This will be an attempt to unify several previous motions already in effect that define how the peg is kept. It will be a broad sweeping motion, and will reference motions by hash at will. Nu’s history is unavoidable for understanding the function, so it will be spelled out in this motion. This motion will have no effect on T1-3 operations, it will strictly concern itself with T4-6.
NuShare buybacks, as defined by 7b4955e91781e0e32f1e0c0c974fd4a7a9f972a3, led to a definition of buy-side reserves held by the network. This properly defined the place that T4, described by motion 65CB60D096508A7FA9ECC2017B38BC3AFEB5663D, held as a decentralized network of reserves. It also defined a limit to the liability risk that T4 can hold. To reduce the risk, T6 is used as a final sink for Nu funds.
The goal of this motion is to provide a T6 source for recovering the T4 network when it falters. Along with it, a middle ground will be defined where shareholders will be encouraged to activate T5 park rates. This motion will act as a rallying point for such a decentralized movement of the blockchain.
Strict definition of a receding T4 reserve needs to be found. Fortunately, precidence can already be found in the aforementioned motions, as well as several others. The number corresponding to the weekly buyback amount in us-nbt is a powerful tool, allowing both a positive and negative result. This motion will attempt to use that number to specify amounts for NSR dilution events.
Reserves can generally be classified into two types by referencing the unit of account the nubit risk is pegged to. Either the reserve liquidity is stable with respect to a nubit unit or it is considered dynamic.
Stable Liquidity is all T4 liquidity denominated in native Nubit units. This includes all stable cryptocurrencies and contracts like NuSafe that are denominated in USD with reference to US-NBT.
Dynamic liquidity is all T4 liquidity denominated in other units. This includes the BTC and PPC multisig, but does not include any collateral for current operations as that is not considered operating liquidity.
The outstanding nubits in the network is equal to the quantity of circulating nubits, as defined by motion b1ef96aed5c7f9dec482467b254b40c82bf66d23, minus the sum total of T4 stable liquidity, but must be no less than 400,000 US-NBT. Dynamic reserves will be measured as a fraction of the outstanding nubits in the network rather than the circulating nubits.
The Standard will be adopted as a naming convention for the number previously referred to as the buyback amount. This will be done to reflect the positive and negative nature of that number, such that the network reserves can be ‘above’ or ‘below’ standard.
##A Bitcoin Dependence
The standard is calculated each week by estimating the T4 bitcoin reserve value, as in motion 25d8226a7aeb47370e8db0c2035296fb7e2c4095, subtracting 15% of the outstanding nubits in the network and multiplying the difference by 5%. Bitcoin intended for other dynamic reserves that are currently over target is also added to this 5% to attain the standard. The delicacy of this math is such that only a deficiency in the bitcoin reserve with respect to 15% of the outstanding nubit supply can lead to the network being considered below standard, and only at a 5% rate of that difference.
When the standard exceeds 2,500 US-NBT, the FLOT should seek to buy an amount of NSR within the next week equal to the standard. Similarly, when the standard is below -2,500 US-NBT, the FLOT should seek to sell an amount of NSR within the next week equal to the standard (using sources such as exchange markets to achieve a best-guess spot price for NSR in terms of US-NBT). The method of purchase and sale is at the discretion of FLOT, however it will be noted that in the past a market executor has been elected to perform buybacks while dilutions were performed using a blind auction model.
Shareholders are encouraged to institute park rates in the standard margin between 2,500 and -2,500 US-NBT. Shareholders should seek to find interest rates that hold the network in this band, to achieve network stability in the long term. If the standard is above the margin, park rates should cease. If the standard is below the margin park rates should increase drastically.
When the standard is negative, shareholders are encouraged to increase network fees. In general, shareholders would rather implement Restricted Network Access and ostracize users from the network than dilute shares or lose the peg.
As all dynamic and stable reserves are sold off to protect the peg other than the primary functional bitcoin reserve, nushare dilutions will weigh on the shareholders to turn the blockchain key for each wave of dilution by popular vote. To keep shareholders turning the key, this motion seeks to protect their interests at heart and to provide customers with an understanding of the risk associated with trusting a NuBit peg.
FLOT has been given 25 million NSR to perform share dilutions to preserve the peg. Every 3 months that supply will be replenished. This constitutes the extent of dilutions shareholders are prepared to perform to protect the peg as well as a pledge to continually attempt to pay off our debts.
If FLOT has 0 NSR in the reserve, one must assume that the network has entered a state of peg break. At this point it is important that Nu use funds on the peg more sparingly, realizing that by losing the peg we can buy NBT cheaper than if we keep up the peg. With this in mind, if the NSR reserve has sold all its shares in a 3 month period, NBT devaluing will begin.
In order to give shareholders full say over peg devaluation, two simultaneous events must occur before devaluation begins:
Park rates must be >20% on some parking interval.
The NSR reserve must have been zero some time in the past week, having spent at least 25 million NSR on NuBit buy backs in this 3 month quarter.
If the above conditions are met, Nu will begin a period of devaluation. In such a period, all gateways and pool operators are expected to cease buy side operation unless they can accommodate a changing price feed (giving any outstanding btc back to FLOT). All buy side activity done by Nu, specifically T4 and T3 interactions with lower tiers, will be done at a new price. The new price feed will be calculated each week in place of the standard calculation (all effects of which will be skipped during a devaluation period) using the following algorithm:
NBT price = old price * bitcoin reserve value / ( 0.15 * outstanding nubit supply )
The NuBit price can never be more than the original value in this way. Sell side operations are unaffected, generating a large buy/sell spread for NuBit products.
Each quarter, NuBit devaluation has an opportunity to cease. In order for this to occur, all park rate intervals must be below 20% at the time (block) that the quarterly NSR reserve is granted, at which point devaluation will immediately cease. Similarly, if the bitcoin reserve value exceeds 20% of the outstanding nubit supply, devaluation will immediately cease (and cannot begin again until the bitcoin reserve value is below 15% and the other governing conditions are met). No share buyback will be held during or for 1 month after devaluation ends; all bitcoin that would be used to buy nushares is held in tier 4 reserves instead.
The following motions are considered effectively replaced by this motion and will have no bearing in the future actions of the network except as examples of appropriate behavior:
e91340fdbda5c2a7a1362c66eece05b9c67d2496 (NSR sale and NBT burn)
dadd35b4132ab497772fc71a28ab5afb6ba3a8a5 (Make auction size adjustable)