Several Peg mechanism discussion

Sabreiib · July 6, 2015, 1:26am

As far as I known, there are several cryptocurrecncy peg mechanism

1)TETHER (100% reserve)

Stable Currency. Tether converts cash into digital currency, to anchor or tether the value to the price of national currencies like the US dollar, the Euro, and the Yen.

https://tether.to

WhitePaper here
https://tether.to/wp-content/uploads/2015/04/Tether-White-Paper.pdf

A private money house called ** tether limited** holding a 100% reserve fund.

This scheme is feasible if that private money house is legal and supported by traditional banks.

bitUSD issued by bitshare(BTS) (>150% reserve)
https://bitshares.org/

We are familar with Bitshare, but their pegging mechanism a bit complicated. Let’s explain it(correct me if I’m wrong).

There are 101 signers in BTS system, they give out a “feed price” to introduce a proper price for protocol. Only BTS holders can provide bitUSD liquidity.

One BTS holder believe that BTS price will go up, then he/she pledges 200$ value BTS to the protocol and get 100 bitUSD($), the protocol automatically freese his/her pledged BTS and borrowed 100 bitUSD, furthermore the protocol uses 100 bitUSD to place buy order for BTS. ie, system sell bitUSD for BTS. Thus the bitUSD liquidity is provided.

The problem is that the BTS price is volatile and to prevent the pledged BTS value become too low, for example those pledged BTS value drops to 150$, the protocol automatically mandatory liquidation which is a loss for that BTS holder. one month later, protocol always ends this procedure, in spite of what price of BTS ( of course >150$ ) is. If BTS price up, the BTS holder earn money. For example, you mortgage your house for some money and buy a new small house with borrowed money, one year later, all house price up and you sell out the new small house & return your borrowed money, the left is your profit. But if house price down, you lose.

My former suggestion of pledge NSR to protocol and get NBT to provide liquidity with NSR/NBT pair is a bit similar to bitUSD mechanism, this bitUSD mechasim’s merit is that all bitUSD is fully backed by cryptoasset, and system don’t need to pay reward to liquidity provider, the bad thing is there are maybe insufficient BTS value to issue enough bitUSD if bitUSD demand is very high, especially few BTS holders believe BTS price go up.

3)Nubits(Zero reserve)

The mechanism is unique, decentralized pool is ready now, Nu DAC’s fund is kept away from couterparty risk and liquidity providers bring up their own money for liquidity operation and get reward.

This zero reserve mechanism is flexible when NBT demand very high, but I think there are two problems with it

a) the zero reserve cannot give enough confidence to customers, if something bad happens, LPC may refuse to help. We all knowt that when you are rich banks are keen to lend you money but if you become poor, banks shut door to you.

b)DAC must pay reward to LPC, this is an expenditure. Yes, we shift the BTC/NBT pair couterparty risk to our LPC but LPCs are not fool, they WILL demand high reward even the exchanges are completely secure(B&C exchange).

We are not magician, cannot make money from nowhere. The sale of NBT is not our revenue. NBT is just a IOU, you cannot borrow a lot of money and get rich, the IOU is debts. We certainly hope many NBT holders will keep their NBT for ever and never return them for FIAT/BTC. However, will the public do what we hope them to do?

loose pegging mechanism, still Nubits Zero reserve style, but a modified version, let’s call it

ticket scalper scheme I like it very much. Forget about bitUSD mechanism.

B&C DAC always sell BKC at 1$, no guarantee on buy back at all. All sale of BKC is our revenue.

There are probably some people wanna sell their BKC for some reasons. Scalpers now appear, they buy back BKC @ 0.9$, and place sell order at 0.99$ so that they can sell them before official BKC sale.

Scalpers will never raise BKC price above 1$ because BKC from B&C is infinite and that’s different from real world limited cinema tickets. So BKC will never exceed 1$, and it will never drop too low IF B&C promise not to sell them at low price.

There are competition between scalpers, the higher buy back price(eg 0.95$) the more trading oppotunity but less profit per BKC, finally the market reaches equilibrium, I hope the price will between 0.9$ and 1.0$.

Scalpers bring their own money to provide liquidity, they may use B&C and traditional exchange even ripple system if they don’t care about hiding the ID. Scalper even buy BKC at 1$ and sell at 1$ to attrack more customers for better liquidity in their own Ripple gateway.

We can even add anti infaltion to BKC if we lift sell price with USD infaltion rate voted by shareholders. In 2020, BKC price is [1.25, 1.3]…

Furthermore, if BKC liquidity enough, we may use BKC as a basis for NBT pegging, the BKC/NBT pair is the most simple and stable pair I believe.

