Park rates are our method for short term peg maintenance

[cryptog]

@assistant park rates

[assistant]

Hi @cryptog

The current park rates in the Nu network are:

32768 blocks: 0.000187% APR
65536 blocks: 0.001670% APR
131072 blocks: 0.008722% APR

[cryptog]

@assistant park rate votes

[cryptog]

We have now:
22.8 days: 0.3%
1.5 months: 1.340%
3.0 months: 3.5 %

I think we should increase much more the rates for shorter periods than 3.0 months.

[mhps]

I am confused by how park rates affect the peg. When BTC price is looking like to fall to a trader, say by 50% in the next month, you would need to offer more than 100% interest in the next month in order to persuade the trader to park instead of selling to the buy wall.

If you do offer the astronomical rate, you are basically paying the speculator and everyone else who parks the profit of a successful speculative trade (~100% a month in this example). This would be insane.

Am I wrong?

[cryptog]

you would need to offer more than 100% interest in the next month in order to persuade the trader to park instead of selling to the buy wall.

Good remark.

Well the way I see it is that half of traders may decide to sell over the markets for a potential relatively big gain with less probability, half of traders may decide to park because it represents a certain but smaller gain.

[mhps]

OK in my example above, to profit by selling Nubits is when BTC is expected to rise, not to fall. Park rate is offered so the trader gives up on speculative selling for park interest. Although a rising BTC (if it really rises as expected!) does make mopping up the printed NBT (interest paid) easier, using park rates to defend the buy wall seems still a questionable thing to do.

Well the way I see it is that half of traders may decide to sell over the markets for a potential relatively big gain with less probability, half of traders may decide to park because it represents a certain but smaller gain.

Yes there are several factors if a more sophisticated model is to be made. But the idea is the same. Shareholders have to figure out the right rates in a dynamic environment. That is very hard speculation.

The way out, as I see, is sticking to organic growth of Nu, only maintaining the NBT/USD peg.

[JordanLee]

using park rates to defend the buy wall seems still a questionable thing to do

While everyone is free to raise whatever questions they like, the historical record indicates parking is an effective and economical method for creating buy support. Between a month and two months ago 67,000 NuBits were parked as a result of park rates rising to 9% for just a three month term. The average actual premium paid was likely around 1.5% for parked NuBits. It did raise the buy wall. It certainly works.

If park rates remain necessary for an extend period it means NSR needs to be sold and NBT burned to permanently alter the currency supply. Park rates are intended as a short term mechanism to increase buy support that can be quickly deployed.

[mhps]

Thanks for bringing data points. Food for thought.

[Nagalim]

Even a 10%/year park rate is 15x smaller rate/year than liquidity providing (150%/year). I guess the question is what fraction of those parked nubits would have been sold / never bought during that time? If just 4,000 out of those 60,000 nbt were bought just for the purposes of parking, then it was worth it. Looking at this, during Nu’s first year a park rate of 10%/year for any stretch of time seems more than reasonable to me.

[mhps]

Even a 10%/year park rate is 15x smaller rate/year than liquidity providing (150%/year) … during Nu’s first year a park rate of 10%/year for any stretch of time seems more than reasonable to me.

Excellent arguement based on data.

Edit to add:

If continued burning of NBT (by creating NSR) is made to mop up interest payments, constant 10% park rate means 10% inflation rate of NSR. That is a number to show what shareholders are paying for pegging for NBT/BTC, because most of all these wall maintenance business – high park rates, frequent park rate adjustment, mirroring ever-changing order book, LPC exchange rate risks – can be avoided or greatly reduced we Nu only maintains NBT/USD.

[cryptog]

The average actual premium paid was likely around 1.5% for parked NuBits.

So that means that 1.5% of interest has been paid by Nu to people that parked for periods shorter than 3 months?
I do not quite understand the definition of premium here compared to park rates. Tks for clarifying, if possible.

[Nagalim]

I think it’s because not everyone actually parked for the maximum interest rate period, but I could be wrong.

[tomjoad]

I have raised my park rates to above 10%. It is clear higher rates are needed until more LPCs step up to use the easy tools offered by our pools.

Should the liquidity remain low I believe we will need to explore NSR-for-NBT burning grants or (if that functionality is not yet enabled) another NSR auction in the long-run. It’s clear that we’re still dealing with the effects of the collapse in NBT demand following the exchange hackings in February, and we might need to do further NBT burns to bring the supply back down to a manageable level.

EDIT: As Jordan has pointed out below, should the B&C Exchange funding motion be successful, and should the auction raise the required funds, this will be unnecessary.

[Nagalim]

I don’t think NSR can stand another auction with the B&C proposal. I think rates above 10% are a good idea. I have been hovering around 8-10, but I think we probably need 15-20%. Parking is our best bet for the next couple months, IMO.

[creon]

and then? this is a large fixed amount of NBT which is missing. I agree that someone should apply for a grant where BTC are put into the buy support using a nubot and all bought NBT will be burned in exchange for NSR. This is the tool for this situation. Here I just burned 0.1 NBT using the new burn command:

http://blockexplorer.nu/transactions/3c3f4df3d8c60ed7e7d9a5236feecc4ca9e7e32a77a8978cd38e756652cdde0b

Its easy.

[JordanLee]

Should the liquidity remain low I believe we will need to explore NSR-for-NBT burning grants or (if that functionality is not yet enabled) another NSR auction in the long-run.

I don’t see how buy side could remain low if the auction is successful. Development funds received from the auction will be held in stable NBT, which means there will be ample buy side support (from 200,000+ NBT purchase). With a monthly development cost of around 35,000 per month, there would be no need for an NSR auction for six months, unless new development is proposed and funded via NSR grant.

[Nagalim]

someone should apply for a grant where BTC are put into the buy support using a nubot and all bought NBT will be burned in exchange for NSR

This is exactly the kind of automated burning I was hoping for. I would vote for that in a heartbeat.

and then?

I think that Jordan is correct. If we can survive the fork, I believe we will prosper.

[creon]

I don’t see how buy side could remain low if the auction is successful.

Our buy side liquidity and the current amount of NBT in circulation (around 190k NBT) are completely misaligned. The auction won’t change that in the effect you suggest, since a large amount of the bids will be made using exactly these NBT.

Let’s not assume that any major part of the 200k of the auction will be visible as buy side liquidity in the client at any time. Every NBT used for a bid in the auction and which otherwise would have been hold is additional sell side pressure in mid term.

EDIT: Just for reference from the last auction motion:

Proceeds of auction: 185,014 NBT and 32 BTC for a total of 193,819 NBT value

If we assume a similar ratio then we need to get rid of the NBT, and burning is the tool for that.

[JordanLee]

@creon your point that auction funds will not all supplement the buy wall is quite relevant and accurate. However, given that we are marketing on bitcointalk.org I believe we will see a much larger proportion of BTC payment. I believe we will also see more bidders purchasing NBT to make payment rather than using NBT that have been held for some time. Only purchasing NSR with long held NBT will fail to register on the buy wall.