I like your way of thinking, but my understanding is that it wouldn’t work with TLLP pools, because the pool operator has no access to the funds. And @Henry’s NuLagoon pool is designed to manage funds, but participants receive the type of fund back they deposited.
This design would work well with liquidity providing by the Nu network directly (with Nu funded liquidity) which for good reasons Nu wants to get rid of.
I think @Henry might be able to offer a pool where participants need to provide an NBT address as well as an NSR address and agree to receive either NBT or NSR.
It would be up to NuLagoon to participate in auctions.
In this pool participants wouldn’t know what they receive when they want to withdraw funds, but they could make guesses based on the liquidity situation.
Effectively such a pool would provide the market with a NBT-to-NSR conversion mechanism.
I don’t know to what level this would be used (considering the incalculable outcome) though.
In difference to participating in auctions it would be a convenient way - just like the overall experience with NuLagoon.
@Nagalim and @masterOfDisaster explained what I had in mind. I see @Benjamin’s proposal as a protocol-facilitated dual-directional transfer of NBT and NSR value to maintain the peg. The traditional LPCs will be among the most active auction participants since they are the first to know the health of NBT peg.
Without LPCs and pools, NBT peg solely supported by auction will be like bitUSD, not very useable as a currency due to shallow liquidity arround the peg price. Therefore I don’t think LPCs and pools will disappear before NBT adoption brings organic deep liquidity to the exchanges.
Still confused. Couldn’t custodians just as easily trade NBT and NSR on traditional exchanges? Regardless of whether trades happen in the auction or on a centralized exchange, the outcome is exactly the same.
Support for the peg here comes from seeding the appropriate currency based on the voting outcome. The people who need to be informed about what to do are the miners. Everything else and everyone else is more or less irrelevant.
That’s the beauty of this proposal.
It’s creating a much more direct link between the real-world and Nu.
It’s providing the required information to obtain the exchange rate.
It will allow (on protocol level!) to define the exchange rate for converting NBT to NSR or NSR to NBT depending on the market / peg situation.
Tllp participants are just Nu-aware day traders in my mind. We don’t need to inform them, they will inform themselves and will act as free market agents in this auction. I am not proposing any actual changes, I’m simply saying that the peg balancing concept of this auction works even without a real price fluctuation in time because of the virtual price imposed by having targets on our tllp’s.
Huh? The pool operator isn’t participating in the auction, the individual tllp participants are, at their own will and leisure.
There is no NSR/NBT market with real liquidity. There are barely any NSR markets with real liquidity. The point is that most people in the open market don’t know about the things Nu has to offer, like auctions and tllp’s. “Custodians” are simply people that are aware of the tools of peg balancing Nu has to offer and utilize them to keep the peg and make a profit doing it. Let the normal, Nu-naive trader simply speculate on NSR/NBT on the market, while the custodian speculates on auction outcomes and liquidity provision rates.
This is my understanding of why this auction concept is so useful. Note that we can use this daily exchange rate definition in future grant proposals to give a dynamic way of valuing NSR in terms of NBT.
Thought experiment assumptions:
A) There is only one exchange with one nsr/nbt pair on it.
B) The tllp there has a 10 nbt dual side target and 0.1%/day compensation
C) Lucy is the only person who uses tllp, and she is providing dual side support of 10 nbt to each side.
D) Market demand for nsr is exactly $0.1.
E) Nu prints $0.1 nbt daily and there are 100 nbt in existence, 80 of which are in the hands of trusted people (not including Lucy)
F) There is 0 market demand for nbt.
Every day, people will submit to the auction with a 10:1 ratio of NSR:NBT. This is because market demand is exactly $0.1 and nbt is pegged to $1, so if the auction price deviates from $0.1 at all and you submitted 10:1, then you win.
People sell some NBT to lucy for her NSR, but they sell it onto her wall, so she gets the NBT cheap from her spread. So let’s say she lost 10 of her 100 NSR and gets 1.01 NBT in return. She now puts that 1.01 NBT up to auction.
So now the auction, feeling the low NBT demand, seeds 10 NSR. People submit let’s say 30 NSR and 3 NBT. Lucy submits 1.01 NBT. The auction closing price is: 4.01/40 = $0.10025. Lucy receives 9.97 NSR which she puts back up on the buy wall. As long as this only happens every 3 days, she makes money off this process via the custodial grant.
