[Draft] T5 reserve

NuBits
#1

-------motion begin------
When the buyback threshold as specified by previous motions is hit and Nu holds peercoin valued at less than 3% of the circulating nbt supply (currently the network holds 0 peercoin), Nu will purchase ppc on the open market with 5% of the T4 overflow each week that these conditions are met. This reserve is to be considered a T5 reserve to be managed by FLOT in a similar manner to the T4 pool except as specified and will not count toward activating share buybacks. Peercoin from this reserve will be sold to support the peg only if T4 is <10% of the circulating nbt and T1-3 buy side is <30% of the total liquidity. This reserve is favored for the distribution of dividends, but no actual dividends are called for in this motion.

If this motion passes along with a0a57d12ec67ac6816532f8a0afffd9b7ce14329, distributions will be strictly less than T5 refills by virtue of the thresholds as defined. Therefore, each week dividend funds will be taken out of T5 before the T5 refill for that week is determined.
------end motion------

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[Discussion] Nusafe - Hedging 50k tier 4 funds in USD
[Passed] Peercoin FLOT Reserve
[Discussion] Nusafe - Hedging 50k tier 4 funds in USD
[Passed] Motion to begin NSR buyback immediately
[Discussion] Mitigating BTC volatility risk of T4 funds, hedging in USD
#2

Some feedback to improve the draft :

To avoid ambiguity, add a reference to the motion where the value of treshold is specified, or the formula to compute it.

How many PPC does Nu holds at the moment? [quote=ā€œNagalim, post:1, topic:3057ā€]
Nu will purchase ppc on the open market with 5% of the T4 overflow each week
[/quote]

I guess that the implicit end of the sentence is ā€¦ [until PPC value reaches 3% of NBT in circulation], right?

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#3
  1. The formula is currently in flux. Itā€™s either $80k or 15%.
  2. 0
  3. All funds will be used each week. If we hold >3% when calculation time for the week comes, just donā€™t set aside any more funds for ppc.

One of two scenarios should be of concern:
A). Ppc goes to the moon. In this case we can easily distribute dividends manually via motion
B). Ppc goes down the tubes. This is the thing we should be concerned with, as this motion will cause us to lose 5% of our overflow each week. However, thatā€™s not actually the worst thing ever, and itā€™s a highly unlikely circumstance in my opinion. Much better to stay versatile rather than be all in on btc.

If this goes through, we should consider getting a BKS reserve as well.

#4

via witch channels are we planning to get to > 0 ?

#5

Do I need to put ā€˜if the signers in charge of T4 reserves need someone to buy ppc, @Nagalim volunteersā€™?

#6

Great idea. Diversifying funds in PPC, maybe even bitUSD should be a viable way to spread risk.
Even holding a part as USD at exchange might be an option - exchange default risk replaces volatility risk and the USD are prone to other risks as well (confiscation, only one person in control of the account etc.).
So Iā€™d prefer using PPC or bitUSD over using USD.

I only wonder why this is called T5 reserve. Wouldnā€™t it just be a kind of T4 buy side reserve? The PPC would play the same role as the BTC that re in T4 buy side.
Calling it T5 reserve might confuse people who recognize T5 as parking interest. Parking interest has a effect on the buy side as well as on the sell side - it has the potential to lower T1-3 funds on the sell side and increase the T1-3 funds on buy side if people stop selling NBT to park them or even buy NBT to park them.

Could you consider renaming it to something like ā€œT4 buy side (PPC)ā€ or please explain why you chose ā€œT5 reserveā€?
What do others think about the classification? I fear that especially newcomers (I bet in the next time some are attracted to Nu because of ā€œThe Daily Decryptā€ and the surging NSR price) have a harder time understanding it than theyā€™d have if they read documentation about the tiered liquidity model and recognize T4 is existing of a BTC and a PPC layer.
Was the name chosen because the PPC from T5 flow to T4 if thereā€™s need of them?

Is it intentional that thereā€™s no level to which the T4 buy side shall be restored (like 11% or 12% of circulating NBT) by sold PPC?

