Inflation-Protected Asset vs. Anti-Inflation Parking

Sentinelrv 2014-11-21 16:08:12 UTC #32

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 2014-11-21 16:08:42 UTC #33

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 2014-11-21 17:57:27 UTC #34

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 2014-11-21 18:05:32 UTC #35

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 2014-11-22 00:36:32 UTC #36

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 2014-11-22 01:02:57 UTC #37

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:

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 2014-11-22 01:09:31 UTC #38

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

DavidMc0 2014-11-22 01:33:10 UTC #39

That’s not what I’m saying.

I’m saying that an asset with a stable value that is priced in USD will double in price if the USD halves in value, all other things being equal.

That is just a fact, and if you don’t understand it, that’s ok

Chronos 2014-11-22 01:43:54 UTC #40

A pegged asset only has value if the peg is secure. If the asset doubles in value, but the backing doesn’t grow, then the peg is twice as weak as before. If you think about value from a perspective of backing, then this becomes clearer.

Raythma 2014-11-22 02:06:43 UTC #41

I wish the stabilization scheme in this whitepaper is further discussed among the Nu share holders as it is the best future alternative to the current fractional reserve scheme and it can be implemented in the Nubits with the least modifications and infrastructure needed.

mhps 2014-11-22 02:55:21 UTC #42

I’m less concerned by state than by trend, even less than by stability. Only saying "all other things being equal“ isn’t good enough. If we add “if there is a rigid demand for the asset.*” it would be interesting. For example if the market has an insatiable demand for NuBits to use as a medium of exchange, then you could sell it at whatever price.

If the demand for NuBits as a medium-of-exchange (call it Dx) overwhelms that of a store-of-value (Ds), the requirement for matching reserve can be lowered. It would still be a unstable state but the ratio of the two demands, Dx/Ds, is a measurable health indicator, with which we won’t be totally in the dark in this state. A more strict indicator is Dx/U, where U is the number of unbacked NuBits in circulation. We are above the water if we increase transactional demand of NuBits, and make sure it stays well above the unbacked ones. I don’t know how many NuBits are held in exchanges by the traders. They belong to Dx.

DavidMc0 2014-11-22 04:42:52 UTC #43

You are correct that if the value of the asset grows without the backing growing that it would be less stable.

However, in the example I’m commenting on, the value of the asset and the backing remain constant. The price in USD doubles from the first period to the second period only because the USD halves in value. The value of the asset and whatever it’s backed by remain stable In this example

If the asset were dependent on a USD reserve, then we’d have a problem, but NuBits are not backed by USD reserves - just pegged to it by supply & demand control.

DavidMc0 2014-11-22 04:47:35 UTC #44

This might help you understand why I’m putting the assumption in:

mhps 2014-11-22 05:51:52 UTC #45

Someone bangs on your door and demand $2 for his 1 unit of the anti-inflation currency you have issued, and you don’t have that $2 to pay him. You call it “there’s nothing to stress it” ?

Sabreiib 2014-11-22 06:46:38 UTC #46

Now, since we are partial reserve and actually have no enough USD/BTC to buy all NBT back @1$ price.

Pegging 1.2$ or 1.0$, the difference is not very big.

However, our NSR cap. is greater than NBT (the actual quantity around 400,000)

NuShares NuShares $ 1,376,121

We can use NSR to back NBT, otherwise it’s wasted.

mhps 2014-11-22 07:36:59 UTC #47

Technically that would work. However in reality I think you’d ask whether the shareholders to 1) subsidize anti-inflation with their own money (shares). My bet is that since inflation is certain most of the times, shareholders want dividends, not bills. or 2) participate in a hedging scheme to track CPI with their own money as collateral. Most wouldn’t want it because although there will be winners and losers, the net effect is they collectively will lose.

DavidMc0 2014-11-22 08:10:23 UTC #48

They don’t bang on my door to get their $2 - they go to bter.com or similar & exchange their unit for $2 or equivalent crypto-currency.

Are you familiar with Bitcoin? It has significant value despite zero reserves.

What would happen to the USD price of Bitcoin if the USD halved in value 1 year to the next? (Clue: the price in USD would double).

An anti inflation NuBit wouldn’t need subsidising. It would work exactly like standard NuBit, except the rate of increase in the money supply (new NuBits minted & distributed to custodians) would be lower than for standard NuBits that track the USD.

Full / large reserves of crypto-currency or fiat would definitely increase confidence in any peg, and confidence in the peg is the most important factor in determining its success.

Sabreiib 2014-11-22 08:23:43 UTC #49

mhps, I think we should clarify some concepts at first.

NBT is our product, and its quality is actually money’s quality.

Why is BTC a bad money? It can be used as “store of value” and “medium of exchange”, however, the “unit of account” demand STABLE value of a currency while BTC very volatile.

The more stable, the higher quality of a currency. USD is quite stable but not the most stable because of its inflation for 2-4% annually.

An anti-inflation currency has better quality than those strictly pegged to 1USD. We will sell more product if we provide anti-inflation feature,

Will most shareholders object to provide better quality of product which means greater sale?

Another question is to pledge NSR to protocol. You can withdraw your pledged NSR once you pay back those NBT. Since you will not lose your NSR unless Nu wallet hacked/stolen by hackers, why would you worry about it?

mhps 2014-11-22 08:27:05 UTC #50

You don’t appear to understand how NuBits works. NuBits being a $1 coin, unlike bitcoin, gets its price from the bots which NuNet installed at BTER etc. All Nubits in circulation are supposed to be sold by the bots. Anyone can sell his Nbits to the bot at $1/Nubits. In my example someone in 2015 will demand the bot to pay $2 for the 1 unit currency he bought from the bot in 2014, which the bot won’t have.

mhps 2014-11-22 08:50:43 UTC #51

There is no shortage of example that a new feature is so good it breaks the company.