The important point to make is that our money supply in circulation shrinked from over 700,000 at the end of May to around 150,000 precisely because of the unnecessary default illegally imposed by @masterOfDisaster and FLOT. Chances are low it would have ever dropped below 600,000 if the model had been followed. In fact, the drop in May from over 800,000 to just over 700,000 was the result of a minor failiure to follow the model in March, when liquidity at Poloniex was dropped. Our model is to maintain high liquidity at all times. My guess is proper application of the model would have prevented the money supply from dropping more than 15%, as opposed to the 82% drop we have actually experienced. But we kept the peg during that huge drop, after taking control away from FLOT and @masterOfDisaster. That is an incredible testament to the strength of the model in supporting the peg. After decimating 85% of our market cap which we rely upon to support the peg, we were still able to support it. We did more than maintain it. We lifted the value of NuBits 400% in just over 2 months (from $0.20 to $1.00), after we had our market cap reduced by 85% due to gross incompetence and insubordination to shareholders. Think about that for a minute. What other currency can do that? Could the US dollar increase its value 400% and hold it there for the long term? No way. Not a chance. Only our model can do that. And it can do it after an extremely serious crisis. Perhaps Jordan Lee should be considered for a Nobel Prize in economics. Maybe. This is an amazing discovery and an amazing model, all implemented on a decentralized blockchain.
I understand shareholders are mad because they lost money. They have to take responsibility for not ensuring the model was followed. Requesting the model be followed in motions isn’t good enough, we have found. That is sad and unfortunate. As a NuShare holder, I have had many angry moments over what has been done by @masterOfDisaster and FLOT. Regardless, I come here every day to build our solution and fix things with a positive attitude.
If we can ensure the model is followed, we have good reason to expect NuBits to succeed going forward.
@masterOfDisaster and members of the FLOT are human, and therefore subject to mistakes, misunderstandings, having moments of irrationality, and being in a state of confusion – or if not confusion, then perhaps not totally aligned or ready to act within the vision of a cryptocurrency that was and is in its infancy.
For your own sake, have you or will you ever be able to forgive them, and move on? Or will you be stuck at that moment for the rest of your life?
If I could go back several years, would I have still invested in Nu? I’m not quite sure.
My life has taken a different path: thru what has happened here, I have had a lot of experience, and have grown as an individual.
These are still the early days of cryptoassets. The future is ours to make, hopefully together. But if you haven’t noticed, fewer and fewer people are posting here. The community is dwindling.
I attribute this to downward movement in the NuShare price. The only effective way to grow the community is to create improvement in the NuShare price. The only way to create improvement in the NuShare price is to stop the decline of the size of the NuBit money supply. Fortunately, the NuBit money supply can’t go below zero, and the closer it gets to zero, the easier it is to turn around. Having reduced 82% to around 150,000, it is pretty close to zero. We have to be close to a turnaround.
@woodstockmerkle, if you want to help, you should finish the 2.1 release that focuses on stability and reducing memory utilization. That would help us get more exchanges on board. I realize that is a difficult and very technical task.
@Phoenix, you keep saying that following the liquidity engine model is the only way that Nu can succeed. Before I turned against you and Jordan for all the odd behavior with multiple identities and important unanswered questions, I hope you will remember that I attempted to give you the benefit of the doubt.
After the collapse of the peg I spent a long time trying to analyze and understand your liquidity engine model. As the peg was collapsing you said that people needed to understand how the model was supposed to work and you’re still saying the same thing today, that the model must be obeyed.
After all the time I spent trying to figure it out, I went ahead and wrote out my interpretation of how I believed the liquidity engine was supposed to work in practice. You had placed such a high value on people understanding this model that I spent my valuable time writing it all out hoping that you would pick apart my analysis and provide clarification where needed.
However instead you completely ignored it and provided no feedback other than to say that my reasoning for why it failed was wrong. For someone who places so much value on others understanding the model and obeying it, you never provided any feedback on my attempted explanation on how the liquidity engine was supposed to function. Without that feedback, how else were we supposed to understand?
