[Draft] Shareholder Pledge

NuShares Motions
#1

Nu is governed by a decentralized body of shareholders. As such, it is difficult to assess the priorities of such an organization. This motion will serve as a rallying point for shareholder consensus as well as a pledge to NuBits users concerning what they can expect in extreme circumstances. Though future shareholders can always override past blockchain decisions, this declaration will set both precident and default expectations for non-colluding bodies in the network to rely on.

Every item listed in this motion except the last is expressed as a compulsory for shareholders. With that in mind, the ultimate motivation behind each item must be to protect shareholder investments. Shareholders agree that these items are beneficial and perhaps necessary for the health of the network and shareholder investments in the long term.

ā€“Beginā€“

#We,
the minters of NuShares, agree upon the following philosophies of NuBit peg maintenance:

##Park Rates
Any economy has interest rates as a way to promote holding and use of the currency unit. As such, interest rates should be provided when the network is not in a surplus state to promote growth. They should be offered drastically when Nu enters a temporary recession. Therefore, shareholders are encouraged to institute park rates at all times excepting when significant NuShare buybacks are in effect. During share dilutions, park rates are expected to enter a greatly inflated state. Shareholders should seek to find interest rates that hold the network in a low-interest state, to achieve network stability in the long term.

##Transaction Fees
When network reserves are trending below their target and stable reserves are being sold to protect the peg, shareholders are encouraged to increase network fees. The effect is two-fold, firstly to generate additional funds and secondly to increase friction on the flow of NuBits between exchanges.

##Pledged Shares
As all dynamic and stable reserves are sold off to protect the peg other than the primary functional bitcoin reserve, NuShare auctions will weigh on the shareholders to turn the blockchain key for each wave of shares. To keep consensus and understanding amongst NuBit owners and shareholders alike, the year will be broken up into fiscal quarters. A fixed amount of NuShares per quarter will be budgeted to FLOT to protect the peg in economic downturn.

FLOT has been given 25 million NSR for use to preserve the peg. Every 3 months, starting with January 1st 2016, that supply will be replenished. This constitutes the extent of NuShare grants shareholders are prepared to perform to protect the peg as well as a pledge to continually attempt to pay off NuBit debt each quarter.

##Network Spread
If FLOT has 0 NSR in the reserve, one must assume that the network has entered a dire state. If the NSR reserve has sold all its shares in a 3 month period and park rates have accelerated to a large store of blockchain debt then the network will begin to withhold funds from speculators. This will manifest as a network spread where the sell price of a NuBit is multiplied by a number larger than 1 and the buy price by a number less than 1. In so doing, the network sacrifices the involatility of the peg to lower maintenance costs. As the NSR reserve will continue to be replenished at a constant rate, this will cause NuBits to be taken out of circulation faster and put back in slower. This is the final defense of shareholders to protect the fundamental distribution of shares and keep the blockchain safe from cryptographic attack.

ā€“endā€“

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#2

I wont be hashing this for a little while. There was some hesitation last time this was discussed about using park rates as a trigger.

#3

3 posts were split to a new topic: Dynamic data feeds

#5

By the way, this motion was written to be completely independent of the standard and core motion. It makes very few hard declarations on purpose to give shareholders and Nu law as much flexibility as possible without requiring revision.

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#7

This is a good read and I want to thank you for your time writing it up.
Most of it reflects the current situation - or maybe rather how I want to perceive it - very well.

Hereā€™s my feedback.

I donā€™t agree with this part, but thatā€™s maybe just because Iā€™m seeing Nu too much from the perspective of customers.

Iā€™d prefer a dilution to RNA.
Then again I prefer a dilution to park ratesā€¦

This should give enough NSR to FLOT to preserve the peg under ā€œnormalā€ circumstances, in which the peg is not about to be lost, but Nu in the red.
With 25 million NSR thereā€™s a NBT buyback fund of approximately $60,000 (based on current NSR exchange rates).
I know that thereā€™s intentionally no connection to other motions, but looking at the ā€œstandard and core motionā€, the 25 million NSR should be good for 25 weeks (60,000/2,500=25) of executing NBT buybacks - which is significantly more than 3 months.
Replenishing each 3 months should do.
If not, Nu is definitely in a bad shape, because the NSR sale plummeted the NSR price.

Iā€™d like to see what I put in bold there included.

Why is
NBT price = 0.95 * 11/10 = 1.045
not possible? 1.045 is more than 0.95 and more than it should be.

Maybe I lack understanding of ā€œcore reserve valueā€ and ā€œcore reserve targetā€.

#8

Itā€™s not that itā€™s impossible, itā€™s an artificial cap. Basically, when we are in a period of devaluation, if the core bitcoin reserve is under target devalue the buy side of NBT by how much we are under target. If we are over target do not make the buy side use a higher value than $1/USNBT because the we would be buying NBT for more than we sold it forā€¦

By the way, when I mean ā€˜old priceā€™ I really mean with reference to a particular Nu product. So US-NBT are worth $1 a piece. If the bitcoin reserve is 80% full, FLOT should be using a price of 80 cents per US-NBT when buying back NBT and a price of $1 when selling. If the reserve is 110% or 120% full, buy back at $1 not $1.1 or $1.2.

