NuBits' Liquidity Model


#1

Our liquidity design benefits those who support Nu and NuBits. Over time it shifts ownership of Nu to investors who trade NuShares to support NuBits’ pegs, establishing a mutually beneficial relationship. Tier 6, the “backbone reserve”, is a funding source with incentives for backing of NuBits and investing in Nu.

Initially, Nu receives customers’ payment for their NuBits, of which the amount corresponding to current reserve ratio is stored in a cryptoasset reserve, and the remainder put toward the backbone reserve.

Why the backbone reserve?

Cryptoassets have so far been volatile, which is why a stable currency is pursued in the first place. It’s possible to run a collective fund placing 100% of currency sales revenue in a cryptoasset portfolio and subject the reserve to each reserve asset’s volatility, but if the portfolio loses value there is no mechanism to back all issued currency units.

The backbone reserve incentivizes currency backing by enabling supporting investors to benefit from future demand. A core fundamental of currencies is confidence in their usefulness, and NuBits not being a conventional currency still adheres to that in this manner. NuBits will be backed as long as investors see a way to profit.

In contrast, if the reserve of a purely cryptoasset-backed stable currency loses value down to less than the currency’s market cap, currency holders are at the mercy of unrelated markets with no means or motivation to back their units.

Additionally, maintenance and development need to be paid for, and there would be little reason to buy shares in a network without shareholder benefits.

Liquidity flow

NuBits enter circulation

  1. A customer gives Nu $100 worth of value transfer asset, and Nu gives the customer 100 US-NBT.
  2. Nu moves 44% into the cryptoasset reserve, where it’s subject to each reserve asset’s volatility.
  3. Nu forwards 56% to shareholders either via buybacks or dividends.

* Reserve percentage algorithm: (50 - circulating_supply / (2,000,000 / 25)) / 100

NuBits leave circulation

A customer sets to trade 100 US-NBT for $100 worth. Under normal circumstances, Nu has walls on the orderbook for customers to immediately have orders filled.

When the immediate reserve walls fall below mandated levels, Nu retrieves assets of equivalent value from the cryptoasset reserve and if applicable converts them to the target value transfer asset, then restores the walls which fills customers’ orders.

If the cryptoasset reserve (tier 1–4) is empty, sales of NuShares according to the liquidity policy are performed. Depending on policy and backbone reserve performance the customer may have to wait, which in the worst case of no shareholder or new investor confidence may be indefinitely.

Are NuBits always ¤1.00?

If a decline in demand occurs more rapidly than Nu’s liquidity flow accommodates, NuBit holders may begin placing orders to have their NuBits sold for less than ¤1.00. On open markets, there is no way for Nu to prevent that and have their orders filled only at ¤1.00, meaning NuBit holders can disrupt the peg at a loss. With custom trading rules Nu could force the peg to be either ¤1.00 or nonexistent, which is the intention. Anyone who believes the backbone reserve will eventually back the NuBits sold below peg level would begin purchasing them to sell back to Nu at ¤1.00, effectively backing the currency interim and supporting the peg.

NuBit holders who devalue their NuBits display a lack of confidence in backing or choose to pay a premium to get them exchanged before others in a situation of pressured reserves.

¤ is the generic currency sign.

Operating only with backbone reserve (zero reserve)

With circulating NuBits, empty cryptoasset reserve (tier 1–4), and no shareholders who believe in NuBits, the value of NuShares is where investors pay for all the NuBits leaving circulation (park rates, i.e. tier 5, can reduce immediate pressure), pay given up shareholders a price for the blockchain, and receive future distribution of NuBit sales or other revenue† in high enough proportion that they believe it may reward their investment satisfactorily. The amount of NuShares sold would be so many that investors gain sufficient control of the blockchain to apply their policy.

† Every NuBit is a product sold to the customer under terms specified in NuLaw, which may change as quickly as the time to pass a motion or by a currently elected authority.


NuBits History – What the heck has happened?
The 99 cent NuBit
How does the liquidity model for NuBits work?
Raise transaction fee to 1 NSR/kB (and be ready to raise US-NBT fee)
Motion for manual exchange?
#3

I have no time investigating your thesis, just a question: is this same as Nu before? If so, I have no interest.