Plan B for Nu--the Nobel Prize Winner's model

[Sabreiib]

The reason I write the post is because I’m B&C shareholders and hope Nu becomes successful so that B&C can be finished in future, and also want to summarize my thought on stable private currency in these years.

A strong system demands less on the quality of its participants and a weak system demands highly on its operators. If Nu’s architect want same achievement as Satoshi’s bitcoin project, just imagine that the founder disappeared several years after the project’s launch, and the system still works fine.

F. A. Hayek already told us how to issue a private currency, as per
https://www.mises.org/library/denationalisation-money-argument-refined

“The sale (over the counter or by auction) would initially be the chief form of issue of the new currency. After a regular market had established itself, it would normally be issued only in the course of ordinary banking business, i.e. through short-term loans.
”
Excerpt From: F. A. Hayek. “Denationalisation of Money: The Argument Refined.” iBooks.

If Nu’s “liquidity engine” becomes successful in future, we all be happy, but if it doesn’t, this Plan B is just for us to continue our effort. As per Nu’s liquidity engine, we sell NSR when NBT peg in danger and buy NSR when our reserve is high enough, the main purpose is to treat NSR market cap as a pool as we can input or output value when needed. The short coming of liquidity engine are:

1. We have to build up a high liquidity market for NSR which is unnecessary while NBT’s liquidity is the only target.
2. low value transfer efficiency due to price gap between buyback and sale of NSR.
3. An infinite supply of NSR(at least looks like) will terrify&prevent potential investors(speculators) from buying NSR, therefore the liquidity engine may be out of fuel.

The Plan B is from the Nobel Prize winner’s short term lending mechanism which is immune to the flaw described above.

NSR holdes pledge their own NSR to borrow NBT from the protocol on a ratio voted on blockchain, then they provide liquidity for NBT. In this model, we shrink the NBT supply by manipulating the pledge ratio referencing the free market situation such as NBT demand, NSR price etc. The goodness are blow:

1. Little expenditure, if NBT demand zero, NSR just become another “Peercoin”. Look at the BKS now, B&C is not finished, and BKC supply is zero, but BKS holders are minting. Sustainable!

If NBT supply is high, we don’t need to pay anything to LPs because they make their living by charging price spread fee as their income. Our customers pay for the service provided by LPs, fairness.

2. We don’t have to build up a high liquidity market for NSR on exchanges, and short term lending activity only occurs on Nu’s blockchain.

3. NSR is meant to be manipulated upwards just like BTC’s price plays important role in BTC’s ecosystem,

(To be revised.)

[Phoenix]

Releasing a currency that maintains its value has been talked about for quite some time in this community. There is a possibility that in the long term it would become our most popular currency product.

The economic reality surrounding any stable currency is that depreciation is profit. We would love to be able to sell a currency that depreciated 50% a year. It would be extremely profitable if we could sell it. Of course, there is no reason to think anyone would want such a currency. Conversely, imagine issuing a currency that appreciated against USD by 50% per year. It might be very popular. Yet, our liabilities would almost certainly get out of control eventually, causing the NuShare price to decline and the peg to be lost eventually.

So, depreciating currencies are less popular but more profitable. Appreciating currencies have a better chance of becoming popular, but make the network less sustainable. Both extremes are clearly undesirable. The important question that remains is where is the sweet spot that optimizes popularity while not exposing Nu to excessive long term systemic risk? Is it the depreciation rate of USD? Is it an inflation adjusted USD rate, which in recent years would be USD par plus about 2% per year? Or, should we be even more aggressive still, using total money supply figures such as the Federal Reserve’s M2 data series to define what inflation adjustment means? This could yield a currency that appreciates against USD by 6% or 8% per year, which is quite arguably the true USD inflation rate.

Another approach might be to maximize flexibility, by not making explicit promises about how future value would change. We might increase value rather quickly at first to encourage adoption, then slow it once we had a little market share. We would just move the price in a way that we felt was maximizing shareholder value.

