Yes, you convinced me it is not arbitrarily. I’m just not sold on artificial caps because…
NSR is a weak and volatile reserve as it is directly tied to the DAO’s perceived value instead of its real value. I’m not advocating for 100%+ reserves, but our current reserves and governance clearly doesn’t cut it looking at our sales.
We prefer this from an ideological perspective (decentralisation) and with a view of opposing governments seizing funds. And I prefer to stick to that as much as is reasonable. However at this early stage I believe the risks of NSR reserves far exceeds almost any other real world reserve and the risk of it being seized.
It is all about trust. The first someone asks me when I’m trying to sell them NuBits is why would they trust a bunch of anonymous Shareholders that the NuBits will stay a dollar for years to come. Shareholders do want to protect their investments, but the question is how and at what cost/risk. That would determine the trust level. Unfortunately you can’t create an easy formulae about trust as it is perceived different for anyone.
Re capping; there are two major drawbacks on artificial capping and the reason why I’m not in favour:
It doesn’t look great from a marketing perspective that the focus is on protecting shareholders interests only. Measures should be taken to include protecting NuBits holders too, e.g. by increasing the reserves to reduce the likelihood on black swans in the first place. When there is trust, people will buy and black swans stay away.
When we need to do some serious investments to increase our profit the caps might get in the way. In the future we might need to invest in the network. Even with profits and a great outlook funds raising is required to enable continuous growth. Issuing shares is a great way to do that, and possibly the only one for us. It also has the additional benefit of the potential of new shareholders joining. Any company is perceived healthier when there are multiple shareholders, I think this is even more true for DAO’s with anonymous shareholders. The wisdom of the crowd far exceeds the wisdom of a few in general.
##Peg Break
In the event of a black-swan type market crash of nsr at the same time as a bank run on nubit sell offs, Nu will need to take certain measures to protect itself. By allowing the peg to break in such extreme circumstances, Nu is taking the long term position that if forced to make a choice Nu will favor its core voting base over those using its product. With this in mind, it is important to inform customers of what they can expect from Nu as far as a NuBits product is concerned.
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.
##NBT Devaluation
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 cease all T1 and T2 activities and begin devaluation. All gateways and pool operators are expected to cease operation, burn all nbt, and give any outstanding btc back to FLOT. Then, T3 and T4 are expected to alter the nbt price feed. A new feed will be calculated each week in place of the standard calculation 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 thos way. If either trigger condition is no longer met, NuBit devaluation will cease immediately.
I think NSR holders need to be (financially!) responsible for the products they issue.
A broken peg devaluates Nu.and costs the shareholders money.
But I’m also realistic enough to realize that there are scenarios and circumstances in which a broken peg can’t be avoided.
The above describes a way that makes it for users and NSR holders “predictable” how dilution of NSR will be done and to what extent.
NSR holders could still dilute more or less, but such a charter can guide both users and NSR holders, point out the next steps.
I’m inclined to find it more useful and like it more than a “dilute to keep the peg no matter what” scenario.
I think we have to be more specific on what kind of black-swan event that is. If it is bitcoin price has an exploding appreciation so that most people are selling nbt and nsr to get into bitcoin, then the event is highly likely to be a spike event that reverses with the same force, when massive buy-orders sweep up all nubits in minutes. It would not be a good idea to burn nbt when declaring pet break. It’s better to let the LPs and gateways keep them.
If the event is something like authority cracking down on cryptos or nubits, the the course of action you propose is more reasonable. We should also have a recovery plan and let nubit spring back if condition is ready. Nu can be very resilient even a peg break happens. The more resilient it is, the more people will hold onto nubits, knowing that eventually it can be sold for $1.
Park rate is annual rate. If we pay 8.5% per month to the LPs, why can’t we pay 100% pa as park rate?
Park rates can be taken advantage of indefinately whereas liquidity pools have targets or competition. Though in general I agree that park rates should be way higher and liquidity costs way lower than we’ve done so far.
