NuShares Market Cap = Cost to Secure Network?

[jb85]

Just trying to think about how to value the NuShares market fundamentally.

If the market cap for Nubits is X, what should the approximate NuShares market cap be?

seems to me nuShares market cap <<<< Nubits, otherwise its implying that its very expensive to maintain the $1 peg, no?

[mhps]

seems to me nuShares market cap <<<< Nubits, otherwise its implying that its very expensive to maintain the $1 peg, no?

When price of Nushares are high it is expensive for share buyers. Share buyers don’t contribute to Nu network security. High Nushare prices put more resources to share owners to maintain the $1 peg. No?

[jb85]

i’m still trying to understand so sorry if i’m slow.

lets say there are 15 trillion nubits (ie $15T market cap). Approx what market cap would you guess that nushares would be? and why?

[Chronos]

lets say there are 15 trillion nubits (ie $15T market cap). Approx what market cap would you guess that nushares would be? and why?

It’s a tricky question, and different people will have different opinions.

One way to look at it is to think of the value of NSR in terms of the expected future dividends. With 15T NBT in circulation, you might expect a low number of dividends to be distributed in future (this, of course, depends on many factors). This means a low value for NSR. But then the NSR burn mechanism can’t support the peg properly, since there is not enough value to burn, which makes the entire system collapse.

This actually might happen simply due to NBT circulation getting too high. @Benjamin studied this and concluded that each NBT in circulation weakens the peg a little more. For a more careful analysis, see Intro to Economics Behind Nubits System and 100% USD Reserves Offers Zero Benefit In terms of Peg Stability.

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Even though that’s the doom-and-gloom scenario, I still think it could be helpful to think of NSR value in terms of future dividends.

[Cybnate]

Here is a non-economic view. Shares are typically responding more to expectations than reflecting the present situation. So even with 15 trillion market cap of NBT NuShares marketcap could still be declining to a value under 100m when most shareholders loose confidence for whatever reason. Many external factors could be causing this at any point in time. The risk factor.

Expectations are tightly coupled to expected dividends and even more by the share price. When lots of NuBits are sold or are expected to be sold the dividend pay-out likely rises and with that the share price. Don’t expect a lot of rational, as most of the price will be driven by speculation or external factors to the network anyway.

Edit @chronos agree that a very high NBT (in billions) in circulation puts more risk on the network than just a few tens of millions. However it is likely that this only has an effect on share price when NBT in circulation stabilizes and the expectation of selling more NBT is minimal. Therefore I think that shareholders should look at other means of income to stabilize revenues, the transactions costs is one of them but more is likely to be needed.

[cryptog]

With 15T NBT in circulation, you might expect a low number of dividends to be distributed in future

Can you clarify why?

[Chronos]

With 15T NBT in circulation, you might expect a low number of dividends to be distributed in future

Can you clarify why?

Today, dividends come from NBT sales, i.e. “distributing the reserves”. If that remains true, then after 15T NBT have been created and distributed, that number would have to grow further in order to generate more dividends. Given the aforementioned risks of a high amount of NBT in circulation, it’s not clear at this time whether or not that number would be able to grow further in order to generate more dividends.

[tomjoad]

One way to look at it is to think of the value of NSR in terms of the expected future dividends.

I think Chronos is correct, with added value coming from “intangible assets”. These include the value of the Nu brand, the number of users on the network, and the collective human capital contributing to the project. Future dividends could be zero, but NuShares will still have value for speculators because engaged eyeballs can always be monetized with enough creativity.

[cryptog]

I see. Tks for the explanation.

We have a long way to go till 15T NBT…And if Nu reaches that point, which I hope, it would at least give plenty of dividends to all the early shareholders

[cryptog]

. Therefore I think that shareholders should look at other means of income to stabilize revenues, the transactions costs is one of them but more is likely to be needed.

What about lending?
We should probably look at how a bank or a central bank or an investment bank make money…
Nu could play all these 3 roles:

• printing money: central bank
• lending money: banks
• investing money: investment banks
  and create revenues from these 3 roles.

[woodstockmerkle]

The “Introducing NuBits” mentions a stat from the World Bank that 50% of the world’s population is un-banked. That also likely means there is no easy access to investment options either.

Though for sure the market for investment options may be limited due to high levels of poverty in that un-banked 50%, if there’s even 5% of the un-banked 50% that would be able to invest, that’s a market of 175 million people.

[Sentinelrv]

With 15T NBT in circulation, you might expect a low number of dividends to be distributed in future

The problem with this is that it assumes that profits and dividends only continue to be made by creating and selling new NuBits (and other pegged currencies which we create in the future). I just can’t imagine that in a couple years time nobody has found another way to make the Nu Network profitable besides selling currency or profiting off of transaction fees.

I think there are limitless possibilities here. Earning profit from the network through transaction fees and selling currency is basic at best. Cryptog brought up good points in his quote below. Nu could expand to working with custodians that run lending banks and even investment banks. I think this is where the real money is at. Only relying on profit from NuBit sales is a dead end long-term, as some have pointed out in this thread. Creating business in the real world through loaning and investment opens up shareholders to huge potential profits and dividends. If we can figure out how to increase dividends through business like this, then the NuShare price will no longer be dependent on how much currency we sell. It would create an even stronger backing. Am I right?

What about lending?
We should probably look at how a bank or a central bank or an investment bank make money…
Nu could play all these 3 roles:

• printing money: central bank
• lending money: banks
• investing money: investment banks
  and create revenues from these 3 roles.

[Chronos]

If we can figure out how to increase dividends through business like this, then the NuShare price will no longer be dependent on how much currency we sell.

I think you’re correct. That’s why I added the caveat that my explanation applies only if distributing the reserves continues to be the primary dividend source.