Still another approach would be to just perpetually offer low interest rates (park rates) on US-NBT and CN-NBT. This looks different from the other options in that you only get the value protection if you park. This might be good for us because only people who really wanted the value protection would get it. The rest would receive the gentle debasement that USD and Chinese Yuan feature, which is profit for us.

There are a lot of choices we can make. Actually releasing the currency would likely be easy. We could pass a motion to re-purpose X-NBT away from SDR to become our inflation resistant currency. We could also issue it with a completely different brand, such as Hayek (HYK).

To me, with our limited resources, the most important factor is interest in this type of currency. If I see a lot interest, it may be worth giving more attention. If we sense apathy, it might not be the right place to put our energy.

[Sabreiib]

I guess you are off topic. This post is about the currency model/mechanism, irrelevant to the inflation/deflation issue.

With Hayek’s mechanism, you can issue a depreciated 50% a year currency, or appreciated 50% per year, or anything between them. With his model, you can make NBT appreciated 50% per year without worrying about peg failure. That’s the reason I believe his model is better than “liquidity engine”.

[jooize]

There are a lot of choices we can make. Actually releasing the currency would likely be easy. We could pass a motion to re-purpose X-NBT away from SDR to become our inflation resistant currency. We could also issue it with a completely different brand, such as Hayek (HYK).

I’d brand it separately from X-NBT. NuBits are stable currencies. Would Hayek NuBits make sense?

@Sabreiib: What does Nu have to do to create Hayek NuBits? What’s the procedure from now to a functional currency? Is development necessary beyond copying X-NBT in the blockchain to say HYK-NBT?

There’s getting listed on an exchange and marketing too, of course. Question is whether it’d be worse to begin now and if we have the time and resources. Assuming a listing at Cryptopia, could you and anyone else run that department?

NSR holdes pledge their own NSR to borrow NBT from the protocol on a ratio voted on blockchain, then they provide liquidity for NBT.

Is this dynamic compatible enough with the ones that currently apply? Our NSR sales.

Please remind me how the value of the Hayek currency is determined and its tendencies. Can we decide to aim it at $1.00 just as with US NuBits?

[Nagalim]

I’m pretty sure @Sabreiib is just talking about Loaning on the Nu blockchain. For historic reference: NuPawn - An Nubit colleteral backed lending business

Also, please recall that BTS was built around counterparty protection and it would probably be easier to make what Sabreiib wants using BTS than Nu.

[Sabreiib]

@phoenix, here I’ll demonstrate my thinking on Hayek’s model. In 1976, F A Hayek wrote a book(first version) about why private currency is theoretically feasible and how to issue it. He admitted the main obstacle is the governments forbidding of such private money, but that’s out of an economist scope of work. Now, the blockchain technology gives people the very weapon to breakthrough.

The details of how to control money supply in circulation:

The reason why I modify the Hayek’s original model is that the cryptoworld is quite different from real world where FA Hayek assumed his model to work.

1. Real world, legitimate company, decentralization is OK, such as Tether. When Tether Co. buy/sell USDT in real world, it is protected by governments(at least for now).

But for a DAO, we cannot know the real ID of its operators, so police can hardly help customers when bad things happen such as scam/corruption/theft. So DAO should not buy/sell directly with end user. No custodian shall be trusted. (Thanks for @Phoenix @jooize loyalty, but we cannot reply on you in long term)

2. In Hayek’s original model, in order to manipulate the money supply issue bank continuously monitor the private currency buying power when currency directly exchanged with real world real commodity such as food, crude oil. But nowadays, cryptos have little chances entering bulk cargo market. Since USD market is so big, alomost infinite liquidity for cryptoworld, we can peg HYK to USD, indirectly pegged to bulk cargo.

Since NSR cap is 3-4 times bigger than NBT. We can implement the “park NSR to borrow NBT” feature. Eg. I pledge my $4000 value NSR to borrow 1000 NBT from protocol with one month contract, then act as LP on NBT/BTC or NBT/USD pair.

