[Voting] T4 buy side / BTC - maintaining and refilling value

[masterOfDisaster]

Continuing the discussion from [Passed] T4 Circulating NBT Threshold:

[Passed] T4 Circulating NBT Threshold

[…]The threshold at which Tier 4 funds begin to be used for buying back NuShares shall be promoted to a percentage of the outstanding Nubits in the network, dubbed ‘Circulating Nubits’. The number of circulating nubits is equal to the total supply of nubits minus the nubits held in Tier 4 and Tier 6 sell side, which are assumed to be owned by the Network and held in trusted reserves.

The Tier 4 reserve shall only be drawn on to purchase NuShares when the total value in USD of the currencies held in Tier 4 buy side exceed 15% of the circulating nubit supply.[…]

TL;DR
T4 buy side needs to be kept above a minimum USD value to ensure the quality of Nu products, to keep the peg. Starting NSR sale to support the peg only after T4 buy side funds are completely depleted, is an option, but a bad choice, because it pushes the price of NSR down harder than selling smaller amounts of NSR earlier (but not too early). Pushing the NSR price down by selling NSR creates a negative feedback loop. This can be avoided to some degree.
/TL;DR

It’s good to see that the USD value of T4 buy side has been tied to the value of circulating NBT (or even more general: circulating Nu products).

Motion b1ef96aed5c7f9dec482467b254b40c82bf66d23 defines an upper limit for T4 buy side. If this limit is surpassed, funds can be used for other things (e.g. NSR buybacks).

But what about a lower limit of T4 buy side funds? Shouldn’t something happen if the funds are below a certain threshold?
The T4 buy side funds are required as buffer to fill the (T1-T3) buy side with BTC of the side starts to run dry, to remove NBT or other Nu products (like CN-NBT, EU-NBT, X-NBT; below only called nubits) from the market, if demand for nubits is less than supply.

With a dwindling T4 buy side the danger for the peg is increasing.
The T4 buy side value can be reduced by

• funds being consumed to support the peg
• volatility

In both cases Nu should consider propping up the funds.
If NSR are only sold after the T4 buy side funds are depleted this has several disadvantages:

• the T4 buy side funds will be managed transparently (known FLOT multisig addresses). The status as well as the trend can be read from the value of the UTXO. This can be used to game the sale of NSR (selling NSR before T4 funds are depleted, buy back NSR from the sale cheaply) to the disadvantage of Nu
• trying to sell a big amount of NSR in a short period of time has a bigger effect on the market value of NSR than selling a smaller amount. NSR sale after all T4 funds are depleted makes Nu look in a worse situation than by selling NSR to support the peg if there are still T4 funds left. So NSR price is affected negatively from
• NSR holders trying to game the situation (holders selling NSR before the NSR sale by Nu and buying back NSR cheaper)
• trying to sell NSR in a market of unknown depth
• having no T4 buy side funds left, making Nu look desperate

Starting NSR sale before T4 buy side funds are depleted might be a better option. Both T4 funds volatility and using the funds can reduce the T4 fund value. To save Nu from buying back NSR (T4 > 15%) today and selling NSR tomorrow (T4 < x%) x will be chosen to have some buffer before NSR sale starts.
And to make gaming it hard, a limit at which NSR sale SHOULD start and a lower limit at which it MUST start will be defined.
It seems to me that in the current situation and lacking experience, relying on the discretion of the FLOT is preferred to defining hard limits, thresholds which trigger actions.
What about this proposal (which only has one hard limit, but a lot of room for discretion):

Motion RIPEMD160 hash: 685bcc7211db2536734042c65d78d150348a3ec5

=##=##=##=##=##=## Motion hash starts with this line ##=##=##=##=##=##=

‘Circulating Nubits’ and additional pegged network currencies that will also be backed by Tier 4 have been defined in motion b1ef96aed5c7f9dec482467b254b40c82bf66d23

The Tier 4 buy side reserve SHOULD be increased by selling NSR when the total value in USD of the currencies held in Tier 4 buy side falls below 10% of the circulating nubit supply.
The Tier 4 buy side reserve MUST be increased by selling NSR when the total value in USD of the currencies held in Tier 4 buy side falls below 5% of the circulating nubit supply.