So I will give you another chance right here, right now. Please read my attempted explanation of how I thought the liquidity engine was supposed to function and provide clarification on where you believe I am right or wrong. The reason I have kept my NuShares even after all this is because I’ve always had this nagging voice in the back of my mind that says “What if the model actually did work if it was followed correctly?”
The reason this nagging voice exists is because there was once a time that the model did appear to be working as designed and it was right before the exchange hacks when we were providing high amounts of liquidity and having record trading volumes every day. There was an appearance that following the model was becoming increasingly successful, however because of the exchange hacks there is no way to know what would have happened and where we’d be at today.
I guess I still want to believe it does work, but you give us no feedback on the important details. If Poloniex doesn’t delist NBT, you may have another chance to prove your liquidity engine theory, but I would like to hear your feedback on my previous writing before that. Here it is again. If you believe it is so important for us to understand then you will respond back.
Intro
I’m going to attempt to describe my interpretation of @JordanLee’s liquidity engine model as best as I understand it, however I am not Jordan, so I may be leaving out important things or getting something completely wrong.
Most of what follows depends on the basic assumption that providing high amounts of liquidity at a tight spread will attract even more liquidity through increased NuBit sales. If Jordan is incorrect about this basic assumption, then the entire article that follows is based on a false assumption. I lack the knowledge necessary to determine whether his assumption is true or false. This is only my attempt at understanding his model based on what he has said in the past.
At different times over the course of this experiment, Jordan has brought up major points with shareholders that give us a glimpse into his vision of the future of Nu. For example, early on he revealed his goal to replace Bitcoin as the intermediary currency for crypto, through providing lots of liquidity. Later on he revealed that Nu is not designed to keep reserves forever, because with a reserve comes counterparty risk that could destroy the system if it ever fell out of our control. Recently though he began speaking of Nu as a “liquidity engine.” I had not heard him use this term until recently, but I believe it ties back into his first point about becoming the intermediary currency for crypto through the provision of deep liquidity.
Jordan’s Quotes on Nu as a Liquidity Engine
Here are all the quotes I could find where Jordan referred to Nu as a liquidity engine…
A Degraded Peg is Not a Peg, but a Tight Peg is Costly
The most important thing to understand is that a degraded peg with a lower buy side is not a peg at all and will cause customers of Nu to lose money when they cash out. This isn’t desirable, so customers would rather avoid NuBits, causing demand to drop like a rock. In Jordan’s words, a degraded peg means we have no peg at all and our liquidity engine is shut off until we return the spread to within normal parameters. A peg is only desirable when it has a tight spread, which offers something useful to the customer without causing loss of money. The counter-argument though is that when the spread is too tight, Nu loses money from our BTC reserve, which is slowly eroded away over time by users who trade NuBits using our buy and sell walls.
So our product is most valuable when it’s provided with lots of liquidity at a tight spread, but it’s also more costly to maintain. If there weren’t enough NuBits burned through transaction fees to cancel out the costs of liquidity provision at a tight spread and Nu couldn’t gain anymore NuBit sales to replenish the reserve with more BTC, the BTC in our reserve would be slowly eaten away until it was gone and the peg would collapse from lack of buy side funds.
How Nu Functions as a Liquidity Engine
This is where the term liquidity engine comes in. Nu starts off by selling NuBits. The BTC proceeds from those sales are placed on the buy wall at a tight spread. The large amount of liquidity provided by this BTC buy wall encourages trading, which over time increases demand for more NuBits, which are then sold on the market. The process repeats with more BTC proceeds being added to the buy wall from NuBit sales. So as NuBits are sold, liquidity increases, which encourages even more demand. This does not go on increasing forever, as Bitcoin’s ups and downs will effect NuBits demand as well. However, after low demand cycles are over, as long as we continue to provide lots of liquidity at a tight spread, NuBits demand will return and it may return stronger than ever before, adding more sales, more BTC and more liquidity to the system. This high liquidity is more powerful than any advertisement we could possibly make for Nu.