After one month later, I have to return 1000 NBT to protocol otherwise I’ll lose my NSR. Even at that time the 1000NBT is worth of $1100, I still have to buy them back or pledge my other $4400 NSR to borrow 1000NBT to finish the old contract.

If NSR shareholders vote NBT 50% appreciated annual, which around 3.4% per month, I have to pay 3.4% extra money($34) to retrieve my $4000 value NSR. If my NBT/BTC pair’s 2% pegging spread gap can earn more than 3.4% per month for me, I will continue to act as LP for profit. If not, I’ll stop my business with Nu protocol. The liquidity of NBT suffers, but peg is never broken as long as NSR holders control the pledge ratio well via blockchain voting.

This revised model has some similarity with Tether/Bitshare/Nu’s, but quite different about some aspects such as dynamically voting a pledge ratio(BTS’s is fixed.3:1??), voting a variable inflation ratio( Tether/NBT/bitUSD is fixed @ Zero).

Of course, We can peg (Hayek money)HYK to 1$ strictly, it’s easier than anti-inflation, perhaps we should try 0% inflation rate in early stage of HYK.

The merit of this model is that our ecosystem is decentralized, the scam/corruption/theft risk is low because I cannot steal my own money(1000NBT). another merit is that the NBT supply’s expand/shrinking is synchronous with NBT’ s demand on free market, if demand high, more NSR holders will pledge their NSR to become LP for profit of being LP and outsiders may consider to buy NSR so that NSR cap is higher, and we can issue more NBT with pledge ratio relative stable.When demand is low, LP will find their trade volume low, so less will continue to act and we can also vote a new ratio to reduce even completely shut down the short term loan contract. So NBT incirculation can be near zero, while pegging well without issuing extra NSR as “liquidity engine”. Therefore, NSR price plays same important role as BTC’s price in BTC’s ecosystem, you may imagine if BTC price drops to $200 and stay there for ever, BTC will die due to less and less incentive to mint, game over. So both NSR and BTC prices are encouraged to go up in long term although short time volatility is inevitable.

[Sabreiib]

I’d brand it separately from X-NBT. NuBits are stable currencies. Would Hayek NuBits make sense?

HYK is more stable than NBT because NBT’s buy power depreciated on a rate of around 3% annually, after several years, 1 HYK can buy more things than 1 NBT, so which is more stable?

In fact, the USD’s 3% inflation rate annually (0.25% months)is easily to overcome, even being as HYK’s liquidity providers has no profit at all. As long as myself, only one person will act LP just like your persistently contribution to NBT’s liquidity(Assume I do it for idealism not for profit):

In Apri 2017, I pledge my $4000 value BKS to borrow 1000BKC from protocol, the build HYK/USD pair on exchanges with 1HYK=1USD.

In May 2017, I buyback the 1000BKC or pledge another $4000 BKS to borrow new BKC and repay the old contract, then I set 1HYK=1.0025USD. Of course due to BKS price relative stable and BKC price increased, I have only 997BKC in my hands with the 2nd contract.

In May 2027, 10 years later! I set 1HYK=1.35 USD, if BKS price is still same, I have 740 BKC in my pair. Image we successful make BKC anti-inflation for 10 years, would BKS price still same? I guess at least 20X higher!

Till the end of my life, I can still issue anti-inflation currency, even if I can only issue just one HYK! It’s anti-inflation!

Don’t worry about correctness of inflation rate voting, please refer to https://augur.net/

Wisdom of the crowd, with the power of a decentralized network to create a stunningly accurate forecasting tool.

@Phoenix, an unreasonable appreciated ratio such as 50% annual, will encourage people to hoard, but not suitable for popularization for the public because the private currency’s future depends mainly on the transactions among users not between Nu protocol and users. e.g, A HYK holder pay some HYK to website where HYK is accepted as payment. The 50% appreciated annual HYK coin will disturb those transactions, e.g. HYK users dare not to borrow HYK from other users, or cherish the HYK so don’t use it as payment tool. Isn’t the reason of Nu project to overcome BTC’s volatility?

