Nu as a local economy liquidity provider

The Plaza
#1

I am proposing a scheme that could increase the value of the Nu network, decentralize and deepen the liquidity and stabilize the peg.

In this scenario the shareholders vote for custodians that give NBT loans to local businesses with 0% interest rate (in the future could be in different Nu units).

Those custodians could be individuals or companies that curate a local barter-like network of businesses, freelancers, etc that exchange services and products between them using NBT. The businesses can find other businesses that accept the Nu tokens from a simple yellow pages web site.

Any business is eligible for participation but the size of the loan depends on their past revenue and the risk that the shareholders are willing to take in case of the business defaults. The custodian can charge a fee to register the local business.

The loan has to be made as a legally binding contract between the business and the custodian (for their legal exposure the custodian can be compensated).

After a specified duration the business must return the exact borrowed amount or buy the missing part from the market for fiat/BTC/PPC. The procedure could be a simple send to an address via a qr-code that is printed on the contract, and it is automatically concluded when the funds are sent. More elaborate techniques could be employed, like breaking the loan in trimester payments and require of a partial loan repayment before unlocking the successive amounts. Most of those things could be automated without human intervention via blockchain interactions.

To minimize risk, the shareholders can also assign a “committee” that can check things like due diligence, if the local network is working, etc. This committee can even co-control funds with the custodians via multisig. Generally the shareholders should assume a certain % of funds being lost due to defaulting, fraud, etc.

With a local network of businesses accepting Nu tokens we can observe the following:

  • A business owner can discover local businesses that provide services or products generally cheaper. The local economy grows.
  • Incentive to spend Nu tokens vs fiat because of the general lower fees and that the not spent fiat in a bank accounts earns interest.
  • A natural fiat <-> Nu token local market emerges, i.e. a business short on Nu tokens must re-buy them at the local market.
  • Few businesses will cash out via online exchanges because of the exchange fees and that you usually have to pass from Bitcoin. It could even provide a buy pressure.
  • Usage by consumers in the form of salaries, conversion of BTC/PPC to the Nu token to buy local products or services.

The Nu network can grow faster together with the local communities scattered around the world vs issuing funds to custodians that just trade them on exchanges to support the peg (also useful).

TLDR
Distribution of Nu tokens to businesses to be used in local trade between them, under the premise that those companies would have a legal obligation to repay either the tokens or the equivalent face value in fiat/BTC/PPC. The end goal is the growth of the local economy and the proliferation of Nu and the blockchain technologies.

A formal motion could be created after some discussion/criticism.

edit: typos

4 Likes
More participants in the stable cryptocurrency race. Nu needs more awareness
Decentralized liquidity without counterparty risk not yet implemented
#2

This sounds like a good idea.

Question time :wink:

  • Can you provide us with some practical example of “local networks/businesses” ?

I am not sure why would someone that “run” a barter-like business need a loan in NBT in a first place, I hope that the examples you’ll provide will help clarifying it.

I have in mind some closed loop groups of professional exchanges where NBT could be used a a frictionless currency of exchange, but I can’t see the “loan” side of the deal working out.

1 Like
#3

The proposal is deals with “street level” small/medium businesses.

Those local businesses accept, can spend Nu tokens and know about each other. Thus forming a local network of businesses. In this network, closed loops are created every time money circulates, here is an example of that loop:

  1. Alice a freelancer web developer wants to invite her friends for her birthday dinner and finds a nice local sushi restaurant that accepts NBT and spends 120NBT. She is -120NBT.
  2. The sushi restaurant deals with a fisherman Bob that is also part of the network and pays him 400NBT for a day’s worth of fresh fish. The sushi restaurant is -280NBT.
  3. Bob likes to escape with his wife for a romantic weekend away from the children and finds a nice bed & breakfast in a village 12Km away. He pays 90NBT and he is +310NBT.
  4. The bed & breakfast would like to promote itself and finds a local developer Alice that creates them a website and a profiles in various social medias. They pay her 800NBT and they are -710NBT.
  5. Alice is +680NBT now and decided to go to the super market.

As you see in a network we can create infinite amount of loops as long as money changes hands.

Some reasons against of selling or giving the Nu tokens for free:

  • There is small to no incentive to buy them and use them as a payment method as the conversion fees remove any benefit of the small transaction fees. There is also a risk of NBT being backed only by market liquidity.
  • Giving them away, will be like Auroracoin, where people massively dumped their coins to exchanges. Also when something is free and and in huge quantities we tend to see it having no value, like paper monopoly money.

A loan with a legal obligation has the following advantages:

  • Risk free from the business’ point of view. Even if they later decide not to engage in any economical activity using the Nu token, they return the full amount the contract is automatically concluded.
  • A debt to the Nu network can be viewed as an internal capital, i.e. 50M NBT in dept will create higher buy pressure than 50M NBT of obligation (the current model)
  • Appreciation of the token’s value, as it is legally binding to repay the token in face value.
3 Likes
#4

Also the “loan” term does not properly communicate the dynamic for a couple of reasons:

  • The borrowing token can be seen as having no value or having low liquidity. In contrast a proper loan, gives you cash that you can spend anywhere.
  • A loan puts the borrower in a disadvantage, as they have to pay interest. In this case it doesn’t apply.
#5

Good proposal which could indeed be able to bootstrap a NBT based economy. A great example how the peg results in new products which weren’t possible in crypto before.

Some points I wasn’t able to figure out from the post:

  • What happens to the NBT granted for borrowing if the custodian wants to stop the operation? Should they get burned?

  • The very first grant is very problematic regarding the trust question. In LPC operations this can be solved in that the LPC is trusting the shareholders and only asks for 1 NBT initially, but this is of course impossible here. Maybe we can offer first-commers to back their requested NBT with NSR which will only be released after the operation if the shareholders pass another grant/motion.

  • Can you elaborate on the power of the committee? Will it have enough keys to theoretically take away all NBT from the custodian if there is consensus within the committee to do so? How is this committee elected anonymously while ensuring that it consists of different persons with independent incentives in the committee?

#6

I like the direction this is going.

#7

This is an implementation detail but I think burning is appropriate. Custodians that are companies are preferable as they outlive people and businesses prefer doing business with other businesses. Also the custodian needs to take care that the contracts are enforced when time is due.

The legal aspect is an open question for the custodian, i.e. enforcing the contracts and making sure they are working in a legal and transparent way.

It is preferable to grant funds to eponymous custodians, that the shareholders trust and know.

Also a thing to keep in mind that building a payment network takes effort, so in reality this custodian should be viewed as a part of the Nu network.

Another implementation detail. One example would be a 5 person committee with 5 keys and a custodian with 2 keys, holding funds in a 4-of-7 multisig. For the custodian to spend funds, it would need 2 committee members to co-sign and in extra-ordinary case 4 committee members can take the funds (and burn them).

The committee should comprise of known shareholders and community members that will get elected with a simple motion and will hold a key each.

I am still on the fence with the committee idea as it provides security against fraud but introduces a bureaucracy.

edit: typo