This system acts similar to a vehicle engine. @mhps described it well in the quote below…
In other terms, BTC is used to provide liquidity, which acts similar to transmission fluid. Transmission fluid is a slippery liquid that acts as a lubricant for all of the moving parts inside your transmission. In the same way, a high amount of liquidity acts like a lubricant for traders, making it easier for them to trade in and out of NuBits or BTC.
At the same time, the BTC used to lubricate the markets is also used as if it were fuel. It costs money to keep large amounts of liquidity up at tight spreads. BTC is slowly burned up as if it were fuel in order to keep this liquidity engine running at full speed. This can cause the BTC reserve to erode or shrink over time, but the little bit of BTC that is burned in order to provide these tight spreads is more than made up for in the form of increased NuBit demand and sales, which will increase the BTC reserve and liquidity even further. The BTC expenses for maintaining lots of liquidity at a tight spread is a small price to pay for keeping the liquidity engine running, if the end result is the engine picking up even more speed through increased NuBit demand and sales.
At times the engine will slow down due to lower demand because of BTC price swings. We protect ourselves from this by keeping a high tier 4 reserve and through using tier 5 park rates if necessary. If the reserve is high enough, then we won’t need to use parking that much. Tier 6 NSR sales should rarely be used if ever as long as the network is in a healthy condition and has lots of reserves. These upper tiers will continue to be in effect until Bitcoin reverses and NuBit demand picks back up, which causes the liquidity engine to roar back to life.
So in theory, as long as we continue to provide high amounts of liquidity at a tight spread, NuBit demand will continue to increase. It will hit periods of low demand, but when it returns NuBits will become useful to more and more people. Once again, high liquidity and tight spreads cause increased demand and NuBit sales, which adds more BTC to our reserve. A higher reserve means we have more BTC to add as liquidity on our trading pairs. This higher liquidity encourages increased demand and more NuBit sales. The whole thing is cyclical. It’s an engine designed to attract greater and greater amounts of liquidity through the burning of BTC. As liquidity rises, more BTC is gained through increased NuBit sales and is used to continue refueling the engine, which allows it to pick up speed and gain momentum.
Using Liquidity to Scale up the NuBit Money Supply
I believe @JordanLee was describing this process in his post here…
In the quote above, Jordan talks about using liquidity as a tool in order to scale up our network’s money supply through increased NuBit sales. He also says that as the NuBit supply scales upward, Nu’s liquidity costs as a percentage of the total money supply should drop dramatically. In other words, as we use liquidity as a tool to increase demand and sell more NuBits, the amount of liquidity Nu will need to provide as a percentage of the entire NuBit supply will decrease.
In the same quote, he also mentions that the US government and the Federal Reserve don’t pay for liquidity at all, because they have achieved such a large scale in their money supply. It seems as if he is implying here that if the NuBit money supply were to achieve a similar scale, that Nu would no longer need to pay for liquidity as well. I am not quite sure though without a confirmation from Jordan, so I will continue as if Nu will always need to provide at least some liquidity in order to keep the peg.
NuBits as the Intermediary Currency Used in Cryptoasset Trading
At this point, it’s very important to remind you of Jordan’s vision for using the liquidity engine as described above in order to exceed the liquidity offered by Bitcoin and ultimately replace it as the intermediary currency used in the cryptoasset trading market. Here are a bunch of quotes detailing his plan to do this…
As Nu provides liquidity at a tight spread, it will attract more NuBit sales, more BTC and even higher levels of liquidity. This will have the intended result of scaling the NuBit money supply upward. As this process continues and more and more people use NuBits as a trading instrument, the trading volumes for NuBits in terms of dollars will exceed that of Bitcoin’s trading volume. When this happens, NuBits will have surpassed Bitcoin as the intermediary currency used in the cryptoasset trading market.
