While it is our long term goal to eliminate holding reserves at all, until we can guarantee a large amount of decentralised liquidity for a long period of time, some reserves are necessary. As I have mentioned recently, I hope others will step up and hold that reserve using multisig addresses. Notwithstanding our plans for improvement in the coming months, a temporary framework for managing tier 4 buy side liquidity is needed at the present time.
If the tier 4 buy side is too big, it increases shareholder costs if the exchange rate moves against us (these are mostly Bitcoins) or if there is some other kind of loss of the funds. If the reserve is too small, it endangers the peg. So we are aiming to balance those two classes of risks. I don’t know of a formal or mathematical expression that can tell us what the size of the reserve should be, but here are some facts I’m using to arrive at the recommended tier 4 buy side size of $80,000:
We have about 560,000 NBT on the blockchain.
Over 300,000 NBT sits in B&C and Nu wallets, and will be slowly spent on development and other expenses. By itself, this will put sell pressure on the peg. We don’t know if other factors will provide enough buy pressure to counteract this, but there is certainly a good chance it will go this way. If it doesn’t, NSR sales can be used to reverse any earlier NSR purchases. This is the best approach because it reduces the size of the reserve in the interim, which reduces exchange rate and other loss risks.
This leaves less than 250,000 NBT that is truly out is the wild. There is usually over 50,000 in buy side liquidity offered through NuLagoon and the TLLP pools. Most of this could evaporate without notice if liquidity providers saw heightened risks.
About $80,000 in tier 4 buy side liquidity should be maintained. In normal circumstances, this gives us 130,000 in assets to contend with ~250,000 NBT whose owners may decide to sell at any time. In a worst case scenario that most TLLP liquidity disappeared, we would still have more than 80,000 buy side liquidity. We would also have demand from interest rates and funds from NSR sales combined with NBT burns as other ways the buy side could be rapidly (but not instantly) supported. While the $80,000 figure is somewhat arbitrary, it probably balances the risks of too much and too little tier 4 liquidity about right.
Currently there is about 101,000 in tier 4 buy side liquidity. I propose we spend funds in excess of $80,000 to conduct NSR buy backs and burns. To prevent instability in the NSR price, only 10% of the excess should be used for share buy back per week. So, in a week where the starting value of tier 4 buy side liquidity is 101,000, $2100 would be used to purchase NSR and reduce total NSR supply by burning it. Over the course of the week the tier 4 buy liquidity would fluctuate according to the BTC exchange rate and in response to changes in the level of NBT demand. If tier 4 buy side liquidity increased to 110,000 over the course of the week, then $3000 (30,000 * 0.1) would be used to purchase NSR and burn it. Burn transactions would be published. Share buybacks would cease if tier 4 liquidity dropped below 80,000.
Motion RIPEMD160 hash: 7b4955e91781e0e32f1e0c0c974fd4a7a9f972a3
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Tier 4 buy side liquidity in excess of $80,000 shall be used to conduct NSR buy backs and burns. To prevent instability in the NSR price, only 10% of the excess should be used for NSR buy back per week. The end of Friday UTC each week will the time for which the value of tier 4 buy side liquidity will be determined. Publication and calculation of this value will not occur in real time and should be expected in the following hours or days. The purchase will occur sometime during the week and the burn shall be published prior to the following end of Friday UTC. So, in a week where the starting value of tier 4 buy side liquidity is 101,000, $2100 would be used to purchase NSR and reduce total NSR supply by burning it. Over the course of the week the tier 4 buy liquidity would fluctuate according to the BTC exchange rate and in response to changes in the level of NBT demand. If tier 4 buy side liquidity increased to 110,000 over the course of the week, then $3000 (30,000 * 0.1) would be used to purchase NSR and burn it. Share buybacks would cease if tier 4 liquidity dropped below 80,000. These criteria apply equally to Jordan Lee and any other person or group of persons that provide tier 4 buy side liquidity.
TomJoad or a motion-elected representative will conduct NSR buybacks
with any excess Tier 4 funds provided to him or her by Jordan Lee each
week. The purchases will take place over the period of Monday through
Friday, with a single-price purchase order updated once per day on
Poloniex or the generally accepted highest volume NSR exchange. The
purchase order will be discounted from the last completed market trade
by 30%, 20%, 10%, and 0% for Monday through Thursday respectively. If
any excess funds remain on Friday they will be used to purchase NSR from
the sell wall on Poloniex, up to a maximum of Thursday’s market price
If any funds remain after this they will be recycled to the following
week. If the entire purchase order is filled on a Monday, a 5% discount
will be added to each day the following week. If the entire purchase is
not filled on a Monday, the following week will be the standard
discount above. TomJoad or the elected representative reserves the right
to attempt private off-exchange sales through the BitMessage address
BM-2cVFzzfWwKkdxLmgZwhSFfGmKwqDrddDfv if the NSR purchase price is
discounted greater than 30% from the market and finalized within 24
TomJoad or the elected representative will provide details of the
previous week’s NSR burn before the following Monday period begins. In
the event TomJoad or the elected representative is unavailable for a
week the Tier 4 funds will be added to the next buyback period, unless
shareholders vote by motion to elect an alternate facilitator.
TomJoad or the elected representative will abstain from purchasing or selling personal NSR during periods of share buybacks.
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Verify. Use everything between and including the <motionhash></motionhash> tags.
These criteria for share buy back are expected to be temporary in nature. In the coming months, the critieria and methodology are likely to undergo significant evolution as a result of changes in the total NBT in circulation, capabilities of liquidity pools to ensure liquidity, capability of B&C Exchange to ensure liquidity, preferences of a new team managing tier 4 funds using multisig addresses, etc.