Instead of ā€˜devaluationā€™ maybe I should use language like ā€˜built in spreadā€™ or ā€˜T4 spreadā€™.

Sure, but that trigger is very much subject to change. Iā€™m still thinking about that one, it may be a bit before I settle on something concrete.

I canā€™t help but think thatā€™s masochistic as a general statement. Surely there is some amount of RNA youā€™d be comfortable with before resorting to directly damaging your own investment? As this entire motion is about general statements, I do think it is important we discuss statements such as this in depth.

#9

Understood. Thank you for the detailed explanation.

Iā€™m not speaking of the 20%, but of ā€œannuallyā€.

It depends. It has to do with the focus.
Short term RNA might save Nu money.
Long term the damage for the brand might be bigger than with dilution.
In the end itā€™s impossible to determine which creates the bigger efforts for Nu and it boils down to a kind of religiuous belief.

I say itā€™s impossible, because you have no identical ā€œNuā€ corporations of which one chooses one way and the other, well, the other way.
That way you could gather which measure is the better one depending on the time after the measure you look at the market position.
As we canā€™t make that test, weā€™ll never find out what had happened, ifā€¦

While Iā€™m a strong proponent of having metrics, thresholds, etc, I wouldnā€™t dare putting a preference of one to the other (RNA dilution) in such a plegde.
My current stance is that I prefer dilution to RNA, but that could change rapidly based on the experience made on the way to it.
Iā€™d rather leave that preference out of the Pledge (I wouldnā€™t want to have a preference for dilution either, although I think I prefer that in general!) or replace it by options that seem viable from our current point of view.

#10

I agree. I think controlled dilution is better than RNA.

General comments about the draft: we canā€™t even explore and converge to the best LP interest rate, it will be a long way before we decide what numbers to take for so many parameters. OP is good as a strawman model to be improved upon.

#11

Interesting that thereā€™s a section on devaluation. Hmmm. I think the best way to do that might be via a change that multiplies all NBT holdings by a fixed amount (example: 90%), rather than announcing that 1 NBT = 90 cents. That way, the ā€œpegā€ is still stable at 1NBT = $1, but itā€™s still a percentage cost to all NBT holders.

Even talking about devaluation is pretty bad for the network, though. Nobody wants to hold NBT if it is going to be revalued downwards. Self-fulfilling prophecy.

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#12

Itā€™s not a complete devaluation, only the buy side gets lowered. We would still sell nbt at $1, we just wouldnt buy them back at that price.

I think customers would prefer a full black-swan policy to a magic promise that the peg will never fail because ā€˜reasonsā€™. Anyway, i agree the language of this motion is vital, and perhaps the entire purpose of the motion.

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#13

I am concerned about the regulations for devaluation and peg break. Having policy to do this or even showing significant support for such policy is likely to harm the value of NuShares and reduce adoption of NuBits.

I addressed the scenario of NuBits losing value in the whitepaper two years ago. My assessment of the circumstances under which this will occur and should occur has not changed at all since then.

NuBits will lose their value if their is a strong and nearly unanimous market consensus that NuBit adoption will decline at a significant pace permanently. Before NuBits would lose their value we would see park rates rise to record highs, and then go much higher, likely into the triple digits (100% plus). This would be coupled with a share price plummeting to zero as a prerequisite for NuBits losing their value.

While I canā€™t guarantee the system will work as I just described, I can tell you that it was designed to work that way, and that after a year and half of observing the network function, I still believe it will work that way. There are certain caveats, such as the peg may be lost very briefly if an attacker decided to consume all available tier 1 liquidity at once or if there are certain types of malfunctions in the NuBot software. But those cases are unlikely and are not devaluations. They will be remedied in hours, if not minutes.

So, I would like to dispel the notion that the network may decide to devalue our currencies by a certain percentage. While I wish to stress that I believe shareholders, on the whole, are savvy enough to recognise that devaluation is an act of suicide, and therefore wonā€™t approve it or allow it, even in the hypothetical parallel universe where shareholders debate and approve a devaluation, or if it is only approved for hypothetical stringent circumstances, then when the reality nears the prescribed circumstances, you will see park rates skyrocket and the NuShare price plummet to near zero. My point is that even in this impractical and theoretical case we are likely to see park rates at triple digits and the NuShare price at or near zero just before the devaluation.

In brief, devaluation is suicide and I believe most shareholders know this, so they wonā€™t do it. We ought to make it clear to customers that we know this. Devaluation only occurs at the point of the death of the business. There is no more point to regulating what to do after a devaluation than there is to regulating what kind of medical care people should receive after they die. To do so would demonstrate a fundamental misunderstanding of how things work.

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Timeline of events related to the peg break 2016
#14

This is the situation in which exhorbitant park rates arent keeping the network up and the nsr reserve is empty. This is the exact situation spoken of in the whitepaper, one in which the network has no means by which to reestablish the peg. The whitepaper, as you say, calls for a consensus on peg devaluation. This will clearly happen at a very extreme and stressful time. How can such a coordinated consensus be formed, other than by spelling it out in advance via a motion like this?