Scaling up to Payment Processing as a Revenue Stream
While replacing Bitcoin as the intermediary currency used in the cryptoasset trading market would be a significant achievement for Nu, it wouldn’t solve the problem that the liquidity engine model which led to Nu’s rise is ultimately unsustainable in the long-term without some way for Nu to generate actual revenue.
Remember, in order to attract larger amounts of liquidity to Nu through increased NuBit sales, Nu needs to use the BTC it obtains as liquidity at a tight spread. This whole process of generating larger and larger amounts of liquidity in order to scale up Nu’s money supply can be very expensive to maintain in terms of Nu’s BTC reserve. The larger and larger amounts of BTC being brought in through sales is all being slowly burned in order to keep this process of scaling up the money supply going. It’s ultimately unsustainable in the long-term to maintain high amounts of liquidity at a tight spread without finding a way to generate enough revenue to cancel out the cost of liquidity provision. If no model for creating revenue existed, the BTC reserve would eventually burn away until there was none left to support the buy walls. There is also the fact that Nu’s reserve is being kept in a volatile asset, which can do damage to the value of that reserve over time. Now read this quote from Jordan again…
In the quote above, Jordan says that his liquidity engine model is made possible by crypto. I believe he is referring to transaction fees here. As NuBits are voluntarily transacted with on the blockchain by users of the network, transaction fees are required. The fees themselves are burned, which means the supply of NuBits is naturally eroded over time through use of the blockchain. Burning NuBits through transaction fees, thereby lowering the total supply makes final revenue for the network because Nu’s liabilities are reduced as a result.
If there were enough people using the network that the NuBits burned through fees canceled out the cost of liquidity provision at a tight spread, the network would be self-sustainable. However, the major problem is that in the beginning when the network is immature, there are not enough transaction fees to cover the costs of liquidity provision. In fact, most of the trading volume is done off-chain on centralized exchanges, which means fees aren’t charged at all, except for depositing and withdrawing NuBits, which requires actual use of the blockchain.
As far as I understand the model and the problems of low transaction fees in the beginning, there is only one path forward that has a chance of succeeding, and that is to get the liquidity engine running by providing high amounts of liquidity at a tight spread. It needs to be allowed to run at full speed, so that it continues attracting more sales and greater amounts of liquidity. If the engine is purposefully shut off or if shareholders try slowing it down by decreasing liquidity, NuBit sales will stagnate and the entire system will be in danger of collapse. You never want to intentionally stifle the engine and prevent it from doing its job.
As long as we allow it to run at full speed, it will continue to attract greater amounts of liquidity until it reaches a point where NuBits surpasses the volume of Bitcoin. On a scale from an immature network with little transaction fees to reaching the scale of surpassing Bitcoin, transaction fee levels will continue to rise as more people start to use NuBits. Even at the level of surpassing Bitcoin, Nu transaction fees will not be enough to cover the costs of liquidity provision. The primary reason is because at this point, most NuBit transactions will be done on exchanges where no fees can be charged.
If Nu were to reach the scale of becoming the intermediary currency used for cryptoasset trading, then as Jordan says in his quotes above, we will have gained the necessary amount of trust, credibility, liquidity and infrastructure needed to push beyond exchange trading and into the arena of payment processing.
Payment processing would be a gold mine for Nu precisely because on-chain transaction fees will be required for the majority of transactions, as opposed to making no fees by acting as a hedging tool for exchange users. No costly liquidity provision is needed and revenue is generated by people all over the world who use the network for payments. Nu as a payment processor would be even more successful for the mass adoption of cryptocurrency than Bitcoin was because of the price stable nature of NuBits.
Reaching this point may allow the network enough transaction fees to completely cover the costs of liquidity provision at a tight spread on exchanges. Even if it wasn’t enough though, Nu is a business and can create other profit models that don’t rely solely on transaction fees, such as loaning. New and talented people with big ideas to create profit will be attracted to Nu and become shareholders as we start to increase in scale and find more success. Any revenue brought in that exceeds the costs of liquidity provision can be distributed to shareholders as dividends, which will draw even more people to the organization.
