New mechanism to reduce NBT supply: NBT Burning

NuShares
#1

The idea is now better formulated in my mind.

  • Leave the parking mechanism as it is today
  • Add a new function, Burn NBT
  • Shareholders vote on the amount of NuShares generated per burned NBT
  • Default reward is 0 NuShares, so this “hard fork” will initially change nothing
  • In times of crisis, if parking incentives can’t maintain the peg, shareholders can start voting up this reward
  • Reward for burning 1 NBT is the median burn vote of past 2000 blocks
  • Any number of NBT can be burned. Example: if shareholder vote is 20 NSR, then 10’000 NBT burned generates 200’000 new NSR
  • Any burned NBT cannot be recovered, and any generated NSR is created by the network, diluting all shares
  • As soon as the peg is stabilized, shareholders are incentivized to reduce burn reward back to 0, to protect their shares from being further diluted.

Open to intense criticism. This may “fix” NuBits in the eyes of many.

3 Likes
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#2

Burning NBT for NSR is really a smart idea. When the holder have too many nubits in hand, he can ask shareholders to vote for burning. Then he can get Nushares for money and not impact the market.

#3

I see it being used like this:

  • Burn reward would almost always be 0
  • If the peg is failing and parking rates are getting out of hand, burn reward would rise above 0
  • Once NBT supply is under control, burn reward would quickly be returned to 0

This allows the peg to be saved in times of crisis, while leaving the network operating as intended at all other times.

A few notes:

  • The mere existence of this mechanism helps support the peg, even if it is not used. Some speculators will buy up NBT if the peg becomes weak, in the hopes that the burn rate will become favorable. This increases net buy support for NBT.
  • Any attacker who wanted a high burn reward for his NBT would also have to hold a lot of NSR in order to majority-vote the burn reward upward, so the attack would harm his own investment.
#4

I think this could have a drastically negative effect on the future of the network. The more shares in existence, and the more sparse out those shares are, the greater risk that voting consensus could be broken.

When you’re trying to exchange value it’s usually done through goods or services. In this scenario we’re trading one good (NuBits) for another (NuShares).

I would rather see us try to expand the current deflationary mechanism in NuBits. Which is destroying NuBits to provide a service. Sending a transaction is essentially a service we provide that costs .01 NuBit. I think this could be expanded in other ways and areas.

Take for instance this FrozenCoin concept on /r/bitcoin. This is essentially parking, and already outlines a number of use cases. Parking costs .01 NBT as well and it can be utilized to provide a service.

I like the idea of being able to burn NBT. I think we should allow people to generate burn addresses and find other service use cases to expand this mechanism.

To me this is much safer with less uncertainty in negatively impacting future voting. It encourages expanding use cases for NuBits, and NuBits are designed to be used. There’s not a whole lot of benefit to hoarding, so we don’t have that knock against us. As I outlined here I think this is an under appreciated aspect of the network.

We should try to expand use cases for NuBits, parking, and burning before we do something as drastic as this. I’m not entirely opposed to the idea, but I think it’s a crutch with cracks in it.

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#6

Also discussed here: [Proposal] Solution to the problems of Asymmetrical control in NuBits

#7

I tent to agree with @CoinGame, this is risky and I d rather never use it. However, I am reading @Chronos proposal as a way to give to shareholders an emergency button to use only if we risk loosing the peg. In that case I’d rather loose some control over shares than loosing the peg, therefore everything else.

#8

How exactly do the shareholder decide the burn ratio? By trial and error? Burn and see?

If the Nubits to be burnt are bought with the NuShares, then I see some problems in how many Nubits you can get -

What is the financial value of NuShares? It is the ability to generate dividends. Where do dividends come from? From the Nubit-selling custodians, in a form of tax, on all Nubits users. So if Nubits demand is declining, will exchanging people’s Nubits with the ability to receive a piece of future Nubits tax stop the trend? People will buy NuShares only if the shares can generate more Nubits in dividends in, say, a year, than the share price. However if the dividends are generated only when Nubits are expanding (through selling the expansion block coins) then it will be difficult to find buyers of NuShares in such declining times. If the dividends are generated everytime the custodian sells Nubits, inlcuding recycled ones, then the NuBits to burn is the same amount of dividends in next year or two years or however long the buyer of nuShares think he can get ROI. That is not going to be a lot of Nubits assuming dividends are only a small fraction of Nubits GDP.
Makes sense?