The number of circulating nubits will be determined at the same time as the Tier 4 reserve percentage once a week. Percentages keep based on the number of circulating nubits until a new assessment occurs.
The average of the 12 hours before that point of time is being used for accounting.

=##=##=##=##=##=## Motion hash ends with this line ##=##=##=##=##=##=

Verify. Use everything between and including the <motionhash></motionhash> tags.

[mhps]

The Tier 4 buy side MUST NOT be increased above 15% of the circulating nubit supply.

Isn’t this already approved elsewhere? better leave it out.

once a week

This may run into problem if this

The Tier 4 buy side reserve MUST be increased by selling NSR when the total value in USD of the currencies held in Tier 4 buy side falls below 4% of the circulating nubit supply.

happens more than once a week.

[Nagalim]

I think you can drop the first two paragraphs of the motion and just refer to the T4 threshold motion by hash. ‘Circulating Nubits’ is a shareholder defined term now, so you don’t need to redefine it.

[masterOfDisaster]

The Tier 4 buy side MUST NOT be increased above 15% of the circulating nubit supply.

Isn’t this already approved elsewhere? better leave it out.

It’s not approved anywhere. Without limiting it, the FLOT could overshoot the mark.
As this won’t prevent FLOT from accidentally inreasing the T4 buy side too far, I agree it can be left out.

This may run into problem if this[…]
happens more than once a week.

The number of circulating nubits will only be assessed once a week. The ratio of 4% is based on that value until next evaluation. I don’t see problems with that, but adjusted the motion to make it clear.

I think you can drop the first two paragraphs of the motion and just refer to the T4 threshold motion by hash.

Done

[mhps]

It’s not approved anywhere.

I mixed up with the sell side motion sorry. So keep it.

The number of circulating nubits will only be assessed once a week.

It’s possible have a wild roller coaster and see the buy side dropping below the threshold more than once a week. So we will just watch the buy side going after the first time? Actually it could be a viable strategy in the sense of avoiding catching a falling sword.

[huafei]

so many T4 post , any T1 or T2?

[masterOfDisaster]

so many T4 post , any T1 or T2?

Feel free to draft some

[Nagalim]

Every pool post is a T1&2 post. For instance, my term 6 grant and NuLagoon’s payment. What we’re seriously lacking is T3 posts.

Can we do 10% and 5% instead of 4 and 9?

[masterOfDisaster]

Can we do 10% and 5% instead of 4 and 9?

Sure why not, but…
That means propping up the T4 buy side can begin if the funds are down to 2/3 (66%) of the target value (and not 3/5=60%) and must begin is the funds are down to 1/3 (33%) of the target value (and not 4/15=26.6%).
The numbers 10% and 5% are more pleasant to the eye while 9% and 4% delay NSR sale a little bit more, providing more buffer for price swings and drained funds.

I want to add:
especially in times in which the BTC price goes down, Nu should expect anincreased demand for BTC (traders buying cheap BTC from Nu). Falling BTC prices reduce the value of the T4 funds AND reduce demand for NBT while increasing demand for BTC.
Are you still sticking to your proposal?
What about 10% and 4%?
The difference between 5% and 4% is quite big.

[Nagalim]

A qualitative explanation has a hard time giving reason to a specific quantitative difference. I think we should keep it simple until we understand better what’s going on. Also, I think only BTC volatility affects the NBT demand, I don’t think there’s a direct correlation to BTC price. One thing we do need to consider is how a dropping BTC price tends to drop the NSR price as well. This is why we need more NSR/NBT markets, but that’s another story for another day.

[masterOfDisaster]

I think we should keep it simple until we understand better what’s going on.

Done. Now 10% and 5%.

I think only BTC volatility affects the NBT demand, I don’t think there’s a direct correlation to BTC price.

I hope you are right - it would make things easier for Nu.

One thing we do need to consider is how a dropping BTC price tends to drop the NSR price as well.

That’s right. I guess for some time NSR will be valued in BTC and not in USD or NBT.
BCE might be able to change that to some extent.

Reducing the effect of the NSR sale on NSR/BTC is one important reason for starting the NSR sale early and in small amounts instead of dumping big amounts of NSR on the market in a short time.

[mhps]

I guess for some time NSR will be valued in BTC and not in USD or NBT.