F. A. Hayek said "HYK” will beat “BTC”.

It may be that, with free competition between different kinds of money, gold coins might at first prove to be the most popular. But this very fact, the increasing demand for gold, would probably lead to such a rise (and perhaps also violent fluctuations) of the price of gold that, though it might still be widely used for hoarding, it would soon cease to be convenient as the unit for business transactions and accounting. There should certainly be the same freedom for its use, but I should not expect this to lead to its victory over other forms of privately issued money, the demand for which rested on its quantity being successfully regulated so as to keep its purchasing power constant. The very same fact which at present makes gold more trusted than government-controlled paper money, namely that its total quantity cannot be manipulated at will in the service of political aims, would in the long run make it appear inferior to token money used by competing institutions whose business rested on successfully so regulating the quantity of their issues as to keep the value of the units approximately constant.

                                          ----Chapter XXV Denationalisation of Money”

[Nagalim]

This revised model has some similarity with Tether/Bitshare/Nu’s, but quite different about some aspects such as dynamically voting a pledge ratio(BTS’s is fixed.3:1??), voting a variable inflation ratio( Tether/NBT/bitUSD is fixed @ Zero).

BTS has flexible pledge ratio (bts 2.0 changed it from fixed as it was previously) and you can launch any peg with oracles, meaning variable inflation ratio.

[Sabreiib]

you can launch any peg with oracles, meaning variable inflation ratio.

1)What’s the meaning of “you”? A person? I guess the public prefer to trust a crypto issued by well governed DAO, rather than a person issued money traded on a DAO’s platform. Is it company behavior or personal behavior? Who decides the continuously changing inflation rate as per real world situation?

2)And how about the liquidity providing of bitUSD?

[crypto_coiner]

The reason I write the post is because I’m B&C shareholders and hope Nu becomes successful so that B&C can be finished in future, a

B&C does not Nu to be successful to be successful –
They failed both from the marketing standpoint –

[Sabreiib]

B&C does not Nu to be successful to be successful --They failed both from the marketing standpoint –

We still have chance, because there is no crypto currency in this world which fully follows the concurrent currencies theory of Hayek, 99.99% of them follow the gold standard theory, i.e fixed total quantity.

Tether partially follows Hayek’s model /mechanism, unconsciously or consciously, but Tether follows a 3rd theory-- governments controlling inflation rate.

Try to be the first one, this is innovation combined blockchain tech with Nobel Prize winner’s monetary theory.

A) Gold standard theory ---- gold , BTC, PPC etc in this world.
B) Hayek concurrent currencies theory— none in this world.
C) so called main stream theory, government manipulating. Many paper money in this world.

A and C hate each other, while B also hates C and dislike A, I guess A also dislike B. Of course C hates B.

[crypto_coiner]

Looking forward to your hayekcoin

[Sabreiib]

Looking forward to your hayekcoin

I just suggest, cannot write C++ codes although I’m learning it.

The most concerning thing for Phoenix maybe the expenditure of Hayek money. If I am the liquidity provider on HYK/USD pair with 1% spread, as long as my trade volume is high enough, such as turn over rate is above 1.0, i.e I sell 1000HYK for 1$ and buy them back at 0.99$, I get 1% profit, which is much more than 0.4% HYK price increase per month(5% appreciated annual). In fact when my contract is due, perhaps I have 500 HYK and around 500$ in my hands , so I just need pay 0.2% price increase. I as a LP, holding a portion of HYK also benefit myself on a rate of 5% per year.

[jooize]

Protocol needs support for shareholders to vote on amount available HYK to loan at chosen pledge ratio and time frame to be returned within, and support appreciation/inflation. Anyone with NSR can loan HYK (protocol: 4 NSR to 1 HYK at 4:1 ratio). They are free to use those HYK however they want. Likely to provide liquidity for profit from spread. If they return loaned HYK within time frame, they’re granted their pledged NSR, though if shareholders have voted for value appreciation of HYK, that required amount of HYK … increases?

Appreciation is similar to Nu’s park rates but applies to the entire supply, and is the opposite of inflation?

