This is amusing to anyone who understands what a ponzi scheme actually is. As defined in a dictionary,
A Ponzi scheme is a fraudulent investment operation where the operator, an individual or organization, pays returns to its investors from new capital paid to the operators by new investors, rather than from profit earned by the operator.
Our “Profit earned by the operator” in this case are sales of new NuBits that are required to satisfy conditions where aggregate demand has expanded beyond the available supply.
As far as I can tell, “ponzi” has served as an inaccurate categorization to criticize the fact that our NuBits supply won’t contract to match demand. This is a false statement. There are currently two mechanisms planned that can contract the supply of NuBits:
Currency Burning. This is a way to shift some of the speculative risk back onto NuShareholders where it rightfully belongs.
Variable Transaction Fees. @CoinGame had some excellent thoughts on this and I touched on it a bit in the currency burning proposal thread. In short, I’m not sure the outside community fully understands yet how powerful these transaction fees can be at ensuring price stability.
A basic assumption about NuBits usage is that nobody is purchasing them to speculate on their future value. Even in the short time the network has been operational, the price peg we have maintained has made it clear that purchasing NuBits for above $1.00 US is a losing trade, as is selling NuBits for under $1.00 US.
Because of this, we need to adjust our mental models away from the types of demand shocks that occur with volatile speculative cryptoassets like Bitcoin. It is unlikely that aggregate demand would ever decrease by 80% in one day in the absence of a major event like NuBits-usage being declared a felony. I use “aggregate demand” to mean macro-level demand over many weeks and months, not day-to-day volumes which can fluctuate significantly (and for which Liquidity Provider Custodians exist to stabilize).
In a scenario where aggregate demand begins to slowly decline, transaction fees can actually reduce the supply by the equivalent amount of lost demand if no new custodial funds are granted, and capture a good portion of the willingness-to-pay of the remaining users. Or in other words, transaction fees are a price discrimination mechanism to cleverly identify which users value the network the most and charge them accordingly. They can (and perhaps should) be used while aggregate demand is growing too, but that’s outside the scope of this post.
In my view the big takeaway is that most end-game scenarios will begin with slowly reducing aggregate demand, and that transaction fees will reduce the supply in an extremely efficient way to maintain the peg. In a scenario with rapidly reducing aggregate demand, it’s likely that a major event such as adverse regulation has occurred that has impacted all existing cryptocurrencies equally and thus is no longer a Nu-specific criticism. In both these scenarios no new custodial funds are being granted and there is zero expansionary pressure on the supply of NBT; transaction fees will be eating away at the NBT supply as quickly as NuShareholders vote to do so.
Furthermore, as Coingame correctly points out, the more services we can create that use NuBits as a “fuel”, the easier it will be to manage our supply.
I would be very interested to see someone with a formal economics background challenge my thinking, and perhaps create some quantifiable models that can be critiqued.