I see several potential problems that perhaps you can answer or clarify.
What happens when demand for NuBits decreases by more than 1% in a 24 hour period? Unless I’m mistaken we could see NuBits lose its peg by a large percentage for days or weeks at a time in the event of a demand collapse like we saw in February with the exchange hackings. This would ruin our perceived product quality, and negate one of our primary competitive advantages over competitors like BitUSD. This approach also reduces the flexibility of the network to quickly respond to serious demand shocks because of the 1% limitation. An automated auction solution should be able to respond flexibly to varying degrees of demand variance.
What happens to users who are working or unavailable to participate during the auction period because of the time zone they live in?
More broadly speaking, do shareholders have the attention span to monitor daily auctions? What happens on holidays or periods of lower shareholder participation? This requirement to be at your computer every single day would be a negative utility for NuShareholders, and would negatively impact share price. Yes, users would not have to participate in the auctions, but most would realize that their share of equity will tend to decrease over time if they are not acquiring NuShares on days where the auction price is below the market value.
What does “1% of the outstanding NuBits supply” mean? How is this reliably measured? Would this be all NuBits in existence, minus those held by custodians? Wouldn’t there be a serious possibility that custodians could game the auction by reporting their totals inaccurately?
I’m concerned this approach turns NuBits into an inflexible derivative of NuShares that will damage the perceived quality of our product by allowing long periods of time with no peg maintained. I’m also concerned that it would damage the value of NuShares.
I’m still in favor of an automated burning auction solution, but I don’t think this is the correct approach. Burning as designed within our network is a last line of defense against the collapse of a currency, not a daily tool for us to use in liquidity operations.
Slightly off-topic but relevant: I would love to see us design tools and programs that monetize Metcalfe’s Law, such as the network being paid for advertising. For example, if nubits.com or this forum ran commercial advertisements in the future, that revenue could be placed directly into liquidity support. The more users we have on our websites, the higher the liquidity subsidization that could occur. A perfect future would be one where the collective attention span of our users is monetized in ways that continually support our liquidity operations. YouTube and Facebook have realized that free products attract users, and the attention of those users is immensely valuable to advertisers. It’s only a matter of time before a cryptocurrency project figures that out.