While all of this sounds great, the only way to reach this point is if we first prove ourselves in the arena of cryptoasset trading as an intermediary currency. There is no path that allows Nu to skip straight to payment processing. Without proving ourselves first by supplanting Bitcoin as the intermediary currency, we won’t have the levels of trust, credibility, liquidity and infrastructure necessary to push beyond being used as a hedging instrument for traders.
Transitioning Nu to a Zero Reserve Model
Another long-term danger to Nu is keeping a reserve. I will once again refer you to Jordan’s quote, except this time with a different part bolded…
There are numerous problems that come with keeping a reserve. Here are some of them…
Bitcoin’s price volatility can eat away at the value of Nu’s reserve.
The reserve needs to be properly guarded by trusted shareholders using multisignature.
Counterparty Risk - Providing liquidity using Nu’s reserve funds could place the entire system at risk if those funds were stolen through an exchange hack or corruption of the multisig group.
Like Jordan says in his quote above, Nu should only use BTC reserves while the network is immature. A reserve system doesn’t scale well because of the above 3 reasons. That’s why Jordan has advocated for the use of a zero reserve model in order to protect Nu from the drawbacks of keeping a reserve.
A zero reserve model however cannot be sustained without high amounts of transaction fees on the network, which means Nu needs to be mature enough before attempting the transition. In the immature reserve model, NuShareholders use the BTC reserve itself to provide liquidity on exchanges, but in the mature zero reserve model, NuShareholders print NuBits in order to incentivize people around the world to provide liquidity on exchanges using their own funds. The zero reserve model will protect Nu from the drawbacks of holding a reserve, however it can cost more due to the fact that liquidity providers need to be paid enough by Nu in order to make a profit in the face of Bitcoin’s price volatility.
The only way a zero reserve system can be sustainable in the long-term is if the number of NuBits printed to incentivize liquidity operations is equal to the number of NuBits burned through transaction fees from regular users of the network. This zero reserve model can’t be used in an immature state, because there wouldn’t be enough fees destroyed to sustain paying out that many NuBits to liquidity providers. The peg would eventually collapse due to too many liabilities. The amount of NuBits printed for liquidity operations needs to be balanced out by NuBits burned through fees in order for the zero reserve model to function properly, so it would be best to start making the transition after the level of fees generated reaches a high enough point. Once fees are enough to support a successful transition, Nu will not only be self-sustainable, it will be free from counterparty risk.
JordanLeePhoenix, you have failed this community.
I attribute this downward movement to your attitude towards the community, your complaints about incompetence here, a purported Augeas default (that never happened!) there, combined with a complete unwillingness to have anything improved by the community.
You are an egomaniac.
It’s always you who needs to give directions and win the laurels.
If my analysis regarding the history of liquidity provision is correct, it started fully centralized and was transformed after losses at exchanges to a decentralized liquidity provision scheme.
Then that scheme was questioned by the community because of its lack of reliability during heavy Bitcoin volatility. Remark: the dependency on BTC was your fault; switching from the NBT/USD trading to NBT/BTC trading was not approved by shareholders, it was introduced by sole discretion of JordanLee . or did I miss the motion?
It was questioned by the immense costs as well.
Now you have a cheap and reliable fully centralized liquidity provision scheme again and don’t even consider thanking the community for its foresight!
It’s cheaper than the decentralized scheme was (operation wise).
The costs from risks are low; not much funds are at exchanges or other single points of failure, right?
If 0.6% is the right spread, then you were incompetent commanding it at 1% before!
Why does the difference between 0.6% and 1% not render you incompetent, while you try to use the same logic to call masterofdisaster incompetent for going above 1%?
Are you going to say that the spread needs to be set situation aware?
Be careful with that!
I bet you will give an elaborated and misleading answer.
Why wouldn’t you? You are stubborn and a die-hard believer/promoter in/of perpetual motion machines.