Nagalim · July 6, 2015, 2:22am

This would make BTC sell for less on B&C than on other exchanges. We would be taking money away from new comers and giving it to people that hold BKC. This is very very pyramid scheme-like. B&C prices should reflect the prices on other exchanges, or people will think there is something wrong or dishonest with our exchange.

In reference to your two issues with NBT:
a) NBT is backed by NSR. If you can’t find an LPC or market demand to buy your NBT, you can send it to auction where you can get the equivalent amount of NSR for it. This may not be completely 100% practical yet, but we’re getting there.
b) LPC is an expenditure, sure, but we don’t have to do it. We have everything BTS has except we traded the protocol ‘mandatory liquidation’ procedure for LPC provision. This is a much better mechanism, in my opinion. We also have a hugely effective consensus system and so on that generates our ability to actually pay for expenditures like LPC by developing a credibility for contracts written on our blockchain.

I agree wholeheartedly that the BKC/NBT pair will be extremely effective for our pegging system.

Sabreiib · July 6, 2015, 2:38am

Inflation.

US government steals people’s money by inflation. In 2014, I can buy a bread with 1USD/NBT but I cannot buy same in 2020. Unfair.

The B&C exchange charges transaction fee with & per KB, if we maitain same $ price per KB, we are discount our fee gradually. If we dislike discount the fee, I should maintain same buying power value per KB. If we prefer discount our fee, just lift BKC price and lower the BKC price per KB on blockchain.

B&C can make profit, if our business goes smooth, we destroy our debts(BKC on market) every day, very minute, so we can lift BKC price slowly upwards. The BKC holding is encouraged, and fair, you can buy same product with BKC in 2015 or 2025. The people’s holding of stable money is the key to success (said by Hayek), if the public dislike holding NBT/bitUSD/Tethe/TRMB, they will never grow up at all.

Porfit ability

Although the scalper scheme is still zero reserve, the confidence comes from B&C DAC’s profit ability.In fact, the NBT/NSR dual direction burn is somehow same with bitUSD backed by BTS. Difference is here:
BTS drives LPC by speculation on BTS price.
NBT drives LPC by giving reward.

The software development needs money because sotoshi/sunny king is rare and slow coding… Sigmike get payment and buy&eat bread, the money is consumed for ever.

The LPC need money for liquidity operation, they also need bread …

Where is the money come from? From those creditors(NBT holders) who will never come back or fetch their BTC/FIAT? This is very very pyramid scheme-like…

Both NBT and BTS are lack of profit ability. Their only wayout is to issue more share.

Nagalim · July 6, 2015, 2:51am

Bread today is mold tomorrow, but I do not claim it to be unfair. We are not a business that decides the worth of $1, we are a business that uses the external valuation of $1 to provide market stability.

Are you saying that lifting the price is equivalent to reducing the fee? Let’s pretend the fee is 1% and I’m buying $100 of BTC, so I buy BKC from B&C and pay $101 for the BTC. If the price was lifted to $1.02 and the fee was dropped all the way to zero, it still would cost me $102 for that BTC. The price is a poor lever point, the fee is much stronger. When you change the sell price of BKC you have to pay everyone that currently holds BKC. It would be great if people want to hold BKC, but we shouldn’t be paying them for it; that’s basically the mechanism of parking for NBT.

Sabreiib · July 6, 2015, 3:08am

Do we need charge fee when sell BKC? The BKC is just the fee for BTC/LTC/Doge trade any way.

For example, you wanna buy 100$/BKC(1BKC=1$) for trading on BTC/LTC pair at B&C exchange for some time, your today’s BTC/LTC transaction information ocupies 4KB datasize on B&C blockchain, so you pay 0.4BKC for it. That is 0.1BKC per KB.

One year later, the B&C holders vote for 1.1 $ per BKC, and they lower the fee to 0.091 BKC per KB, so the transaction fee is still 1$ just because B&C holders wanna keep 1$ per KB, of course they may change fee rate to any level if they like.

But your BKC value protected by B&C company against inflation. This DAC provide anti-infaltion money: BKC, better than USD and better than bonds/parking NBT because you can use it at an time.

Except bread, there are quite some product/service do not rot during our life span.

cryptog · July 6, 2015, 5:03am

I like the simplicity of NuBits.
There is zero reserve so that way there is no counter-party risk, therefore increases decentralizedness.
Nu cannot guarantee that liquidity providers will keep a strong support of the peg in case the network is in trouble but Nu can guarantee that shareholders will take measures (such as burning nbts in exchange of nsrs issuance) when the peg is in danger. In fact we have seen that over the past months.
Overall, Nu has shown the strongest peg among competitors with the most decentralizedness.