The idea behind the park rate threshold was to give shareholders a way to signal or avoid nbt devaluation using a blockchain vote. I’d also be down with linking it to fees. In theory, we could make the park rate threshold obscenely high (100%) and when we want devaluation we could use the 1 day slot so it would only be high during the devaluation. Still, it acts as a minimum for park rates during devaluation.
There’s still the issue of creating more debt when the network is suffering, but the refill mechanism creates a way to bailout the debt over time so it may be considered to balance out in the long term.
Right. We should urge voters not to vote for park durations that are longer than how often voters would vote. For example if voters evaluate and could change park rate once a month, then all park durations longer than a month should be 0.
It’s just borrowing money from nubits holders to help defending the peg. It’s not unlike selling NSR, which is borrowing from NSR holders with a belief that the cost will be paid back some day.
There’s still a distinct difference with liquidity pools. Let’s take fixed cost as an example. Say a pool has a fixed cost of 1,000 NBT/year. If we implement say 10% park rates and 10,000 NBT park, we’ve already hit the same cost. If we have 100% park rates on 1 week intervals and one actor is holding most NBT in circulation, they can instantly attain 10,000 NBT just for that one week. Even if market pressures immediately die off (because they were the ones generating them), they still get their 10kNBT. And they can just rinse and repeat next week.
There’s an attack that park rates without other peg mechanisms opens up: If someone is holding a vast amount of NBT and park rates start increasing, they can wait and even sell a few NBT onto the peg in order to convince shareholders to vote for exhorbitant park rates. Then, they can put up every single NBT at the exact same rate. And that’s the attack, that shareholders are assuming NBT ownership is decentralized and parking will happen in a semi-continuous manner. If a collusion waits, then parks a large number of NBT at the same time, shareholders have no time to feedback even with short park intervals.
Also, I’m pretty convinced offering half the rate at twice the duration is always logically consistent. If people want to hold their NBT in the network for longer time for free, let them.
You assume everything stays the same. It’s possible that after 1 duration you need those parked nbt to be liquid. Longer park durations just make the Nu liquidity system less responsive to control
i feel that we don’t understand how park rates affect liquidity well enough to determin a threshold rate because we don’t have much data. Using parked amount as an indicator might be better e.g. “if 30% of all circulating nbts are parked”. Still I have very little confidence in any number.
Right! What good is 100% park rate if still only few NBT are parked?
My gut feeling says the total parked NBT is indeed the better indicator than a park rate.
Looking at the percentage of parked NBT provides information that already includes market feedback.
And that’s why we need flexibility and not a fixed cap as we can’t foresee all the scenarios leading to a peg break. We may try a cookbook for a number of scenarios but a motion to cover all scenarios is silly and a potential thread to the network in times of crises as Shareholders may hesitate to act swiftly and break a motion because a motion from the past said so.
Agree, and depending on the circumstance the park rate will determine how many NBT will be parked. Being able to set a maximum NBT to part would be more logical than only being able to set a percentage. We need a Dutch auction model here and selling NBT positions to park to the ‘lowest’ bidder.
I dropped the fixed cap a few edits ago. How do you feel about the 25 mil/3 months dilution rate? Of course we can dilute more if we want, it is just a promise to our customers as far as what they can expect at a minimum.
Guidelines are fine, but without some actual numbers and thresholds they end up being meaningless. Jordan Lee attempted to keep everything flexible with regards to T6, but eventually needed to put in place motions with specific numbers and thresholds. A more complete and thought out version of these threshold motions is inevitable.
also added this: #Transaction Fees
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.
My problem with this is that it defeats the original purpose of that trigger, which was to give shareholders direct control over whether or not a devaluation occurs. One could theoretically trigger this condition without even being offered park rates and paying very little in txn fees. It would just be an opportunity cost, which is a low price to trigger a false devaluation event.
I’m not sure I understand the question in relation to the bit you quoted, but this is the model I’ve been playing with for how devaluation ends:
The thing is, devaluation is actually quite easy to end. Simply start buying back NBT at $1 instead of $0.9 or whatever. Eventually, T1 and 2 buy sides will pick up again. Starting devaluation is more difficult because you have to turn stuff off (buy sides on pools) or update to a complicated feed.
and selling NBT positions to park to the ‘lowest’ bidder.