If NSR shareholders vote NBT 50% appreciated annual, which around 3.4% per month, I have to pay 3.4% extra money($34) to retrieve my $4000 value NSR.

Does that mean the loaner needs to buy HYK from another loaner? Wouldn’t the protocol be able to force the loaner into further loans?

After one month later, I have to return 1000 NBT to protocol otherwise I’ll lose my NSR. Even at that time the 1000NBT is worth of $1100, I still have to buy them back or pledge my other $4400 NSR to borrow 1000NBT to finish the old contract.

What would the issuer do when a loaner doesn’t return its HYK? Will the loaner’s NSR be burned automatically or should Nu sell them on market to back the issued HYK now in the hands of other people? Is this a scenario where selling NSR comes into play with Hayek NuBits?

How does the issuer choose where to peg? Will simply voting on a value (1.00 in the case of US-NBT to USD) make loaner liquidity providers target that point by natural market logic? NuBot could use that value in combination with price feeds. Essentially, which powers does the issuer have to enforce a peg?

There must be financial incentive to buy NSR with BTC to loan HYK and profit. Will this likely be self-regulating? Loaner liquidity providers must provide HYK at an attractively tight enough spread for traders to want to use them, and wide enough to make more money than the issuer charges for the loan over time. They may accept losing money on loans occasionally.

Loans limit risk exposure for the issuer. Trustless custodians! Time-limited loans enables the issuer to a degree forecast future supply and take actions if loans begin to fall through.

Regarding branding, we could create an entirely new name and simply refer to Hayek when describing it.

[Sabreiib]

Appreciation is similar to Nu’s park rates but applies to the entire supply, and is the opposite of inflation?

Yes, the goal is to eliminate the inflation or deflation, roughly. If shareholder dislike anti-inflation, just peg to $1 strictly, just like NBT. It’s easier. BTW, parked NBT loses liquidity while anti-inflated HYK is still very liquid.

Does that mean the loaner needs to buy HYK from another loaner? Wouldn’t the protocol be able to force the loaner into further loans?

When the old contract is about to end, LP have two choices:

1. Buy HYK from other LP, he has to pay for the price gap between selling/buying wall.
2. Pledge his another NSR to borrow same amount of HYK and repay the old contract, so that his LP business pair asset unchanged.

What would the issuer do when a loaner doesn’t return its HYK? Will the loaner’s NSR be burned automatically or should Nu sell them on market to back the issued HYK now in the hands of other people? Is this a scenario where selling NSR comes into play with Hayek NuBits?

His NSR will be kept by protocol, burned automatically is OK. And shareholders may pass a motion to auction (operated by trusted custodians temporarily)the same amount of NSR burned in a period. Hope we can get back same money as the leaked HYK and then burn those HYK. The total quantity of NSR is unchanged.

How does the issuer choose where to peg? Will simply voting on a value (1.00 in the case of US-NBT to USD) make loaner liquidity providers target that point by natural market logic? NuBot could use that value in combination with price feeds. Essentially, which powers does the issuer have to enforce a peg?

Our wallet can continuously vote a pegging price as official guide price. Majority of LP follows it with Nubot automatically fetching this guide price from protocol. If you don’t follow this price, eg lower than the official price, your buying wall can seldom be met, and your selling wall be eaten by the free market. You have much less trade volume, smaller spread. That’s to say, you put yourself in a disadvantage position.

There must be financial incentive to buy NSR with BTC to loan HYK and profit. Will this likely be self-regulating? Loaner liquidity providers must provide HYK at an attractively tight enough spread for traders to want to use them, and wide enough to make more money than the issuer charges for the loan over time. They may accept losing money on loans occasionally.

Yes, self-regulating, competing each other, invisible hands, this is called free market, the hardcore of Austrian economics. With competition among LP. The free market finally reach equilibrium such as 0.8% spread at HKY/USD pair and 2% at HYK/BTC pair. And some good reputation exchange platform will have less spread than other exchanges even in the same USD pair.

Loans limit risk exposure for the issuer. Trustless custodians! Time-limited loans enables the issuer to a degree forecast future supply and take actions if loans begin to fall through.

