Inflation-Protected Asset vs. Anti-Inflation Parking

[Yurizhai]

Oh I wasn’t saying why do either. I was showcasing my ignorance on the issue, wondering what such a currency would be used for.

[willy]

I see that I’m lonely with my decision so far… After some thought, I think parking is not the best available choice. I like the idea, but I don’t think “classic NBT” would be suitable for such an implementation.

The NuBits white paper mentions adoption of pegs other than USD like NuEuro etc.
Best advantage: NuShareholders are supposed to control all those pegs on the same NSR chain.
At least this is, how I understood it.
I don’t think that one would need to fork NBT to protect the “classic 1 USD peg” in some way, as other pegs are possible and imaginable with the current white paper.

The idea of an additional inflation-protected USD peg, under a different name, might be worth refining.

[mhps]

If [parking rewards] are instead set to counter inflation, there may be an overconsumption (or underconsumption) of parking, leading to an oversupply of NuBits, and the peg would fail. Basically, tieing parking rewards to the level of inflation would break its ability to stabilise the price of NuBits.

That is what I had in mind to say. Parking reward is artificially printed, with no backing unless there is external revenue generated for the rewards. Using parking to reward hoarders is taking away values from all NuBits owners. Per unit value of Nubits (denominated in USD) will drop as a result of such reward, eventually. (Parking is still a valuable monetary tactic tool. But it’s a different issue)

Think this way: if USD is losing value against goods and services, how can you compensate such inflation by giving people something that is losing value against USD?

Without revenue, Nu is at best zero-sum no matter how you cut it.
Nothing is inflation resistent unless being backed by an inflation resistant commodity (goods and serives) or hedging.

[Cybnate]

The idea of an additional inflation-protected USD peg, under a different name, might be worth refining.

I agree, a fork is maybe too radical. But I think a strong separation between the two regarding marketing, community and policies need to be in place. Users barely know what NuBits are, let alone if you introduce something else from the same community also pegged to USD. It will be hard to explain and sell. It is different with a peg to a Euro or Yuan, those are distinct pegs and different markets.

[Raythma]

The only mechanism discussed in the italian banker Whitepaper was Actively increasing and decreasing the amount of the stablecoins in every body’s wallet to stabilize the price !

I invite every one to read this Whitepaper to realize that there is only two possible ways to create an anti-inflationary currency :

1. By holding a total/fraction reserves of commodities to pack the currency, which can’t be done since we are already worrying about the fiat reserve security so imagine holding commodities, and if it can be done it will be a centralized currency which means it is not a trust free system, and even this cannot insure a long term stability since these commodities can lose their demand or scarcity in any moment due to some technological breakthrough.

2. Stabilizing the prices by pegging it to a scarce CPI “consuming power index” which can be a set of commodities, but since there is no decentralized automated way to provide this index, every miner will suggest this index in the block he mines, and all miner have the incentive to provide a legit index, When the CPI of stable coin decreases the protocol will ACTIVELY decreases your wallet holdings and vice versa !, so this Anti-inflationary currency is not stable at all in the regard of the value you hold.

But again there is no way to make a real stable currency without this manipulations since money are just another good and its value depends only on the supply and demand.

The Stable coin is indeed interesting and worth experimenting, but its bazaar characteristics/trade off, must be clear to the community members before deciding investing in and risking with it.

what confuses me, that we are discussing issuing an anti-inflation currency with either pegging a new coin to basket of goods (goods which we can’t reserve nor trade !) or by destroying the peg with even more unpacked liquidity from parking interests !

[desrever]

I also invite you to read this white paper on the very same topic, which presents several interesting ideas. Among them, we should now focus on his idea stabilisation, while we can open other threads to discuss different ideas.

A Note on Cryptocurrency Stabilisation: Seigniorage Shares

I invited both authors on this forum to discuss, but the fact that they are still not here excited about NuBits, imho, is an indication that NuBits is somehow getting in the way of their own projects.

[mhps]

1. By holding a total/fraction reserves of commodities to pack the currency, which can’t be done since we are already worrying about the fiat reserve security so imagine holding commodities, and if it can be done it will be a centralized currency

I agree it is hard. But I think it is technically possible. If many commodity exchanges accept cryptocurrencies and have cryptoassets traded, it is possible to form a decentralized crypto asset that is backed by a basket of real world goods.

a scarce CPI “consuming power index” which can be a set of commodities, but since there is no decentralized automated way to provide this index

Why can’t there be a decentralized index calculated from many data feeds?

the protocol will ACTIVELY decreases your wallet holdings and vice versa !

It’s been done. Demurrage (negative interest) has been practiced by Freicoin for quite some while.

so this Anti-inflationary currency is not stable at all in the regard of the value you hold.

It’s not stable against fiat money. It’s stable against the index.

In short, I agree that there are only very limited options to have an anti-inflation cryptocurrency. Implement them needs to make a few intermediate technological steps (data feeds, goods traded with cryptoassets/currency)

[Sabreiib]

Although Hayek talked a lot about stable currency vs commodities such as sugar, crude oil…, we don’t need to bother ourselves to go that far because crypto cap. is really really smaller than USD market, so we just vote for a CPI and peg to 1.X, 2.X USD.

15 years later, if NBT Cap. is huge and widely used, then we may talk about relationship of NBT vs commodities.

We vote a proper CPI, this number may or may not be the exact CPI in real world, but should be approximately right, and welcomed by free market. Perhaps every NBT user has a different CPI in his mind that means even a exact CPI voted, some people still unsatisfied but our task is to select the most welcomed number.

What I mean is that finding&voting a CPI number by NSR holders is NOT so difficult because free market can feedback our vote, if we vote a bad number, our business will drop and we can change it shortly after that. Since we have a guide—the free market—our decision will be OK.