They don’t work!
Neither in a physical world nor in an economical world.
You spent time and money in CN-NBT instead of focusing on revenue.
You failed.
You shoot down skeptical opinions, ignore advice and are self-absorbed.
The NSR rate is a direct consequence of Nu not having revenue and no prospect of having revenue!
Who would possibly like to invest money in a company that isn’t designed to make revenue?
Only people who believe in being on the better informed side of the “greater fools game” do that.
The only person who profits from information asymmetry is you, JordanPhoenix - as it was from the beginning of Nu.
If anything that’s related to the Nu idea, Nu spirit and Nu community has a chance to succeed, it’s Augeas.
Thank you, @woodstockmerkle for having created it, uniting those that aren’t afraid of facing inconvenient truths, those that aren’t afraid of questioning the position and have the courage to adjust and improve.
I understand that Phoenix is afraid of Augeas and tries to discredit it wherever possible; I’d be too, if I were him!
I suppose you are speaking of Augeas. If so: count me in!
Even tomjoad disagrees with phoenix about the NSR sell,
Is it fair/moral to blame FLOT not understanding the liquidity engine model? If someone should be blamed, it’s Jordan who didn’t educate FLOT well about the model. A good leader usually takes responsibility even the fault isn’t really from him.
Also, I have received feedback from others before on it, so no need to tell me what you think again. Just because I wrote all that doesn’t mean I continue to believe it’s true. I’m just looking for Jordan/Phoenix to comment this time.
If this is the end, we should distribute the remaining money with an orderly fair procedure.
If we do not initiate an orderly procedure, those with the greatest confidence will have the greatest loss.
Without Poloniex, Nubits are dead. Or am I seeing this wrong?
Have you considered that maybe Poloniex just noticed that this NBT thing is just some guy with a moderately big bitcoin address who may or may not pay 1 USD per token in future while taking a lot of care to be untraceable? On top of that he is in control of far more than 50% of the staking token which is supposed to secure the transaction network of NBT.
It is good to see that now less people can be fooled into the NBT scheme and I hope it willl reduce the money Jordan is able to make from it by some amount. He still of course has all the dev funds but this ship has sailed a long time ago.
I really would like to say that Jordan could have had a chance to avoid this delisting by not abandoning the entire community, but in this case even a large email spam wouldn’t help. The few fools who bought NSR in the last time probably have already recognized that they really should do their homework before investing in a crypto currency.
Could you stop your ego for god sake? The market capital of NSR is as small as a BMW car, naturally it’s way easy to manipulate,
if myself issue a private currency with only one dollar, I promise it can be 1000 times of it’s original value, so am I proper for the Economics Nobel Prize? Come on! Stop your day dreaming and face the reality! Even USD Tether can withstand the 100% USDT dump in one day, so they can win the Nobel too?
F A Hayek was one of real Nobel winners, while some of us have little common sense of business. Clowns.
A number of people are beginning to echo this perspective. It is an improvement in the sense that it tacitly acknowledges FLOT was in error while our liquidity model was solid and reliable all along.
Thank you so much for taking the time to try to bring understanding to the the important topic of our liquidity model. I can see you have put a lot of time and effort into your report. At the moment I am focusing on exchange listings for US NuBits and Chinese NuBits and I don’t have the time to give you the thoughtful response you deserve.
I will return to this matter once more urgent matters are attended to. Thanks for your patience.
There was a time in February 2015 when we lost our three largest exchange listings (BTER, CCEDK and Excoin), that together compromised about 99% of all NuBit trade volume within about a week. It was difficult for the project and certainly retarded our progress. However, you can see that we were able to get listed on Poloniex and create a lot of volume after that problem.
It is a major setback, but certainly not the end. We are a blockchain network not dependent on any single exchange.
We will increase our liquidity support at other exchanges. I will give details in the coming days.
I said FLOT failed to follow your model, but I don’t believe your model is correct at all.
