[Draft] A Comprehensive Upper Tier Model

[Nagalim]

[masterOfDisaster]

After seeing this diagram and matching it with the text, it’s quite simple to chime in:
please hash it and let the voting begin!

It’s as simple and as efficient as it can be.
I once created a draft, hoping to get Nu in a similar direction, but your draft is so much more elegant!
Kudos!

[Sentinelrv]

I love this process of discovery! It’s like we’ve been given a newly invented instrument that’s never been played by anyone and it’s up to us to figure out all its finer details and quirks and tune it properly so it plays beautifully. This discovery process is going to take a lot of time and practice, but the results should hopefully be worth it in the end.

[Nagalim]

[Dhume]

Thank you for explaining so eloquently, I will definitely vote for this proposal. Only thing I’m wondering about it that you didn’t specify the amount we buy or sell when we get below standard. Say we fall 20k USD worth below or above standard I’m assuming you don’t mean that we should try and sell/buy the whole amount at once? So would you propose to use the same 10% we are using at the moment? So we’re in excess of 20K BTC (aka 20k above standard) we start selling 10% a week? Same as for buying back BTC when we’re below?

[Nagalim]

So the standard is actually an abstract derived concept. Come next buyback, the standard (or buyback amount) will be 5% of (total btc reserves - 15% circulating nbt). So as you can see, with a 5% prefactor and a $2,500 standard threshold for buybacks and dilutions, we would need to be $50,000 in debt or in excess before we begin buying back or diluting at a $2,500/week rate.

The standard is not the deficit, it is the rate of change of the deficit. A $20k excess translates into a standard of only $400.

[Cybnate]

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.

Maybe it is the wording, but you are saying that in the proposed bandwidth we are encouraged to institute park rates. Beyond the - 2,500 USNBT, I suppose it is a given to have park rates in place to support the peg. The more debt, the higher the park rates while limited NSR selling is working alongside and increasing, right?

[masterOfDisaster]

At least that’s my understanding as well.
It finally creates a guideline for NSR holders when to raise park rates.
If the park rates aren’t able to remove enough NBT from the market temporarily for the reserve situation to recover, NBT need to be removed permanently by selling NSR.

[cryptog]

What s the mathematical def of the standard?

[Nagalim]

I put the picture in the OP. I think it makes it clear that parkrates should be nonzero when the standard is less than $2,500.

The standard is calculated each week by estimating the T4 bitcoin reserve value, subtracting 15% of the outstanding nubits in the network and multiplying the difference by 5%.

[Nagalim]

[Withdrawn] Motion to prohibit Tier 6 NSR sales above a total 1,000,000,000 NSR supply

circulating supply + 25 million

This has now been accomodated in the draft. @tomjoad, do you agree with the implementation?

Dilution Limit

FLOT has been given 25 million NSR to perform share dilutions to preserve the peg. Only via explicit shareholder vote will any additional shares be created to protect the peg. Any shares granted to FLOT in this way will be subject to the rules prescribed by this motion. In this way, shareholders recognize their fundamental and direct control over share dilution and its effects on the peg. Refilling the FLOT NSR reserve is fully at the discression of the shareholders.

[Sentinelrv]

Refilling the FLOT NSR reserve is fully at the discression of the shareholders.

I just noticed you spelled discretion wrong.

[Nagalim]

Refilling the FLOT NSR reserve will be the responsibility of shareholders and at their discretion. However, it is agreed that if the NuShare supply exceeds 1,000,000,000 NSR (or 100,000 NSR after the unit reduction as per e0b3f80e5d9f58d3c3df27e346b61233b9cd5153) no additional NSR will be printed by grant for the purposes of leveraging T6 liquidity to recover the peg. This is a pledge that no shares will be sold by Nu for any currency upon reaching this hard cap.

Added to encompass the discussion held here:

[Withdrawn] Motion to prohibit Tier 6 NSR sales above a total 1,000,000,000 NSR supply

Motion RIPEMD160 hash: TBD =##=##=##=##=##=## Motion hash starts with this line ##=##=##=##=##=##= Shareholders will not pass NuShare custodial grants for the purposes of maintaining a NuBits price peg if the circulating supply of NuShares exceeds 1,000,000,000 NuShares, or the equivalent NSR amount after re-denomination occurs. =##=##=##=##=##=## Motion hash ends with this line ##=##=##=##=##=##= It has become very clear to me from watching NSR trading volumes over the past six months …

[cryptog]

Why multiply the diff by 5%?

[Nagalim]

Cause otherwise it would be too big. The standard is the weekly velocity. This number is actually in the peercoin motion and already implemented, so the real answer is: because that’s how it is now.

Try to pay attention to the intracacies of this week’s buyback calculation. This motion only slightly changes the rules, most of the calculation is still the same.

[Cybnate]

Refilling the FLOT NSR reserve will be the responsibility of shareholders and at their discretion. However, it is agreed that if the NuShare supply exceeds 1,000,000,000 NSR (or 100,000 NSR after the unit reduction as per e0b3f80e5d9f58d3c3df27e346b61233b9cd5153) no additional NSR will be printed by grant for the purposes of leveraging T6 liquidity to recover the peg. This is a pledge that no shares will be sold by Nu for any currency upon reaching this hard cap.

Find this hard to digest without an increase in reserves as per earlier discussion.

[Nagalim]

Here’s why 1 billion is not arbitrary:
1 billion cap means we can dilute 200 million shares. Sold at a rate of $0.002, this gives $400. If we take the $800k circulating and subtract off 150k t4 buy, 100k T1-3 buy, and 150k nbt with developers we can see that we can leverage just 200 million nsr in order to completely reverse a black swan event. The more important question actually comes down to our ability to sell nsr at $0.002 indefinately. I’d say that putting a cap on the dilution actually makes our ability to sell at that price much more secure. ‘While supplies last’ kind of a mentality.

So then there’s the question of what happens if circulating nbt grows and our reserves don’t. The ultimate argument that I can make here is that the actual size of our bitcoin reserves doesnt matter for the nsr leverage mechanism. Ideally, if $100k goes into nsr buybacks we should be able to get $100k back out later, despite what happens with other reserves. The concept is basically that nsr is just another dynamic reserve, like bitcoin, but without an overflow condition because it is without counterparty risk from the perspective of Nu.

So I hope I have convinced you that the 1 billion cap is not arbitrary, but indeed should be just about enough for us to pull out of an extreme black swan event.

[Cybnate]

So I hope I have convinced you that the 1 billion cap is not arbitrary, but indeed should be just about enough for us to pull out of an extreme black swan event.

Yes, you convinced me it is not arbitrarily. I’m just not sold on artificial caps because…

[Withdrawn] Motion to prohibit Tier 6 NSR sales above a total 1,000,000,000 NSR supply

Investors may only trust that shareholders will act rationally and tend to protect their investments and hope that they know what they are doing.

The concept is basically that nsr is just another dynamic reserve

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.

it is without counterparty risk from the perspective of Nu.

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.

[Nagalim]

Replaced the cap with this:

##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:

1. Park rates must be >20% on some parking interval.

2. 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.

[masterOfDisaster]

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.