I think 0.000015 btc at high end and 0.0018 NBT (IPO price) at low end are all important prices.

early and in small amounts instead of dumping big amounts of NSR

I am not sure how effective this will be but it’s worth a try.

[masterOfDisaster]

early and in small amounts instead of dumping big amounts of NSR

I am not sure how effective this will be but it’s worth a try.

Do you see (potential) drawbacks of this approach?
I see no drawback, but a potential benefit.

[Nagalim]

constantly buying and selling on the open market means we eat the spread a lot.
Seeded auctions are another story.

[masterOfDisaster]

constantly buying and selling on the open market means we eat the spread a lot.

That’s why there needs to be a big distance between the thresholds at which Nu buys (>15% of circulating nubits in T4) and sells NSR (< 5% of circulating nubits in T4).

Seeded auctions are another story.

for which Nu rather sooner than later needs to get ready.
FLOT could participate in the seeded auctions with multisig addresses, right?
That would delay payment of the participants until after the FLOT has signed the tx, but it would allow a decentralized operation of the seeded auction.
Without a script that automatically handles the generation of the mutlisig tx to the auction participants it could easily be used to lead DDoS attacks on the FLOT.

[Nagalim]

Yah, seeded auctions aren’t an issue, they can even be done natively on the block chain.

I see your point about using bigger thresholds, how can we calculate what the effect is?
So if 100% are BTC, then how much does BTC have to change by before it triggers our thresholds? I think if we look at it this way we can see why we’re in a pickle: if the BTC price is volatile on the order of 5 or 6% per week, we could end up buying one week and selling the next over and over. This would be bad for us, in my opinion. However, is it really worth squeezing a few extra %, or do we need to think of maybe a floating threshold, or what?

[masterOfDisaster]

if the BTC price is volatile on the order of 5 or 6% per week, we could end up buying one week and selling the next over and over.

With 5% volatility the value of T4 funds will move by 5% and not 5% points, e.g. from 10% to 10.5% or 9.5%

[Nagalim]

You’re right, my math is bad. So, if we have 12.5% and the price moves by x% to get to 15%, x=15/12.5-1 = 20%. So the BTC price would have to be consistently volatile on the order of 20 or 40% per week to really cause an issue. That sounds fine to me, actually. Let’s stick with 5% and 10% thresholds.

[masterOfDisaster]

Interested readers have recognized that the FLOT is starting its operation.
The means to execute what’s defined by this motion are available - not in full, because the operation of the FLOT is still being ramped up.
But this motion will take some time to pass.
As there hasn’t been substantial criticism of the draft in general, this is promoted from [Draft] to [Voting].

[Sentinelrv]

Shouldn’t we also define a specific percentage where NuShareholders are advised to begin raising parking interest rates? @JordanLee has repeatedly described selling T6 NuShares as a last line of defense to protect the peg and something that should be done only after parking rates have proven to be ineffective after an extended period of time.

I tend to agree with this and suspect it may be the reason why this motion has failed to gain traction so far. I’d rather exhaust all possible methods of supporting the peg before diluting my NuShares. As such, I would like to define a threshold at which point shareholders should attempt raising parking rates BEFORE FLOT engages in NuShare sales. If the parking rates prove to be succesful in raising the buy side until real demand returns again, then NuShare sales may not be needed at all.

As an example, tier 4 Bitcoin drops below a certain defined threshold and NuShareholders raise parking rates. Buy side returns because of the synthetic demand brought by increased parking rates. When real demand returns again and FLOT is forced to bring NuBits to the sell side, tier 4 will be replenished with Bitcoin all without having to resort to NuShare sales. On the other hand, if parking rates don’t have any effect and the tier 4 buy side Bitcoin funds continue to drop, then NuShare sales would kick in.

Maybe we could alter the current motion to change the “SHOULD” sentence to parking only, while leaving the “MUST” sentence about NuShare sales.

For example…

• It is advised that NuShareholders SHOULD raise parking interest rates when the total value in USD of the currencies held in Tier 4 buy side falls below 10% of the circulating nubit supply.
• The Tier 4 buy side reserve MUST be increased by selling NSR when the total value in USD of the currencies held in Tier 4 buy side falls below 5% of the circulating nubit supply.

What do you think? If not this, at what threshold should shareholders raise rates to prevent NuShare sales from taking place?