This is why Nu needs a feedback loop on protocol level and not only parking interest and motions based on what NSR holders think might be appropriate.
At the moment there’s no immediate and ongoing feedback between decisions (vote for 0% park rate; vote for x NSR to be sold to buy NBT and burn them).
An effect is that Nu faces parking rates that are higher than necessary and NSR sales that with bigger amounts than necessary to stabilize the peg.
Once the B&C Exchange funding is through Nu will see big changes in supply and demand for NBT.
When the non-NBT funds are collected and converted to NBT that will lead to a big pressure on the sell side (depending on the amount of NBT that is needed).
And when those NBT are put back to market to pay for the ongoing costs of the B&C Exchange development this will have an impact on the buy side.
Does Nu know how much parking rate is appropriate at which day, week or month after B&C Exchange development trades NBT back and forth?
I guess the answer is “no”.
Should Nu need to care about such events?
The answer for sure is “no”, because there are events out of sight for Nu which still might have an impact on Nu.
Adjusting parking rate interest is slow, maybe too slow.
Nu needs a continuous mechanism to deal with changes in supply and demand.
Especially is the supply is suddenly too big the parking rates are no effective means to protect the peg.
I know that this position is not in line with the current design. But I sincerely believe that the design needs to be improved in this area.
Sudden increase in demand can be mitigated by the strategic reserve of NuBits.
Sudden increase in supply can’t be mitigated by parking rates, because you don’t know whether or not NBT will be parked!
An ongoing conversion of NBT to NSR and NSR to NBT by a combined grant/burn process is required to help protecting the peg.
Once Tiers 1 to 4 of the tiered liquidity model are depleted and the parking rates (Tier 5)come into play, it’s already too late to defend against an intended attack on the peg.
This might not be very important now as Nu is still too young, its total value isn’t big enough and the gain from attacking it might not be worth the hassle of attacking it.
I believe an attack like George Soros performed on the British Pound is possible with the current liquidity model.
Nu needs to remove an oversupply of NBT continuously (and finally!) from the market.
Without that being automated an attack could look like this:
- lend a large stack of NSR from someone (say 10 million NSR valued 1 million USD for 20% interest per year)
- sell them for NBT
- buy all NBT that are available
- let Nu create more NBT
- buy them
- go to step 4 some more times
- dump all the NBT on the walls (and receive all the money that you put into NBT back; excluding the exchange fee)
- break the peg (because the buy side can’t compensate this and parking rates won’t work, because the attacker won’t park)
- buy cheap NSR form the market (say 10 million NSR for 100,000 USD)
- give the NSR you lent back
- be happy that you have 900,000 USD more than before (minus the interest you paid for the lending)
As you can see from the numbers, this belongs into the future of Nu. The NSR price in this scenario is way higher than it’s now.
A way to lend NSR is not yet known.
But both price and lending might evolve like I pictured out.
Only an ongoing adjustment of buy and sell side can protect the peg from this.
And it doesn’t hurt having this sooner than later although it’s not as badly needed now as it will be in the future.
It’s easier (and less costly if something isn’t right from the start) to implement this in Nu’s early phase (which Nu is still in).
Without that we’ll see oscillation in the park interest rates and Nu can be attacked with little risk (unless I messed something up in this scenario).
A continuous and on-protocol mechanism might be able to help a big deal!
Nu might not be able to remove the NBT from the market that are bought by the attacker.
But with the skyrocketing demand for NBT the NSR price can be expected to go up as well.
And that makes it easy (and cheap!) to fill the Tiers 1 to 4 again (buy side with BTC, PPC, USD, whatever) by granting and selling NSR.
This is how this type of attack runs dry.
Park rate voting doesn’t help here
Tier 6 needs to be reworked from a last line of defense to the ground the whole peg balancing is built on.