[Discussion] Tier 7 liquidity: Volume-dependent transaction fees and "Restricted Network Access" status

[tomjoad]

I think the tier 7 policy should go together with say a 33%-50% reserve model (in tier 4 or 6?) to be able to manage the smaller bumps in the road without pain.

This is a great observation. If we are uncertain about predicting future demand and would like more reserves, I would prefer increasing Tier 4 and eliminating Tier 6. One could argue that increased BTC exposure in Tier 4 is undesirable, but it is still better than selling NSR at the absolute bottom of its worth in Tier 6.

Increased Tier 4 reserves, and a capital control tier as a last resort are superior to our current design, in my opinion.

[masterOfDisaster]

One could argue that increased BTC exposure in Tier 4 is undesirable, but it is still better than selling NSR at the absolute bottom of its worth in Tier 6.

That’s why I was arguing for refilling T4 buy side with T6 NSR sales before T4 buy side is completely depleted.
Commenting the rest of the T7 idea needs some more time. I haven’t thought it through thoroughly enough.
I like the proposal, the discussion about it, although I’m not sure what position I will have once I’ve established a position.

[tomjoad]

That’s why I was arguing for refilling T4 buy side with T6 NSR sales before T4 buy side is completely depleted.

The better approach would be to simply hold more BTC in T4 from NBT sales. So, a custodian sells NBT for BTC, and FLOT keeps a higher percentage of NBT that are not used for development, buybacks, or dividends. This would support our goal of increasing the perceived scarcity of NSR. What do you think?

[masterOfDisaster]

withhold more BTC

means more volatility risk.
Investing BTC in NSR buybacks increases the scarcity while decreasing BTC vlatility risks. But this possibly pushes the price of NSR far north and reduces the effectivity of the buybacks.
Unless there are effective means to reduce BTC volatility risks (PPC, clever ways to make use of USD, etc.) I don’t feel comfortable with increasing T4 size.
Nu already pays a big price for compensating liquidity operations.
Increasing T4 size increases the risk for BTC volatility.

I still haven’t thought it to the end.
But I fear using T7 without having used all appropriate lower layers before damages Nu or rather NBT more than using T4-6 first.
At least until we reach the point that T7 needs to be activated as well, because T4-6 are not sufficient.

I like a model that involves T4, 5, 6 and ultimately 7.
Use T4 to fill T1-3.
Use T5 or/and T6 if T4 runs low (using T5 makes only sense if the buy side runs low)
Use T7 if the effect of T5-6 isn’t sufficient.

[tomjoad]

means more volatility risk.

Cybnate summarized my points well here:

Selling NSR when it is not in demand is also a death sentence. We are talking about already having a serious problem and trying to come up with the best solution given the circumstances. I tend to prefer the capital control model. The challenge is to have adequate reserves. The tier 7 policy should only be executed to cover those unknown risks. The other tiers should cover the known risk to an affordable extent.

Tier 6 requires us to sell an asset (NSR) at the bottom of its valuation to support NBT, requiring greater dilution.

One could argue that increased BTC exposure in Tier 4 is undesirable, but it is still better than selling NSR at the absolute bottom of its worth in Tier 6.

[masterOfDisaster]

Selling NSR when it is not in demand is also a death sentence.

One could argue that increased BTC exposure in Tier 4 is undesirable, but it is still better than selling NSR at the absolute bottom of its worth in Tier 6.

That’s why I’m all for selling NSR before the situation is dire
Vote for this, if you want to have NSR sold before NSR reach the bottom of their worth - which might be close to emptied T4 buy side with pegs that can’t be kept.
Better have T4 refilled way before that happens

I really need to think more about it, before I’m in the position to really contribute to the discussion.
My initial impression still is:
I think it’s good to have more tools/tiers to deal with situations.
I prefer to exhaust/max out tiers before the next higher tier gets involved.
Anything else will be hard to handle. How else do you know when the time is right?

It’s one of the problems we experience with the current liquidity operations on T1-3. T2 and T3 are not properly involved. The result is a mess.
I wouldn’t want to expand that mess to higher tiers as well.