#9

I should clarify:

This mechanism would only be used in extreme situations, where the peg is nearly certain to be lost. It provides an alternative to interest rates shooting to infinity, and the entire system failing. It provides a much-needed backing for the end-of-the-world peg scenario, giving NBT holders greater confidence in the peg.

During normal times, shareholders would instead use the parking mechanism to support the peg, as it exists today. The burn reward would typically be 0. Only a majority of minting shareholders could change that, which would rarely happen, since it dilutes their own shares.

#10

Circumstances are secondary. The mechanism will be used when people vote for it to be used.

That said, I like the idea of not inflating the NBT supply as a fix the for an oversupply of NBT. I look at it like this. There has to be an incentive for people to absorb an oversupply of floating NBT (parked ones are not the issue, as long as they are parked). The incentive has to match the risk associated to locking in the NBT. Offering NBTs on parked NBTs is buying time and “kicking the can down the road”.

If people who were parking NBT’s were offered shares in return instead of NBTs, there would be shareholder dilution. I can see how shareholders would like to put the risk should on the holders of NBT’s, offering an interest paid by future users. If share holders would instead be paying be diluting their own holdings, I think its likely that would be more reluctant to do this, since they would be paying for the peg out of their own pocket. However, if only new NBT’s are issued when demand of NBT’s outstrips the existing supply, the system would always be 100% solvent as long as the proceeds are not squandered. Hence new share paid out as an interest on parked NBTs would only have to be issued, if the system has somehow wasted these profits.

Just to be clear. The proceeds generated by the system have to somehow be retained in the system, otherwise the peg will not be 100% backed. I think the system could get away with less backing then 100%, so some dividends could be paid out, some new shares could be issued as parked NBT.

Basically, if shareholders are to greedy, taking out to much dividends, they will strip the system of its wealth. Issuing new shares, diluting the existing, is the punishment for being greedy and not saving for a rainy day.

A twist on the whole thing could be that new shares are never issued either. Instead the cost is socialized and all existing share holders have to give up a fraction of their holdings, to the parked coins. That way there is no share holder dilution. Since the number of shares stays the same, the price of a share should not be affected.

I’ve not thought it through though. I’m confident there is an issue with my proposal as well. I’m also pretty confident that no-one want’s this kind of system either. I think shareholders wants a continuous stream of dividends, siphoning out the money coming into the system. Then they say to themselves that if things seems to go out of hand, they will simply sell their share and hope to be among the first ones heading for the exit.

The system will take in money. If this money is not retained within the system but stream out, the solidity of the system will erode. That’s a fact. People and developers want there to be a stream of money. The whole question is whether or not shareholders will be able to hold back on their greed and only leach as much out of the system, relative to how much it grows.

#11

You nailed why this system needs to be developed in such a way that actively seeks to minimize this behavior. Someone will eventually need to “pay the piper,” and “transferring the debt to the next generation” isn’t the answer.

1 Like
#12

This is my thinking, as well. I consider this proposal to be extremely good for NBT holders (in the form of a strong peg), and moderately bad for NSR holders (in the form of a risk of diluted shares). The net effect is still very positive for the system, I think. This could increase long-term NSR value.

Without a mechanism like this, we know NuBits will fail, eventually, due to oversupply of NBT. With this mechanism, the network can last much, much longer. Perhaps indefinitely.

NOTE: The parking mechanism would stay as it is, of course, and would still be the first line of defense against a weak peg. It’s much, much simpler for the general public to receive an x% return on parking than to receive some arbitrary amount of NSR that they can’t use with a merchant. The burn reward mechanism is primarily for speculators and investors, in times of crisis, and its existence protects the peg on behalf of the general public.

#13

This is a neat idea, though not necessary. Share supply is already growing, so there’s nothing magical about the 1 billion initial supply. Every time a block is minted, a 40 NSR reward is created for the minting shareholder.

#14

Increasing the existing supply or redistributing the existing supply is, if I’m not mistaken, is nothing different as long as the price of a share is revalued proportionally.

A reason for suggesting this method of doing it, is that I think the shareholder will fail to recognize this and emotionally perceive is as a worse thing, which is good.

Example if the GUI says that “voting for X interest rates will generate Y number of new shares” I think is less troublesome then if it says “voting for X interest rates, will reduce the number of share you have by Y”.