Just because it seems like nbt demand will permanently decrease does not mean Nu should roll over and die. Instead, we should have advanced shareholder consensus to buy back the nbt using any means necessary other than unlimited dilutions. Once the nubits are bought back the system can right itself once again.

Demand cannot permanently decline, as it will bottom out at 0 circulating nbt. The network should have a plan for how to achieve this. Currently, we only have 3 mechanisms to achieve this:

  1. Unlimited dilutions
  2. Extreme RNA and absurdly high network fees
  3. NBT devaluation

I prefer to use all tools available in an absolute extreme circumstance.

In any case, devaluation will occur when nsr price hits zero. Itā€™s just a matter of whether it happens in concert using shareholder consensus or if it just black swans on its own and everyone gives up. One scenario Nu can walk away from, the other it canā€™t. This motion is aimed at giving Nu the tools to survive every possible doomsday scenario.

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#15

We have been paying LPs 80% p.a. to put their funds in the walls in the last year. I donā€™t see park rate, which Nu pays for someone to put funds out of circulation, reaching 100% for a while a sign of disaster. It is rather unsustainable, however.

How come there are many POS coins with less features than Nu ā€“ no voting, no duality, no parking, no pool infrastructure, no FLOT ā€“ have non-zero value? Shouldnā€™t PPC have died a long time ago? Itā€™s traded at ~$0.5. Or letā€™s ask this question, if a coin acquires the above functions and form a supporterā€™s community, can it not rise to $1 ?

#16

I would also be comfortable with a declaration about the conditions under which we give up protecting the peg. If this hypothetical situation exists as a potential future, as the white paper so clearly spells out, then what is the condition for it? What does it look like? If we donā€™t know the answer to that question, how can we avoid it?

If the reaction to the ultimate emergency situation is ā€˜every man for himselfā€™ then we are already there. A PoS blockchain requires continuous human consensus and validation to exist, and as long as it exists it has value. This motion leverages that value on a periodic basis in time; existence through time is precisely what gives the blockchain its initial worth at a fundamental level. It then attempts to define a particular scenario in which Nu will seek to maximize the effects of that leveraging.

I donā€™t necessarily agree that shareholders will blow up park rates to infinity in any scenario. I donā€™t disagree with the triple digit numbers, but Iā€™m unconvinced it will go much beyond that without drastic action being taken.

Iā€™d be comfortable removing specificity from the motion in favor of more general text, however I would like there to be a declaration in our covenant about when Nu will give up on share dilutions as a means to protect the peg. And when we mention that, we need to assure our Bit users by telling them what happens. If we decide to simply drop the peg without devaluation, so be it, but letā€™s say that. Attempting to have these kinds of discussions in extreme circumstances just begs for manipulation and political corruption.

In my opinion, now weā€™ve talked about it at the very least. I also disagree that a well thought out monetary policy would harm the value of NuShares in the long run.

#17

Many changes to the OP. Different language and methods and stuff.

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#18

Unsustainable, in other words the road to disasterā€¦

The rates for LPs also have benefits for Nu, so Iā€™m ok to pay premium for that. e.g. advertising volumes and people getting interested as response to that. Not so for parkrates, will try to pay the absolute minimum and hoping for a bargain with a lot of keen people parking :slight_smile:

#19

Iā€™m just about finished writing this one. Can I get someone to give it a read through? The hash wonā€™t begin till the big bold ā€˜weā€™.

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#20

I want to add a clause that says FLOT will be provided with 50,000 NBT to be replenished each quarter, but Iā€™m still thinking about what exactly Iā€™m trying to say there.

#21

Just as much as you need NSR to support the peg on one side, you need NBT to protect the peg on the other side.
The main reason why FLOT controls reserves in the first place is that FLOT is more agile than voting on grants is.

Replenishing FLOT NSR reserve is already part of the draft:

Doing so with FLOT NBT reserve can be derived from that thinking.

At the moment thereā€™s still (taken from: Supply, Reserves, and Equilibrium)

  • FSRT singlesig:
    Balance of BFTnCyMX1nsTNp6X7Bcm1qVocvShdbwtMi is 151500 NBT
  • JordanLee singlesig:
    Balance of B5Zi5XJ1sgS6mWGu7bWJqGVnuXwiMXi7qj is 150000 NBT
  • JordanLee singlesig from liquidity ops
    Balance of BT9AWq9r1i6kghZc6LtrvNb2wRFh7JLCdP is 31553.044 NBT

But as these are singlesig, the amount of NBT on these addresses should be reduced rather sooner than later, leaving NBT funds more or less only to FLOT.

#22

Right but currently the plan is shareholders just keep printing nbt with no regard. So if i stick a limit there it naturally begs the question: what happens if FLOT runs out of nbt and shareholders refuse to go beyond their obligatory grant? For nsr the answer is network spread. What is the answer for nbt?

I donā€™t think thereā€™s anything anyone can do to keep the price down if shareholders refuse to print nbt and total demand exceeds total supply. We could do something like beg BCE to sell their nbt i suppose. Try to reduce demand by liquidating central bit owners.