You model has serious flaws
It assumes most NSR holders act like a same person to buy& sell NSR at around same time and roughly same price level, this is impractical in real world due to “the tragedy of commons”, while the commons is the NBT reserve @NSR buyback (In BTC) and new issued NSR@ NSR official selling. E.g, if I listen to you and buy NSR two month ago, I lose money today. The more people don’t listen to you, and delay to act during Buyback/selling, the worse price for Nu’s commons.
This model discourages NSR holding very much, any long time loyal NSR holder will find himself heavily diluted from time to time. Why? Because some selfish NSR holders will always sell NSR at higher price than those naive believers of your model, and selfish NSR will always buy NSR at much lower price at official NSR selling. In fact, people will find that your model believers are stupid milk cow for Nu’s ecosystem. You are running out of such low IQ milk cows, and you will find it costs a long time to recover from a crisis, and a crisis(big NBT dumping), will be very frequent in Nu’s world.
It seems Nu/B&C only get support from a relative small group of people (more than 100+?) When most of them find your model’s weakness, it’s very possible that you will never sell any large amount of NBT in your whole life.
An example to demonstrate my opinion.
Assumptions for simplicity of analysis.
1)Assumption1: bitcoin price is constant at $500 in my analysis.
2)Assumption2: all the nushareholders involved in NSR buyback and sale, although some of them trade only a portion of his/her NSR while some others trade all of their NSR.
3)Asumption3: Initial NSR price is $0.1.
Nu decides to buyback NSR with 75% reserve, ie 500BTC, Jordan calls on every nushareholder to sell NSR so that he can store the value into NSR market capital.
The 500 BTC buy oder initallly placed on $0.1/NSR, then some Jordan’s believers sell a portion or all of their NSR at $0.1 price, but some shareholders(smarter)) placed sell orders at high prices from $0.2 to $0.6, when the buyback finished, the average buyback price is $0.3 and highest is $0.6. This is because Jordan has to spend all the BTC to accomplish the buyback. In the end, Nu spend 500BTC (common wealth) , ie $250,000 money to buy 833,333NSR as a reserve.
After buyback finished, the NSR price drops to original level = $0.1 per NSR. Three months later, a big NBT dump occurs, and break the buy wall on poloniex, then Jordan starts the NSR sale for BTC to help the peg. Jordan calls on each nushareholder to buy NSR with their BTC. Jordan places 833,333NSR selling order at $0.1. Some naïve model believers indeed buy some NSR at $0.1, but many of them placed buy order at from $0.1 to $ 0.016. When Jordan sell off all the 833,333NSR, he found the average selling price is $0.033, which means he only retrieve $27,500 from the NSR capital pool with same amout of NSR sale. That is to say, he only get 11% USD value back, and 89% of Nu’s common value leaked into those “bad””smart”’selfish” NSR traders’ hands.
Jordan need more NSR sale to help NBT peg. He persuades the community to pass a motion to issue more NSR and continue to sell & press the NSR price to a extremly low level. This hurts the naïve model believers a lot because they buy NSR at $0.1, sell at $0.1, so they get nothing profit. But when extra NSR put into market, they heavily diluted. For those sell at $0.3-$0.6, and buy at $0.033 to $0.016, they can only spend 1/9 to 1/36 BTC to get same amount of initial NSR.
Therefore, Jordan’s model has two bad results
The Nu’s common wealth loses 89% value due to “buy high & “Sell low”. Like a stupid trader. The lose of Nu’s common wealth is fatal to whole ecosystem. Isn’t this the most stupid transfer model in this world? How about power company transfer only 10% electricity via grid while 90% lost on the wire? How about you send $100 to overseas friends and $90 charged by banks as fee?
Those least loyal traders sell all of their NSR at high price, they may use 1/9 – 1/36 BTC to get back their NSR and just watch what will happen. If Nu succeed, they are happy, if Nu fails, they still happy for the extra BTC earned. Furthermore, their BTC may not be spent into Nu’s ecosystem again, there are lots of alt coins, “don’t put all eggs in one basket”, they are smart, but least loyal.