Do you plan to create a motion that supports the peg by T6 buy side funds as well?
It could be a great idea to support T4 buy side with both PPC and NSR, because it would push the price of PPC and NSR less down if you use both to generate BTC proceeds.

If you donā€™t intend to draft a motion to fill T4 buy side with NSR sale, I will do that.

Iā€™d say thatā€™s the price you pay for diversification and I canā€™t find anything bad at it.
Holding PPC has the benefit of having an insurance for a failing BTC. I donā€™t know what happens to PPC is BTC fails, but thereā€™s at least a chance that it could one of the most interesting candidates to be BTCā€™s successor, which is another benefit of using PPC for diversification.
PPC markets have decent liquidity - if you dare using btc-e.com and the next BTC coinbase reward halving is coming in roughly 35 weeks. It would be great to have T4 distributed by then instead of having all in BTC.

#7

TL:DR T4 is already taken and dividends are a T5 mechanism.

So Iā€™m flexible with terminology, but you have to understand the monumental task Iā€™m running into here, the very one that you yourself have gotten aggravated by. I am attempting to make language from several different motions, some of which have not passed yet, standardized. The circulating NBT motion that I just put up uses ā€˜T4ā€™ to refer to a pool of funds that will be drawn upon for NSR buybacks. The intention of this motion is not only to provide diversification for Nuā€™s reserves, but to provide a fund that we can use to distribute dividends. The PPC reserve should not be sold for NSR without some good cause.

Tier 5 consists of a classical economic mechanism: interest rates. However, interest rates are only half the puzzle. Dividend distributions complete the economic loop, giving T5 the power to stimulate holding NBT during economic depression and shedding liability during economic expansion, the two functions Nu must do to survive.

If Nu held a reserve of BKS, I would consider it a T4 reserve, but there are issues there that we need to think about. Another conversation for another time.

I donā€™t think this is necessary. I know, I know, itā€™s logically complete. However, the NBT peg makes the NBT:NSR cycle asymmetric. JLā€™s concept is that when the peg starts weighing down we implement park rates to keep it up while we sell NSR. T4 is basically drained at that point. Then, when we get back on our feet again, we refill T4 from NBT sales.

We need a much better mechanism of NBT sales (even if seeded auctions yada yada). We should have someone with a bunch of T3 sell side willing to sell NBT for $1.01 any time.

I agree that BTC going down for an extended period of time is just as dangerous as PPC going down, and neither can be predicted with any reliability.

#8

It will greatly help your case if you explain the rationale behind a motion draft first. Now itā€™s like source code without documentation. ITā€™s not productive to let others guess what the intention is and see if the implementation (the motion) is sound.

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#9

TL;DR T4 and T5 are taken and what you propose has attributes of both - the understanding of T4 and T5 gets refined by your draft

As the PPC that are to be purchased may either be distributed as dividend or used to support the peg, they can just like BTC on T4 used for different functions.
T4 BTC are

The T4 in excess are used for operation on T6 level - at least I perceive the NSR buybacks as such.
By your proposal PPC would be purchased with BTC in excess in addition to the buybacks.
I understand the PPC as being used on T4 if they are sold to support the peg and on T5 if they are used for distributing dividends.
The Finalized evolution of liquidity operations doesnā€™t deal with dividends, but I find your interpretation of dividends being on T5 imaginable.

And thatā€™s why I find your idea intriguing - it creates another type of buffer that can be filled over time or consumed over time for different purposes.

Creating a PPC reserve with BTC in excess has a lot of benefits:

  • less BTC are available for buybacks: using all BTC in excess pushes the NSR very far north, which is nice for the NSR price, but the amount of burned NSR per BTC is less the higher the price
  • BTC volatility is hedged to some degree; PPC/BTC is not very volatile, so this hedging effect is limited
  • PPC can be an insurance for total BTC failure
  • funds for dividends which then can be distributed under certain circumstances can be accumulated over time
  • PPC can have the dual use of supporting the peg and being a means of distributing dividends

Having the ability to invest the revenue of Nu on both share buybacks and distributing dividends is beneficial:

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