[mhps]

we don’t need to bother ourselves to go that far because crypto cap. is really really smaller than USD market, so we just vote for a CPI and peg to 1.X, 2.X USD.

For example you issue 1 unit of your anti-inflation currency for 1 USD in 2014. In 2015 you decide CPI is so high 1 unit is 2 USD. The problem comes when people want to redeem (sell) their 1 unit in 2015, which is pegged to 2 USD – Where do you find the 2 USD to pay for it? Remember you only got 1 USD when you sold the currency. You will be broke and the peg will fail. Only with commodities backing can the value of your reserve follow automatically with CPI. At anytime people want to redeem you pay back with the commodity. If you don’t do this you have to do some hedging, e.g. like how bitUSD tracks the USD, or by tranasfering the volatility to another asset such as NuShares.

[Sabreiib]

Hayek already discussed this issue, the extra backing fund comes from profit, and he suggest “issue bank”(just like Nu) should carefully pick up business and make enough profit to support ever increasing buying back price.

In fact, usd annual inflation is only several percentages such as 3%. We can make profit by

1. charge transaction fee/price spread and even build up our own exchange with open transaction.

2. provide nubitmessage service and charge fee.

etc…

If USD inflation rate is 5% while our profit can only support 3%, we vote 3%, a partial anti inflation currency is still more welcomed than those completely inflated.

Anti-inflation is indeed a hardcore competitiveness because the public will love it and the willingness of holding is the key for a private currency’s success.(said by Hayek)

[Raythma]

I can’t agree more, even that i like to have all the profit from transaction fees, loaning business and our exchange , but if supporting Nubits to be an anti-inflationary is necessary to succeed and thrive i am all for i.

So IMHO we should make Nubits profitable first before discussing if we need to make it an anti-inflationary currency.

[Sabreiib]

I have to say again that the "good money "which is neither inflation nor deflation is still in economist’s theory and people’s dream, not existing in this planet.

However, once you produce it, the real world will be heavily shocked. This is black swan, can we make this milestone in human being’s history?

[Sabreiib]

Agree!

[Sentinelrv]

I’ve been a little busy lately, but this topic is important, so I wanted to give a comment on it.

I agree pretty much with TomJoad and others. NuBits is our flagship product. 1 NuBit = $1. That can be a very useful tool for a massive amount of people. We need to focus all of our energy on establishing NuBits first. Later on though we can introduce a new product like this, but only after we are established.

[Raythma]

I think we can if our profits can support it, what i am concerned about is the resilience of the network, since this Shock will be followed with aggressive attacks, unlike Bitcoin, our reserves are too easy to be seized.

[DavidMc0]

Actually, in your example less needs to be done to create an inflation resistant asset than one that tracks inflation.

Assuming static demand for the anti-inflation currency (NuBit-2014): if 1 unit of NuBit-2014 were issued in 2014 with a value of $1, and USD devalues by 50%, 1 year later if demand & supply of NuBit-2014 remained stable, NuBit-2014 would automatically be worth $2, as its value hasn’t changed & the USD has devalued.

However, in this event, for standard NuBit (not anti-inflation) the supply would need to be increased to maintain a stable peg with USD, or its value would rise above $1.

There is no USD reserve in the system. The supply is managed by variable currency issuance, and demand/supply is managed by offering parking rewards. As long as supply / demand is able to be managed correctly, the peg can be maintained without a reserve, though reserves can build confidence in the peg’s viability in the event of a drop in demand.

[DavidMc0]

Absolutely - it should be possible, but if it’s vulnerable to attack, it will be useless.

I think it’s a great concept to have on the back burner, and we can see how NuBit develops for a while, and if it grows into a resilient and attack resistant currency, then more pegs (including zero inflation peg) can be introduced.

Quite exciting to see the formation of what could become the world’s first ever completely stable currency!

[mhps]

Assuming static demand for the anti-inflation currency (NuBit-2014): if 1 unit of NuBit-2014 were issued in 2014 with a value of $1, and USD devalues by 50%, 1 year later if demand & supply of NuBit-2014 remained stable, NuBit-2014 would automatically be worth $2, as its value hasn’t changed & the USD has devalued. When there is the first sign if payment problem at buy side there will be a bank run.

You can’t assume stable demand for the anti-inflation currency. As people know you don’t have the backing soon they will sell, either to reduce exposure or to conduct speculative attacks. Then either you wiill run out of USD or you are forced to buy at a reduced price – peg failure.

[DavidMc0]

You can’t assume stable demand for the anti-inflation currency

My point isn’t that there will be stable demand for the anti-inflation currency - my assumptions were so that I could address your statement where you said:

For example you issue 1 unit of your anti-inflation currency for 1 USD in 2014. In 2015 you decide CPI is so high 1 unit is 2 USD. The problem comes when people want to redeem (sell) their 1 unit in 2015, which is pegged to 2 USD – Where do you find the 2 USD to pay for it?

My point is that in this scenario, you wouldn’t need to find $2 USD to pay for anything, as naturally the asset will have doubled in value against the dollar given the USD halved in value during the period, assuming all other things being equal for the sake of the analysis.

Whether the peg would be held with another set of conditions is a different debate, but in the scenario you mentioned, there’s no problem maintaining the peg as there’s nothing to stress it.

[mhps]

My point is that in this scenario, you wouldn’t need to find $2 USD to pay for anything, as naturally the asset will have doubled in value against the dollar given the USD halved in value during the period, assuming all other things being equal for the sake of the analysis.

What you are saying is just that “assume there won’t be a problem, we will not face the problem.”