Jordan may argue that his model is to encourage people to speculate on the NSR price especially in official buyback/sale period, in fact he encourage to harm the common wealth: Nu’s reserve in BTC or new issued NSR.
With this toxic model, the most victims are Nu’s common wealth and Jordan’s most naïve believers. Is this system sustainable? I don’t think so. If bitcoins continuously hurt its common wealth(hash rate) and loyal BTC holders, bitcoin already died.
No vonder Jordan(phoniex) feels lonely on this forum, because the active members(Nu’s most believers) get hurt most, while Jordan still in his dream of winning an economics nobel prize.
This is the story from me, after wasting two years here.
I agree the model’s flaw or issue is mainly in the value transfer between NSR and NBT. The more buybacks and sell-offs in a given period the more money is lost for those loyal. I believe that in the past the amount amount of buybacks/dividends were recklessly high given the small scale we operated on. With more prudence we would have been in a different space. The question now is whether it is possible to bounce back from the deepest depths.
I believe that the transaction fees could eventually pay for development and other infra costs. After all it is not too expensive to run a blockchain. The cost for liquidity is another thing, that has been way too high to be sustainable at the scale we operated in the past. I believe upscaling is one of the real challenges here and…
There will be a high pressure by shareholders for buyback as soon as some NBT are being sold and basic reserves are met. This will quickly dampen the sales as NBT holders see their risks increase when the reserve disappear. I believe there will need to be a much longer period or more modest buyback scheme in order to build confidence with NBT holders and buyers. At the end of the day they will drive the shareprice. Once an equilibrium has been found between raising shareprice (=confidence/demand NBT holders) and sharebuybacks (confidence NSR holders) the model could work. It will require a lot of guts and almost abstaining from FUD and greed to do this. I’m on the fence whether this is humanly possible, if anything I believe modelling this into the Nu protocol somehow will work eventually.
Just my thoughts.
BTW @sentinelrv, @sabreiib I like both your recent contributions in trying to describe the Nu (intended) model. It is complex and different for sure. I like to add the scaling and finding the equilibrium into the mix. It is clear to me that extreme swings are too costly as described by Sabreiib and should be taken out of the model one way or the other.
LP cost may be compensated by spread trading; NSR-NBT directly transfer can be replaced by short term loan(park NSR to borrow NBT from protocol), all Nu’s issues can be solved.
We need to keep in mind that the recent extraordinary sales of NSR at extraordinarily low price are not part of our model. Indeed, we can say with confidence this type of thing will never happen if the model is consistently employed. These extraordinary NSR sales are precisely the result of the complete abandonment of the model in late May and June. The lesson to be learned is that we need to cling to the model, and this will never happen again. To try to avoid it by making changes to the NuBit / NuShare transfer model is instead likely to result in a similar sort of disaster.
Right now our equilibrium is a 48% reserve. The chances of ever eating through that while employing the model are quite small: it takes a complete default to produce that kind of contraction in circulating currency. With proper management, NSR sales will be rare and small. The problem being described by @Sabreiib and @Cybnate is actually quite small.
Furthermore, I will point out that share buybacks and sales are conducted by thousands of publicly traded companies throughout the world every year. They generally follow the pattern of selling low and buying high. Yet, these companies continue to thrive in most cases. This is not an experimental part of our solution.
Additionally, though it is a cost for us, we get something important for it. It is a phenomena similar in some respects to arbitrage that will deepen NSR liquidity, which is the primary factor in the strength of our peg.
I believe people are just feeling bad about their losses that resulted from the senseless and unnecessary Augeas default. People are looking for something terribly wrong with the solution to explain their terrible feelings. In reality, it is just bear market psychology that is causing this concern. Those who understand the solution and are level headed are taking advantage of this great buying opportunity.
In real world, companies spend their business profit to buyback shares, while Nu has little profit. Nu used its main capital to do such a thing, which is very rare in real world I’m afriad.
