Park Rate Voting

[tomjoad]

However, a small amount of continuous inflation is very healthy for any economy

Small point of consideration - NBT already have 1-3% inflation built in through the monetary policy decisions of the US Fed. Like you, I consider a small amount of inflation to be healthy, but I think we already have it included in our design with our USD peg.

[Nagalim]

NBT already have 1-3% inflation built in

With respect to park rates, I agree. So that is a scale that we use as an upper limit and take something like an order of magnitude less. With that in mind, maybe we should vote for %0.25 on most of the normal time frames?

Is there a way to calculate a realistic number for how much Nu inflates as a %/year with just this first year of data? Would it be consistent to use that number to find a good park rate to offer loans at?

I’m not an economist, so I’m having a really hard time expressing what I want to say here. We should pay some % that is a fraction of the amount we inflate to take out loans from the community to avoid our inflation. Like if NBT inflates by 10%/year, we should be able to safely offer 1% interest on loans.

[crypto_coiner]

I hope to see all NuBits unparked in a month, which would demonstrate there is no need to spread parking out over time.

Perhaps I should set my parking rate to zero then

we will see tier 4 buy side liquidity grow

Does anyone have a clear explanation once for all of what liquidity tiers are?

[Nagalim]

JL explained tiers a while ago:

1. Money on buy and sell walls, reported in nu client.

2. Money on exchange but not in an order

3. Money off exchange, held in reserve.

4. Developer funds, also a reserve, but the reserve tagged for paying developers

5. Parking and distributions

6. Burns and buybacks

[Nagalim]

I hope to see all NuBits unparked in a month, which would demonstrate there is no need to spread parking out over time.

That’s some seriously circular logic. If we don’t offer rates, that will cause no one to park, so eventually they will all unpark. That doesn’t indicate network health, that just indicates that we haven’t been offering park rates. We could offer 0 park rates while completely bankrupt and we would have no parked nubits, but that doesn’t mean we’re magically not bankrupt anymore. It just means we’re stupid for not letting parkers bail us out.

Surely there is some rate we would be willing to accept a loan at? 0 parked nubits is not a measure of health to me, it is a measure of sickness that we could not offer reasonable interest rates.

I just feel like we’re saying we have no use for money, and it seems very strange since that’s our whole business model.

[masterOfDisaster]

@Nagalim’s summary of the tiered liquidity model is appropriate.
Here’s the detailed version:

Finalized evolution of liquidity operations

The following is the finalized version of the motion I am advancing to guide development of our liquidity operations. The motion hash you need to enter into your client to vote for it is: 65CB60D096508A7FA9ECC2017B38BC3AFEB5663D *****Begin motion***** Liquidity operations should have the following tiers. The first tier is available to the market immediately, but is at higher risk of loss than the other tiers. Subsequent tiers have the disadvantage of not being immediately available but featu…

[dysconnect]

With our way of dealing with things, I don’t think there will ever be a stable state of 0 parked NBT.

We have always raised rates to crazy levels every time there’s low liquidity; the worst part isn’t exactly the cost, but the fact that we only deal with park rates during emergencies of sorts, where there’s little space to experiment. There’s simply no way to get enough data and decide upon something milder than maximal crisis-handling measures.

I would agree to have a constant lower bound park rate and see how it goes. I suspect a low constant park rate has the following benefits:

• Reduce sell pressure spikes
• Which gives us a chance to review and reduce long term liquidity pool spending
• More data and predictability on NBT movement within the chain
• More predictability and consistency for users
• All these increase the solvency of Nu so is win-win for us and users

The average park rate certainly has to be lower than USD inflation. I don’t have the expertise to give a concrete number, but perhaps we can look to the federal reserve interest rate which is 0.25% at the moment.

[masterOfDisaster]

I was thinking that 0% would be desirable for Nu (looking healthy), but I came to the conclusion that a moderate parking rate all the time might even be better.

It could create some persistent degree of demand.
At a low rate it would cost less money annually than the liquidity providing monthly.

But I think this is too low to really provide an incentive to park:

The average park rate certainly has to be lower than USD inflation. I don’t have the expertise to give a concrete number, but perhaps we can look to the federal reserve interest rate which is 0.25% at the moment.

I’m no financial expert, but offering parking interest in the range of 2 to 4 percent might be a better experiment than having parking rates spike in cases of “emergency” in which people are less willing to park than in times where Nu and the peg are not considered being in trouble.

[crypto_coiner]

I think this reasoning makes sense - this makes me consider to raise my rate to 2~3% from zero currently.

[masterOfDisaster]

@Cybnate, @cryptog do you want to join the discussion?
You as data feed provider play an important role for this discussion.

There have been lots of discussions about parking rates.
Let me add my current view to it.

I think an annual parking interest of

• 2% for a minimum parking duration of 1 month
• 3% for a minimum parking duration of 3 months
• 4% for a minimum parking duration of 6 months

are worth a try.