The main purpose of Hayek’s short-term loan is to ensure we can shrink the money supply quickly if we “close the valve.” Because the HYK in circulation have to flow back into protocol within short-term. This is very effective method, and perhaps overkill if we close the valve too fast. If some of HYK users refuse to sell back HYK to our LP, then LP may raise the HYK price much higher than official price in order to avoid their NSR burned by protocol. That will hit our LP badly, so I don’t think we are so cruel to close valve too quickly.

Regarding branding, we could create an entirely new name and simply refer to Hayek when describing it.

New whitepaper, declare we are the first Hayek money in this world, and there are only 3 kinds of money on this planet.

1. FIAT, digital FIAT(Tether, NBT, bitUSD)
2. Gold, digital gold(BTC)
3. HYK(digital)

The main LP are also the main shareholders, who are also the main blockchain voters, our ecosystem doesn’t suffer the split of PoW’s world: miners vs users, and our shareholders has little incentive to attack our own pegging. BTC is not acceptable as collateral to avoid “George Soros” type attack.

BTW，B&C can do anything Nu can, B&C is voting the number of reputed signers& their rewards for a long time, so easy for B&C to continuously vote an official HYK price and pledge ratio. I know some BKS holders disagree on BKC pegging, are they willing to wait for Nu as a dead meat or do something new to save themselves? B&C can re-brand itself as the first HYK money and try Hayek’s model by adding “parking BKS to borrow BKC”, if B&C fail, Nu is impervious, if B&C succeed, Nu can follow, peg strictly to $1 or anti-inflated, both OK.

[jooize]

Does that mean the loaner needs to buy HYK from another loaner? Wouldn’t the protocol be able to force the loaner into further loans?

When the old contract is about to end, LP have two choices:

1. Buy HYK from other LP, he has to pay for the price gap between selling/buying wall.
2. Pledge his another NSR to borrow same amount of HYK and repay the old contract, so that his LP business pair asset unchanged.

Must it be that the HYK to return increases? Sounds problematic. Is that factor known at the time of the loan? I feel like the loaner shouldn’t need to increase their investment if they’ve held on to their loaned HYK. The loaner could of course buy NSR and loan only the additional amount required, because there wouldn’t be a minimum loan, right? Still potentially binds them to further work.

Perhaps it must be an HYK increase because of some NSR value dynamic.

His NSR will be kept by protocol, burned automatically is OK. And shareholders may pass a motion to auction (operated by trusted custodians temporarily)the same amount of NSR burned in a period. Hope we can get back same money as the leaked HYK and then burn those HYK.

Let’s say an amount of HYK wasn’t returned in a time period. Protocol either burns those at the time the loan expired or on shareholder-selected collection date. Could we even have anyone with HYK trade them in protocol for NSR from that pool? The HYK were loaned at different or equal pledge ratios.

The pledge ratio is set by shareholders with price feeds of NSR/BTC converted to the value of the fiat currency HYK is pegged to. Extra considerations may apply with inflation or appreciation properties.

If NSR/BTC is 0.00000015 and BTC is 1,000 USD, US-HYK pledge ratio at 4:1 would be 26,667 NSR per US-HYK.

The value of NSR would have to decrease more than the pledge ratio for the issuer not to be able to buy back the loaned HYK with the collateral. Fluctuations in HYK/BTC and HYK/USD trading pairs wouldn’t matter to the issuer. The Hayek issuer lets loaners take on that risk we at Nu currently do.

A loaner will always want the collateral (NSR) back as long as its value hasn’t gone down more than the pledge ratio. If its value falls that much, … what happens?

The total quantity of NSR is unchanged.

Most likely reduced? 4:1 ratio. Sell enough to cover HYK, burn remainder.

The main purpose of Hayek’s short-term loan is to ensure we can shrink the money supply quickly if we “close the valve.” Because the HYK in circulation have to flow back into protocol within short-term. This is very effective method, and perhaps overkill if we close the valve too fast.

What would it mean to close the valve? Not issuing more loans or increasing pledge ratio?

