As most shareholders have likely noticed by now, centralized exchanges add considerable risk to trustless payment platforms. It is an especially limiting factor for projects like NuBits that have relied on centralized exchanges for providing liquidity. The Nu network saw 99% of its trading volume disappear within a couple weeks in February 2015 after several high-profile exchange defaults. While our 1.00 USD peg has performed admirably, our trading volume has not yet rebounded in the current bear market affecting all cryptocurrencies.
The arrival of a decentralized exchange has been eagerly anticipated within the cryptoasset community. In response to this unfulfilled market need, I am proposing that NuShareholders fund the development of a reputation-based decentralized exchange called Blocks & Chains Decentralized Exchange, or B&C Exchange for short. The protocol development that has occurred on NuBits and NuShares code can be extended in novel ways with B&C Exchange, giving us a considerable competitive advantage over outside projects that would attempt a similar design.
Full proposed design details for B&C Exchange are available in this bitcointalk thread, including a 20 page design document This motion and surrounding discussion will focus on the implications of the proposed funding model as they relate to NuShareholder interests.
B&C Exchange will be a powerful tool for significantly lowering NuBit liquidity costs because the risk of exchange default and theft will be much lower than it is with centralized exchanges. For an exchange to be a success, it also needs liquidity. NuShare holders will have a powerful interest in providing a great deal of NuBit liquidity on B&C because of its low cost and the broad overlap in ownership between the two networks. There will be a powerful synergy between the Nu network and B&C Exchange, with Nu bringing liquidity to B&C and B&C lowering costs for Nu.
I am proposing that development of B&C Exchange be funded from the auction of 100,000,000 undistributed NuShares. In contrast to our recent auction to fund peg protection and Nu protocol development, stricter controls would be put in place for this auction, including a reserve price and minimum total amount of funding required for the auction to successfully conclude. I estimate the cost of development for B&C Exchange at 200,000 USD, which corresponds with the proposed 0.0020 USD reserve price for 100,000,000 NSR in the relevant bitcointalk thread.
Shareholders should observe that the bitcointalk pre-announcement thread is largely hypothetical at this point and is fully contingent on NuShareholders passing this motion. If the motion is not passed, other options to fund B&C Exchange that do not include NuShareholders will need to be explored.
It is very important to point out that my initial promise to shareholders was that no more than 1,000,000,000 NuShares would be sold from the initial undistributed NuShares. A subsequent motion passed by shareholders requires me to burn all remaining undistributed NuShares (of which there are currently approximately 187,000,000) within 60 days of the protocol allowing NSR custodial grants, a function which has not yet been implemented. So, this proposal to auction 100,000,000 of those 187,000,000 undistributed NuShares to fund development of B&C Exchange is still well within the authorization provided by shareholders.
I encourage every shareholder to read the B&C Exchange pre-announcement thread and design document to understand the profitability model of the design. B&C Exchange equity holders who own "BlockShares" will be eligible to receive Bitcoin dividends from profits realized during exchange operations. It is a much simpler design than Nu in regards to custodians and dividends because no liquidity support is required to maintain a certain asset price level. It is even simple enough that weekly dividends could very much be a possibility without requiring the complex accounting problems that @KTm and @Jmiller have dealt with admirably. As well, liquidity for NBT/BTC trading pairs could be provided at much cheaper rates than currently offered on expensive centralized exchanges due to the potential reduction in trading fees paid; a potential direct benefit for all NuShareholders.
Auctioning the full 100,000,000 NSR would represent an equity dilution of 12.5% for current NuShareholders. This "funding round" approach to raising capital is common in entrepreneurial ventures in the private sector. While future performance is always uncertain and no promises can be made, my personal opinion is that it is quite possible that the future value of B&C Exchange operations - and by extension BlockShares - would exceed the $200,000 dilution required from NuShareholders to fund development. B&C Exchange directly solves a challenging problem faced by all cryptocurrency users, including the large Bitcoin community.
The following is a draft motion intended to permit myself (Jordan Lee) to operate in the manner described above:
Motion RIPEMD160 hash: 20e1ec16c5527c3873699e702c96a980c22faed9
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Shareholders authorize Jordan Lee or a selected representative to
auction up to 100,000,000 NuShares from the undistributed NuShares
currently held in Jordan Lee's possession. The shares will be sold for
the purpose of funding development of a new decentralized exchange
called B&C Exchange, as well as Nu network development if necessary.
The auction must follow rules as specified in the bitcointalk thread:
Auction goal: 200,000 USD worth of value in the form of various cryptoassetsA maximum of 100 million total NuShares will be auctioned. This
equates to a maximum of 100 million BlockShares once that production
blockchain is launched. Bid deadline will be set for a date two weeks after the motion
passes and the title of the bitcointalk post is updated to [ANN]. No
extensions will take place. Maximum bid size is 30 million NSR to ensure sufficient decentralization.Minimum (reserve) price per share will be 0.0020 USD.Minimum total bid is 1000 USD.Multiple bids from a single user will not be accepted.Bidders will not see other bids.
Should the auction funding target of 200,000 USD not be reached by
the deadline date, no NuShares will be sold under any circumstances.
Those NuShares will remain undistributed to await burning as specified
in prior motion ed7b9fc65dc4e9d9acad61e528420c2690f599d2.
In compensation for funding development through the sale of these
undistributed NuShares, all NuShareholders will be entitled to
automatically receive one (1) BlockShare for every one (1) NuShare held
in their possession at the time the BlockShares production chain is
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Verify. Use everything between and including the <motionhash></motionhash> tags.
Given that this is a non-trivial financial request from shareholders, I encourage any concerns surrounding the language of the proposed B&C Exchange design and funding model to be shared here as soon as possible. If no critical objections are raised I will be advancing this motion for voting within the next two days. It is important that the B&C Exchange design is shared publicly so that NuShareholders can properly assess its potential profitability before voting on this motion. However, now that the design is publicly known, it is important that we begin raising funds soon if we are to succeed in launching our B&C Exchange before a competitor does.
If you have comments, suggestions or questions regarding the motion content or about how this affects Nu or NuShare holders, this thread is the best place to voice those. However, I would like to aggregate the discussion about B&C Exchange in the bitcointalk.org thread. I encourage everyone in this community to join the discussion there.