The interest rates are increasing the longer the NBT get parked, because people will consider it a risk parking the NBT longer and will require compensation for it - or they won’t park longer (except they assume the parking interest being lowered in the meantime; when the NBT unpark and need to be parked again to get another premium, the reward might be lower).
Anything less than 1 month is pretty much useless for Nu if the parking interest shall be used as a motivation to remove NBT from circulation for some time and monitor the effects.

[mhps]

The interest rates are increasing the longer the NBT get parked, because people will consider it a risk parking the NBT longer and will require compensation for it - or they won’t park longer

The implied assumption is that Nu needs someone to park that long. I don’t see any reason Nu needs a park length longer than a month because the rate is revised every month or even in shorter period. If in January you find the buy side liquidity too low and want to increase park rate to have some part of the sell side NBT parked, why do you want the rate also high in February to June, knowing that the rate does fluctuate every month and it could well happen that just a month later the rate would need to be 0 and you could want every NBT out of parking? This makes no sense at all.

Nu is not a bank that can use deposited (parked) money for investment. There is no point mimicking bank interest rate behavior as a function of park length.

[masterOfDisaster]

Nu is paying a compensation for people providing liquidity. This compensation can potentially be lowered if less NBT are available to hit the buy side, right?

[mhps]

Nu is paying a compensation for people providing liquidity. This compensation can potentially be lowered if less NBT are available to hit the buy side, right?

I don’t get your logic if you are answering my post above. Let’s use the hypothetical scenario that buy side happens to be too low in January and too high in February to explain. So why, not being able to predict the future, should one in January set February’s rate?

[masterOfDisaster]

Sorry for being confusing - it might be related to the fact that I’m confused as well.
I guess, I still don’t understand Nu’s NBT pegging situation properly.

NBT is being two-way pegged to USD.
I consider one of the directions more important than the other: the buy side. This alone might be reason for discussions. But I find Nu’s promise to always buy NBT back for 1 USD more important than anything else.

Offering parking rates reduces the amount of NBT that can hit the buy side and makes it easier for Nu to maintain the peg (on the buy side).
Each NBT that gets parked can’t be used to join a pool to get a compensation for putting funds on the sell side…
Paying park rates might just be cheaper for Nu.

And just like compensating liquidity providers, paying parking interest is supporting the peg.

Except for snap-shots there is no monitoring of the liquidity or liquidity trends.

I’d like to see a continuous monitoring of the liquidity (buy/sell side) and not only snap-shots.
I’d like to start playing with the park rate hoping to see a correlation between park rate and peg (buy side) health.

Either Nu starts moving NBT burns to a lower tier and helps the buy side of the peg this way or makes use of parking rates (and not only in panic situations).

[mhps]

Each NBT that gets parked can’t be used to join a pool to get a compensation for putting funds on the sell side…Paying park rates might just be cheaper for Nu.

That is all fine. The problem comes when, as it happens often, there is too much buy side some time later and you want every NBT coming out of parking and join the sell side. You don’t want the park rate now to complicate future’s situation. Don’t set rate longer than a month, unless you can see the future (a month anyway)

[masterOfDisaster]

Setting the rate for 1 month doesn’t stop people from parking for longer than 1 month, does it?
They need to park for a minimum of 1 month if they want to get the “1 month interest” rate (which is calculated as annual rate), right?

[Nagalim]

Without liquid burn gateways and with the burn motion currently in place, I am against any use of park rates as a long-term loan. We do not have a proper economic tie between nbt and nsr and with the method of burn currently in place park rates would cause a share dilution instead of a buyback.

We should offer a small park rate at all times, but we can’t.

P.S. I was thinking more like dysconnect’s 0.25% at all time intervals longer than 10 days.

[mhps]

Setting the rate for 1 month doesn’t stop people from parking for longer than 1 month, does it?

I think if the longest period of non-zero rate is 1 month and you park 2 months, you will get 0 interest. There have to be two non-zero periods to have a continuous range of period of non-zero rates.
Can someone confirm this?

[Nagalim]

I can confirm. There is no reason to vote 1% on 1 month and not vote 0.5% on 2 months for this very reason.

[dysconnect]

We can set rates for longer periods, just in case it takes care of corner cases. Say 0.25% 1 week and 0.25% 1 year, then everything between 1 week and 1 year would have 0.25% interest. We then set a curve if we want.

Again, although parking is a cost to the business, we have never avoided to pay it. For the past year, parking expenses at 3.4k is around 0.6% of total NBT in ciruculation. Liquidity costs would be like 20% of all NBT by next April. If we can set a 1% park rate and save just a tenth of liquidity costs that would already be worth it; I hope we can save more, and to know that we need to experiment.

Chances are that at 0.25% park rate most people won’t park long-term. But if we’re lucky there could be people who, say, park their NBT for 1 week every week; this information would then be extremely valuable.