The result of this is that Nu gets to sell its NSR directly to Lucy for relevant prices without having to trust Lucy at all. This is exactly the intent of our current weekly auctions. Here it works beautifully and uses the tllp incentive as a direct financial consequence of not using the auction to balance the peg.
Didn’t realize things were this bad and now I think I see your point. That greatly strengthens the case for this proposal. Liquid NSR markets are necessary for any form of NSR burning to work well.
Parametric order book is a long way off. A week ago we needed NSR sales, today we need NSR buys. NSR price is still tanking. The park rates cannot maintain a consistent picture of the health of Nu with this kind of buy and sell side variation. Does everyone now understand the need for such a daily auction that can result in either NSR buybacks or NSR sales?
If y’all are such fans of centralization when it comes to burning, we could even have @JordanLee pick someone to run the auction like NuLagoon is run, where all you have to do is send NBT or NSR to an address to participate. Then, each day, they could trade out of their reserves which currency was ‘burnt’ or ‘created’. Jordan could also pick whether the vote results in 0 or 1. I mean, I’d much rather an approach that is consistent with our morals and ethics as an organization, but if y’all need it to be proven in a centralized fashion before you’re willing to consider a decentralized one, we can do it this way.
This type of auction is far superior to the auctioning off of a fixed amount of NSR to the highest bidder.
Someone decides NSR or NBT dilution at distribution time. Funds are produced from reserve equivalent to 1% of the total number of NBT on the blockchain (6,000 NBT). The first day the price is set at some practical value, future auctions have seeds corresponding to the previous day’s closing price. NSR is then also produced at the proper amount also from reserve (~3 million NSR). Any funds sent to the correct NSR or NBT address is credited (just like with NuLagoon). ‘Burns’ are sent back to reserve. Then, it’s just a matter of marketing.
I like the direction that this concept is moving in. I’m not that well versed in the underlying economics to be able to give it a 100% approval, but I’ll keep following along with this discussion and support the community with my votes if it is summarized in a motion that details the action steps required to make this a reality.
Thank you, @Benjamin, for introducing it and to the rest of the community for the enlightening discussion that has followed.
This is in fact a cross post, but the important part of it is related exactly to this discussion regarding new concepts (on protocol!) for peg maintenance.
I beg your forgiveness for cross posting.
I hope the post supports the discussion though.
Why don’t we seed both sides every day? It doesn’t give the same kind of manual leverage over the peg, but it does allow easy flow between nbt and nsr. We could have 2 bits in the blockchain instead of 1: both seeds are on by default and a 50% or greater vote can turn off either seed or both.
Such resereve-based centralized operations essentially is just a shareholder funded LPC on the NBT/NSR pair, if the reserve fund is printed. Such operations had all sorted of problems and was closed off.
If the reserve is produced by pooling members’ funds together, then isn’t it just a NuLagoon on NBT/NSR with 6,000 NBT on the sell side and ~3 million NSR on the buy side? It is unlikely to make much difference than current peg operations (30k - 40k NBT on each side).
Specifically, even if every single voter agrees that outcome A is better than outcome B, the group can still end up voting for B.
Seeding a single currency is effectively creating a subsidy for private liquidity providers to enter the market. If you seed both currencies, then there is no longer any incentive for private participation. This would hinder the development of a liquid NSR market.
This in incorrect. The LPC system directly controls the market price of the NBT/NSR pair. In the auction system, supply is controlled and the price is determined by market equilibrium. The auction system incentivizes private market making activity, i.e. profits from arbitrage go to currency speculators. The LPC system controls market making activity directly, profits from arbitrage are ruled out by price controls.
Thanks for pointing it out. I like the direction of the proposal made in the OP but altering the protocol is risky and no small task so it would be best if we could bootstrap the process by demonstrating.
The biggest differences sending to reserve rather than burning has are:
A) centralization
B) one person picks nsr or nbt rather than the blockchain
C) a grant will be needed when reserves on one side run low
D) auction volume will not have a feedback loop (this is somewhat trivial in my opinion)
E) we are actually already prepared to implement it if we use a reserve, we don’t even have to wait for nsr grants.
We could implement this thing tomorrow without too much difficulty, honestly.