Nu does not currently have a way to store USD or other fiat reserves to protect ourselves to BTC price movements, so this topic will be focused on discussing a method for achieving what I call “distributed reserves” or DR.
I have been thinking about this for a long time as I am a shareholder worried about liquidity and the exposure of reserves to BTC.
The procedure would be as follows.
- Custodian burn NBT as collateral (bought in the open market to unbalance liquidity on purpose).
- FLOT sends BTC to the custodian (less the collateral) to be treated as a payment in USD at current rates.
- The custodian take care of the USD, moving them wherever they want. (With the premise of being available in 3 days notice for example). The custodian can then use PayPal, OkCoin, regular Banks, accounts on exchanges, etc to keep the money.
- Nu needs USD
- If the funds are requested as USD liquidity the custodian can buy NBT in the open market at a set price and then burn the NBT.
- for other affairs FLOT can negotiate any kind of trade.
If the custodian decide to end services at any moment the debt is paid or burned and the collateral returned through a grant or a payment from FLOT.
This should be view as a long-term secure investment. The advantages of this kind of investment:
- Yearly/Montly/Daily interest.
- No exchange default risk
- Availability of the USD invested; the custodian can reinvest or spend on something else while he is in control of the USD.
In case of a custodian losing the funds or being unavailable to pay back, Nu earns the difference to the funds the custodian originally burned, which should exceed the interest.
Given the very low risk and the incredible advantages of this investment I think a <1% annual interest should be viable.
Edit: rules necessary to correctly handle DR are currently being considered.