---

Seems we’d have US-HYK and EU-HYK etc… Is it possible to later merge xx-HYK and xx-NBT without disrupting the economics? Is it necessary that we begin from zero supply, or rather, does the Hayek coin have to be separate from current NuBits? I’d guess so, but would prefer fewer products and maintenance.

[Sabreiib]

Must it be that the HYK to return increases? Sounds problematic. Is that factor known at the time of the loan? I feel like the loaner shouldn’t need to increase their investment if they’ve held on to their loaned HYK. The loaner could of course buy NSR and loan only the additional amount required, because there wouldn’t be a minimum loan, right? Still potentially binds them to further work.

Perhaps it must be an HYK increase because of some NSR value dynamic.

If you borrow money from banks to do business, you believe your business will provide profit higher than the interest rate, otherwise you won’t borrow at all. So we must assure that being LP is profitable by 1% spread trading. So after some time, a LP will find himself can earn enough transaction fee to pay the HYK price increase.

Near the end of old contract, if a LP pledges another shares to repay the old contract, the old shares will return to him, so he doesn’t need to increase his investment.

“Could we even have anyone with HYK trade them in protocol for NSR from that pool? The HYK were loaned at different or equal pledge ratios.”

That’s a good idea. Assume there are 3,000,000 NSR are discarded by its loaner. The wallet will display this information and all QT wallet users can see it and they can pay their HYK to buy those NSR. This is auction, the highest bidder will get NSR during a certain time. If the NSR’s price is “good”, we can destroy more HYK in circulation. Because there is no extra NSR printed in this period, I don’t think NSR price will suffer.

A loaner will always want the collateral (NSR) back as long as its value hasn’t gone down more than the pledge ratio. If its value falls that much, … what happens?

If NSR price drops to 1/6 overnight, the LP may consider give up their NSR and run with HYK or BTC out of Nu’s ecosystem, this is the risk for our system. But we don’t be panic, because

1. NSR price fluctuating doesn’t mean NSR liquidity. If LPs give up their NSR and want to buy back NSR with his HYK(BTC), perhaps they finally pump NSR price upwards. If they run and never come back to our ecosystem, and NSR remain at low level, we will face similar situation as today’s Nu: selling extra NSR to help the pegging, that’s pain process.

2. There must be a reason for NSR price drops to 1/6, it’s small probability(black swan) if the system works fine. Imagine BTC price drops to 1/6 overnight, the BTC miners suffer, but don’t underestimate their belief, in the past, miners still insist when BTC price below their cost level.

3. That’s why I advocate our system should have revenue such as B&C’s trading fee. With steady income, people belive we can pay the loss, once confidence built up. Many investors will buy the cheap NSR.

What would it mean to close the valve? Not issuing more loans or increasing pledge ratio?"

Yes.

Seems we’d have US-HYK and EU-HYK etc… Is it possible to later merge xx-HYK and xx-NBT without disrupting the economics? Is it necessary that we begin from zero supply, or rather, does the Hayek coin have to be separate from current NuBits? I’d guess so, but would prefer fewer products and maintenance.

One DAO should only issue one HYK money, we don’t need to mimic the old fasioned paper money. In fact, our HYK pegged to a basket of commodities, while this basket of commodities has its USD price. Almost every product on this planet has USD price, isn’t it? USD is just medium. NSR shareholder should reference the basket of commodities to vote an inflation rate on blockchain.

Just one HYK for us, until our copy cats come up and issue their own Hayek type money, but that’s just what F. A. Hayek advocated for: a free competition private market, no monopoly.

[Sabreiib]

I remember @Ben said two years ago that he felt unease about NSR supporting NBT price(NSR/NBT pair).

The model has support loop:

NSR supports NBT, NBT attracts BTC/FIAT at trading pairs, BTC/FIAT in ecosystem support NSR, and so on.

[Sabreiib]

@jooize, @Phoenix, time to consider my suggestion. For a long time you have just ignored it, and I guess you will continue to restart liquidity engine, good luck!