Sabreiib · July 6, 2015, 5:34am

We just shift the counter-party risk from Nu granted LPC to self-funded LPC, the counter-party risk is there, and those LPC will demand high reward for dangerous BTC/NBT pair liquidity.

masterOfDisaster · July 6, 2015, 6:45am

You are right.
The counterparty risk is there, but outside the Nu network.
Nu pays a compensation for those who bear that risk.
And you are right that providing NBT/BTC liquidity is more risky than providing NBT/USD liquidity due to the BTC volatility.

I expect 3 main categories of compensation to form:

NBT/BTC with highest compensation (exchange default risk, high BTC volatility)
NBT/(EUR|CNY) moderate compensation (exchange default, low volatility)
NBT/USD (exchange default risk, no volatility)

Aside from the category the exchange that is used for liquidity providing will for sure have an influence on the compensation.

I hope that NBT/BTC will rather sooner than later not be supported by Nu any longer.
Until that happens, liquidity providers like NuLagoon might provide cheap NBT/BTC liquidity by proxying the NBT/BTC pair to a NBT/USD pair.

cryptog · July 6, 2015, 7:08am

If we suppose that B&C will get most of the liquidity, NBT/BTC will become the main pair for a while.//

Sabreiib · July 6, 2015, 7:47am

B&C exchange is an excellent chance for us to try a new pegging method, since we have no guarantee on BKC pegging, let’s wait and see if a second BKC market can come into being or not.

crypto_coiner · July 6, 2015, 3:02pm

Anyone has an idea on how to peg NBT to USD on BCEX without using any crypto pair?

cc @cryptog @Sabreiib

Nagalim · July 6, 2015, 4:08pm

BKC/NBT. I know that’s not the answer you wanted to hear, but you might be underestimating the relevance.

crypto_coiner · July 6, 2015, 5:40pm

What about BKC?

Nagalim · July 6, 2015, 5:41pm

Sry, you’re very right, I meant BKC. Edited.

crypto_coiner · July 6, 2015, 5:49pm

That seems like a very good idea.

JordanLee · July 6, 2015, 11:05pm

Today it is true that for tiers 1 to 3 there is no guarantee liquidity providers will continue providing liquidity at the same price, but this is not the case for tier 4. In the future, I expect we can use the escrow feature of B&C Exchange to ensure designated liquidity can’t be withdrawn and orders will be placed automatically by reputed signers as a matter of protocol. Once this is done, we could guarantee a certain sum of liquidity for a certain period of time into the future. Even if the risk to funds rose and the liquidity provider preferred to remove funds due to some emerging condition, they would have no choice but to keep their contract and provide liquidity because the funds would be in the distributed hands of reputed signers.

Sabreiib · July 6, 2015, 11:50pm

Jordan, How could B&C and Nubits help each other?

Nu community provide NBT/BKC (1:1)pair to help BKC pegged with USD
B&C will help nubtis if it’s in trouble, eg, use BKC to buy NBT and destroy those NBT.

Nagalim · July 6, 2015, 11:51pm

This will not happen. The synergy for Nu and B&C is limitless, but Nu’s debt is not B&C’s debt.

The main method by which B&C will help Nu is by providing alt/NBT pairs with actual volume. At least, that’s what I think will happen.

This is pretty cool, by the way. I still think it leaves open the need for tllp that can be withdrawn at will, but I really like that we will have mechanisms for these types of insured liquidity available. I am seeing it as a kind of trustless NuLagoon, is that the idea?

Sabreiib · July 7, 2015, 12:02am

Although B&C and Nu are two different DACs, B&C is designed to provide safe exchange for Nubits LPC. And 40% BKS held in NSR holders’ hands.

A win-win deal can be make by B&C / Nu

Nu provides BKC pegged with USD, B&C provides NBT based pairs on B&C exchange, also a friend in need for Nu.

We may even avoid BKC/BTC pair, customers can only buy BKC with NBT, thus NBT trading volume encouraged.

Perhaps in future, B&C breaks up with NBT, but before that happens, they are close firends.

Sabreiib · July 7, 2015, 12:44am

I have an idea, the B&C signers not only confirm customers trade, but also trade BKC/NBT by themselves via multisig for one public BKC address.

The original design is to sell BKC for BTC and distribute those BTC as dividend, now BKS holders may vote to sell BKC for 1 NBT, and buy back at 1NBT, the BKC selling is also the pegging process. BKS holders can vote to take a portion of NBT(BKC sale proceed) into dividend and keep the remaining NBT as liquidity for BKC.