The problem was discussed on :
1- Question about selling pressure aka the buy wall
2- Asymmetrical control in NuBits and the problem it creates
Proposed solution first mentioned:
1- Asymmetrical control in NuBits and the problem it creates
Nubits can be created out of thin air when demand exceeds supply to maintain the peg to $1. Therefore the total supply of Nubits in the market increases. When the supply of Nubits increases beyond the demand, the parking mechanism simulates a lower total supply of the Nubits by holding the parked Nubits outside of the market and paying the parker an interest on their support of the network. This all works nicely on the short term. However, the shortage of supply is merely a simulation that functions based on the premise that demand for Nubits will increase by the time the funds get unparked. Because the funds will get unparked at a certain point in time in the future, the total supply of Nubits has not truly been reduced. The problem wouldn’t have been fixed but the system rather postponed dealing with the matter hoping that the market will pick up on NBT demand. To make matters even worse, the parked Nubits will gain interest in the form of more Nubits which means that the total supply of NBT in the market will not just hold but rather increase when the Nubits get unparked. This vicious cycle will create an inflation within the Nubit markets to a point that peg will not be maintained due to the infinite supply without means of reduction. The only way to truly fix the issue of infinite supply is to create a counter force that reduces supply. The parking mechanism simulates that on the short term but fails to achieve it on the long term. For it to work on the long term, a true reduction of supply needs to be implemented ( i.e parkers would have to destroy their Nubits). However, how can we solve this problem using parking without simply telling parkers to burn off their money cause it’s good for the network as this goes against their personal interest?.. Keep reading to find out.
Examining current setup:
Lets examine the current setup. When Nubits demand increases beyond supply and the peg starts to shift upwards, Nushares holders create new Nubits out of thin air to increase the supply and balance it with demand. The sales of the newly created Nubits get divided on Nushares holders. Therefore, it’s the Nushares holders that benefit from the success of the market because their investment in Nushares represents their gambling on the future of the network and if the demand increases beyond the supply they have in essence won the bet. Also, when the demand declines, Nubit holders park their coins to simulate a shortage of Nubits supply to have demand increased beyond supply and therefore increase the value of each Nubit. They get rewarded in a from of interset with more Nubits. In essence, the parkers are also gambling on the success of the netwrok just like Nushares holders. They’re betting that when their coins get unparked and they receive that added interest, the coin would still hold the peg and they would get real value out of the interest they are paid. In essence, both Nushares holders and Nubits parkers are betting on the success of the network. This shared betting on the success of the network between Nushares holders and parkers is the core of this proposal.
Premises the solution is based upon:
- The responsibility of holding the peg when the supply exceeds the demand should be put on the parties that are benefiting from it when the demand exceeds the supply, the Nushares holders. It should be done in a manner where the responsibility is equally distributed among all shareholders.
- When supply exceeds demand, the peg can only be truly maintained by a TRUE reduction of the total supply.
- Nushares holders and Parkers have the common ground of betting on the success of the network by benefiting from the success financially and losing financially on its failure. (as described above)
- Nushares are available for public trading and a valuation of NBT/NSR can be determined based on a free market.
Proposed solution ( a protocol change ):
Change the parking mechanism (possibly changing its name all together but for the sake of this proposal i’ll use the term Parking). When the supply exceeds the demand, parkers will destroy some Nubits in return for newly generated Nushares at an exchange rate equals to %(100 + interest) of the NBT/NSR exchange rate at the time of the parking. The exchange is time gated to be released at the the time of unparking just like the current setup for timing in unparking parked funds. For the system to work, parking would only be allowed during times when supply exceeds demand to prevent an excessive creation of new Nushares. Interest rate would still be voted on by Nushares holders in the same manner it’s currently setup with.
Implications of the solution:
- Nubits will function as a true currency. It will defer any form of speculation to the Nushares network as they will increase in value when the network is healthy and decrease in value when the network is failing. This is a true separation of currency and shares as described by the Nubits white paper.
- Nushare holders lose some value in their shares due to the newly created shares and hence they take the financial responsibility of holding the peg when supply exceeds demand just like they would benefit and gain value when the peg is held by demand exceeding supply. The responsibility is distributed fairly to Nushares holders since all shares would lose in value just like the distribution of the divedands and the increase of value of Nushares is distributed fairly when demand exceeds supply.
- Parkers are still betting on the success of the network in the form of getting ownership in the network as a reward for their dedication to hold the peg.
- A true reduction in the supply of Nubits is achieved in a manner that doesn’t require burning of money.
Why would Nushares holders vote on a higher interest rate that would dilute shares, which may be perceived against their own short term personal interest ?
Because the constant stream of divedands that they receive from the the case when demand exceeds supply would come to a halt when the supply exceeds the demand. They wouldn’t be receiving any divedands until the problem is resolved and the supply is decreased. Therefore, it is in their personal interest to incentivize people to park their NBT and decrease the total supply to allow for increased demand in Nubits and in consequence, a return to their shares in the form of divedands.
Alternative similar solution:
Parking remains the same way it’s currently setup but only the interest rate is paid in the form of NSR. I believe the first solution is the guaranteed way of balancing the supply and demand but this other option might be considered though i haven’t analyzed it further.
That’s the end of the proposal .
I welcome a discussion of the merits of this proposal. Feel free to disect it and present any flaws I’ve missed. Please keep emotions out the discussion and keep it objective and constructive