We realized that paying out consistent dividends removes money from the entire system, money that we will eventually need once people decide to sell their NuBits back to us.
Right now when we sell newly printed NuBits, we receive Bitcoin in return. That Bitcoin is held in reserve by a multisignature group called FLOT (First Liquidity Operations Team). NuShareholders pay members of FLOT to manage this reserve on our behalf. When the buy side gets low, they use the Bitcoin in reserve to protect the peg by buying NuBits. When the sell side gets low they sell NuBits to protect the peg.
When our Bitcoin reserve has an excess amount of funds, we use some of it to buyback NuShares and burn them. By doing this we are effectively transferring the value of the Bitcoin to our NuShares.
If our Bitcoin reserve gets too low NuShare buybacks stop and we may need to institute park rates. This encourages people to buy NuBits and park them to receive some interest in the future. It also helps fill our Bitcoin reserve back up once people start buying again. Once the reserve increases to an acceptable level, park rates can be lowered again.
If however people keep selling NuBits and our Bitcoin reserve continues dropping in the face of raised park rates, then it means we need to permanently reduce the supply of NuBits in circulation. This is where the NuShare buybacks come in handy. FLOT will take some of the NuShares we granted to them and auction them off. The proceeds they receive from the auction will then be used to buyback NuBits and burn them, increasing buying pressure and permanently reducing the supply.
Dividends will hopefully be viable in the future, but not right now. If we use all the money to pay ourselves dividends, then there wouldn’t be enough in our reserve to buyback NuBits when people sell them back to us. The peg would break and the system would collapse. We need to keep that money people give us in reserve, whether it’s Bitcoin or value transferred to NuShares in the form of buybacks.
The real money maker is encouraging people to actually transact in NuBits. When people send NuBits, they are charged a transaction fee. The transaction fee is destroyed. This means every time somebody transacts in NuBits, a tiny part of the entire supply is destroyed in the process. Over time with lots of people making transactions this can add up to a lot of NuBits destroyed via fees. The NuBits destroyed will eventually need to be replaced as the supply shrinks. We would then print more and sell them back to people. So the way we’re supposed to make money is selling people NuBits, letting the transaction fee eat away the supply over time through fees and then replacing that supply by printing and selling the NuBits again. NuShareholders provide a stable crypto transaction service and we are rewarded for that service when NuBits are destroyed through fees.
One of the problems right now is that people aren’t transacting as much as we’d like them to. NuBits are instead sent to exchanges and traded with, where our fee can be avoided. In order for our fees to make any difference, transactions need to happen on the Nu blockchain and not through exchange accounts. This means we need to find more ways to increase adoption so people actually transact with them. If we are successful in increasing adoption and use of NuBits, dividends might then be safely distributed with no risk to the system. At the moment though we can’t do it without taking money out of the system and endangering the peg.
I hope this wasn’t confusing to you. Here is a resource for you to read, a history of our network that I wrote. The history only goes up to Summer of last year though, so it needs to be updated…
https://docs.nubits.com/history/
