms from replacing part of BTC’s 15% to reducing the outstanding supply of US-NBT (the currency the reserve is stable with respect to) by the amount in the reserve. This is a profound change, and it would reflect a basic fact: NSR is a dynamic reserve. Therefore, the buyback would go like this:
Take all nbt supply, subtract known nbt reserve balances, subtract stable reserves, multiply by 0.15, subtract calculated FLOT btc holdings. A very negative number means we have buybacks and fill alt reserves.
As an extreme example, imagine we have 100% in stable reserves. It would lead to a steady state where all nbt debt is reduced to zero. If we were very successful we could even conceivably achieve this while still maintaining dynamic reserves, especially once we have volume-based txn fees. Then, the only debt we would have to absorb ourselves would be the case where collateral fails or a company defaults. Of course, in this case any dynamic reserve would immediately overflow and we would start buying back nsr. We’d have to come up with a new paradigm of how to spend our money in that fabulous world.