It’s essentially the same thing, but I think people will be more reluctant to do it.

Disclaimer: I’ve not studied the minting mechanism in NuBits, so this could be totally wrong.

1 Like
#15

That’s a great point. We should consider redistributing existing supply as an alternative. You’re correct: it’s functionally equivalent.

#16

Hey guys… great discussion. The proposed solution have already been suggested on this post : [Proposal] Solution to the problems of Asymmetrical control in NuBits

I’ve included a humble analysis of the matter on that post. Let’s keep the discussion central to one post for effectiveness. :slight_smile:

1 Like
#17

Indigoman, the proposal in this thread has a key difference, because it keeps the parking mechanism the same, as it exists today. I believe that parking with a NBT percentage reward is imperative to keep the currency user-friendly, so that the general public can earn a simple and easy-to-understand return on their parking funds.

Also, your proposal requires the network to have knowledge of the current NBT/NSR exchange rate, which is not currently possible.

1 Like
#18

I like Indigoman’s proposal better. The parking rate for NBT - as an interest rate paid over a specific duration - is included in the system to maintain price stability. There is no need for it if a superior (in my opinion) option is presented in the form of a NBT burn function that converts them to NSR.

Indigoman has presented the beginnings of an elegant solution that transfers the speculative risk onto NSR holders, which is entirely where it should be. His suggestions would mean that the NBT supply should be 0 once all demand has been exhausted for the system, which is perfect. I added my own thoughts here: [Proposal] Solution to the problems of Asymmetrical control in NuBits

#19

The parking mechanism could remain as at is while another mechanism for burning NBT for NSR could be introduced. As long as shareholders can balance their votes on both rates in , that could work.

I still think that focusing on a user friendly way of earning NBT was never the true goal on parking. To my understanding, it was introduced to solve the shortage of demand/ excess of supply issue and that was and has always been it’s main goal. If it doesn’t fulfill that role then a great reconsideration of the protocol is needed.

As for the NBT/NSR exchange rate, that could easily set up to voted on until better options available in future.

Both proposals share the common ground of burning NBT for NSR. Let’s focus the discussion on that first and if that’s accepted a valid of dealing with the problem, then the specifics can be worked out afterwards :slight_smile:

PS: in class. Can’t type will lol

#20

Okay so here’s a wild thought. I think it builds off your idea quite a bit.

When you have at least 10K shares and you mint a block you’ve made a decision that impacts the future of the network. The impact of a failing network should not fall on all the shareholders when only the ones who minted a block derailed the train. We need a system that slowly removes shareholders who make poor decisions and allows for new shareholders to take the place.

Just like shares are “staked” (locked away for a period of time) when you mint a block we can have a new kind of stasis.

When you mint a block the block reward is not given to you right away. it goes into a new type of “staked” locked position. Plus some percentage your shares used to mint the block will be locked in this same way. These shares will be locked away for four months. You cannot use them for minting or move them.

That’s at least 5,259,490 NuShares (plus the holders percentage of staked from minting) locked away at any given time from the people who voted in that time.

We now have a fund of shares from people who made decisions about the network locked away. Removing a portion of their shares will give an opportunity for others to have a chance of voting on the network too, and that’s important to allow the following:

If we need to have an emergency reduction of NBT supply NuShares owners can vote to have these locked away NuShares used for burning NuBits and trading the supply to new sharesholders, or as parking rewards. I think burning NBT is the best way to go. It requires people to spend something to get something. The NBT would not have appreciated in value. But if they make better decisions than the holders who had the shares they just bought they could get a great return on this investment.

Now this may not be technically possible, but I think it meets a lot of good criteria.

It doesn’t inflate the NuShares supply. It doesn’t punish all the shareholders, just the ones who have been making recent decisions that impacted the network poorly. We’re redistributing NuShares from people who have made poor decisions, reducing their ability to make decisions in the future. We’re bringing in new shareholders who have a chance to steer the network in a better direction that have invested by helping to correct the oversupply of NBT

Just a thought.

#21

This is great in theory, but almost impossible to execute. Determining who is responsible for what decisions is very difficult in a broad economic system. All kinds of economic attacks could be performed that would cause honest shareholders to lose their assets. I still like Indigoman’s proposal as it is simple and dilutes the impact across all shareholders equally.