I’m glad to find a proponent for what I propose at every single place where it may apply!
Brief version of how to reduce the risk posed by customers using NBT to hedge falling BTC prices.
if BTC get dumped into the NBT/BTC proxy them to a BTC/fiat pair.
One of the more detailed posts is this:
Not a great example. This didn’t happen overnight. It is a shareholders’ choice to act late and bet on increasing rates only.
@Cybnate I just wanted to point out that most of the quote you have attributed to me is actually content originating from @cryptog.
You are right. Discourse doesn’t do nesting obviously, my apologies. Have changed the post above.
Don’t you think we have gone too far with this park rates? I mean it looks ridiculous now, with 18% for 3 months.
Just raising the interest rate is not going to make people automatically buy more NuBits and park them, not with nobody out there knowing what NuBits are and Bitcoin that seems to be preparing to jump.
Please think twice before going so far, our park rates should be 10% at most. This makes us look like clowns.
Maybe, but what would have been the alternatives?
If I understand the parking correct, the 18% is the annual rate for a minimum parking duration of 3 months, which still is high.
18% annually equals 4.2% for three months (compound interest included) or 1.38% per month.
That is still far below the interest that can be made in the liquidity pools. But paying for liquidity pools is the better choice. I’ll come back to that later in this post.
That’s true, but as other effective means for regulating the tilt between supply and demand were not available with short lead time in that situation. Raising the parking rate interest was the only way to treat the situation.
It may be that the blooming decentralized liquidity providing helps a big deal here.
I believe that the tiered model of liquidity operations needs to be reworked.
Currently parking rates are on tier 5 and NSR sale / NBT burning is on tier 6.
It’s my firm conviction that tier 6 is more effective than tier 5:
The only instrument that is missing is a way to quickly, reliably (and ideally on protocol level) determine a ratio for NSR/NBT conversion.
So far this can only be achieved by NSR grants that are used for buying and burning NBT, which is obviously not operating on protocol level.
In my eyes the ideal solution for keeping the peg deals with an appropriate compensation for liquidity providing and agile, reliable NSR/NBT burn mechanisms.
If something goes pear-shaped raising interest is too slow and people might not want to buy and park NBT depending on the kind of what goes wrong…
An idea how to address the lack of NSR/NBT burning (on protocol level!) is already available:
I’ve been saying that burns are more short term than park rates for a while now. This is also why we should not link burns to park rates in any way. Park rates should respond to burns (among other things), burns should not be designed to respond to park rates.
I am not so sure. Park interest has almost no risk (except for peg risk) and betting on BTC has a lot of risk. You could borrow from a bank and buy NBT to park (if you think peg risk is small enough) and make more profit than buying / selling a few bitcoins with impossiblly good timings… The fact that we haven’t seen millions of dollars piling into parking suggest that not many know about it and / or the peg risk is not ignored.
Providing liquidity in fiat pairs (especially NBT/USD) poses little risk compared to NBT/crypto pairs.
This is the way to go for liquidity providing, because it will be cheaper for Nu and better calculable for liquidity providers.
I think that’s a misunderstanding of the design of the network. The Nu network has three tools for responding to aggregate demand variance over time. Short-term durations are balanced through liquidity provision, mid-term durations are supported through parking rates (to spur demand in brief periods of modest demand decline), and long-term durations are supported through burning (to permanently correct oversupply).
It kind of destroys the crypto spirit of distrusting USD, but as a developmental strategy I agree we should definitely take a serious look at making good use of fiat pairs. It is much more difficult to reduce counter-party risk, and some of the USD or EUR liquidity can still flow to BTC and other stuff, so we still can’t rely on it heavily.
I think this is wrong. I realize this is your and Jordan’s opinion of how Nu works, but I do not believe it is long term sustainable. I believe you will eventually come to the realization, like @masterOfDisaster did, that burns are necessary as a short term way to balance the peg.
Liquidity is not a way to balance the peg, it is the peg. Burns (should be used to) balance the dual side liquidity on a daily basis. Park rates help the nsr price from diving in the midterm (the corralary of which is distributions which are use to further increase nsr value when it is already high). The only long term method of maintaining the peg is adoption.
To call burns our long term solution means we are as big of fools as @peerchemist says we are.
Cryptos distrust fiats and use decentralized uncorruptable ledgers for bookkeeping. It doesn’t matter what the token or a derivative thereof traces to, be it nothing (BTC), USD (nubits), gold (bitGold), oil, marmot …
The buy side liquidity is now 42k, the sell side liquidity is now 35k.
It is probably the first time that the buy side is significantly higher than the sell side .
Time to reduce drastically the rates or even nullify them.
The additional 1m NSR sale auction is not necessary any more but since the motion has passed…
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:
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.
Kiara just burnt a lot of coins here: [Passed] Motion to end LPC operations of KTm, Jamie and NSR sales of Jordan which likely contributed significantly to the decrease on the sell side. The B&C auction will increase demand. The outlook for NBT is therefore likely relatively high demand in the short term. Will monitor the situation in the next 48 hours with the aim to nullify my park rates if nothing changes.
@masterOfDisaster thanks for wording what was floating in my mind lately too and illustrating it with an example. I think Benjamins’ proposal needs to be seriously considered for implementation. In the interim we can work with a weekly manual burn process although the need for it is likely to diminish quickly in the short term. Mid term (>1 month) this will surely be needed again (e.g. when first payouts for B&C will happen and also payouts Android grant).
Based on the balanced buy and sell rate in the last few days and the outlook for more NuBits demand due to the B&C exchange activities I think it is time to nullify my park rates in my data-feed.
With the frequency data feeds adjust park rates (~ once a week) I don’t see any point in setting rates above 0 for periods longer than a few weeks.
For example 1 NBT parked for 6 months is 1 NBT out of the control of further park rate adjustment for 6 months. Why do we want that?
I prefer the longer park rates as it would take longer before those coins return to the market. Having park rates up is not really a sign of demand and confidence. The longer periods we have without it the better from a marketing perspective.
That’s why I want it.