Supply, Reserves, and Equilibrium (superseded by automation)


#454

@staff could you please force @Phoenix to finally answer questions and provide numbers? If he denies to do so, could you ban him from the forum within one week’s time? In my eyes, hiding the truth from potential stakeholders is unbearable. Please keep in mind that Nu has no restrictions for potential investors to become a partial owner of the network. Therefore, Nu’s management is obliged to provide all information relevant for the assessment of Nu’s overall condition. Withholding information should be considered the harshest violation of forum rules. Please act, don’t be silent.


#455

@Phoenix are you still around? Or busy with one of your other crypto projects?


#456

Supply 2017–05–12

US NuBits (US-NBT)

Blockheight: 1,399,043

Existing: 838,329.3567
Parked: 24,597.1957

Liquidity Operations*: 545,324.8312
Liquidity Operations**: 45,682.9000
Bittrex: 18,501.5287
Cryptopia: 7,468.6863
NuLagoon Tube: 27,421.8698
Nu-owned: 644,399.8160

Circulating: 169,332.3450

* BJLmVRdGFi4q7Zidwzr4CPPsLT6pozR31a
** B71AkDjzm4S24KoXGoq6W3hynexAyNb9FV

Chinese NuBits (CN-NBT)

Existing: 2,000,000
Parked: 0

Liquidity Operations*: 2,000,000

Circulating: 0

* YhSEw9AGBJ3KtqLrxeQrcsTVk5u57pA88m

NuShares (NSR)

Blockheight: 1,399,043

Existing: 3,317,309,161

Liquidity Operations*: 320,000,040
Liquidity Operations**: 58,240,000
FLOT 1***: 64,344,685
FLOT 2****: 5,940,000
Cryptopia: 32,658,108
Alcurex: 36,433,171
Nu-owned: 517,616,004

Circulating: 2,799,693,156

* SiyWZ1WCedKRXLg7u8fmVkUtF3JRC9QATv
** SaaP8P3TH8HU27MBkhH6j8EhQ9AvAEY27J
*** SvtGbNjWE49pTM2TiUZrYKSNkxTJx75mmC
**** Snvrc5q82wfe2NjEjaQAyStpPKseWrsNqn


#457

Reserves 2017–05–12

Dollar amounts represent BTC in USD.

BTC = 1,711.72 USD

Tier 1–2

Bittrex: $20,350.79
Cryptopia: $5,722.19
Cryptopia: $6,810.42
Alcurex: $5,616.24

Tier 3 (Not in effect)

Tier 4

Liquidity Operations*: $38,623.02

* 17owruzTRANDYwCq77bSABQLXBxx3QaCea

Tier 5

Refer to parked amounts for current utilisation.

Tier 6

Monthly liquidity of NuShares: $1,745,788

Total Tier 1–4

$77,122.67


#458

Equilibrium 2017–05–12

Circulating US-NBT: 169,332.3450
Reserve percentage: (50 - 169,332.3450 / (2,000,000 / 25)) / 100 = 0.4788
Equilibrium reserve: 0.4788 * 169,332.3450 = 81,076
Current tier 1–4 reserve: 77,123
Minimum tier 1–4 reserve: 0.20 * 81,076 = 16,215
Daily move to equilibrium: 0.01 * (81,076 - 77,123) = 40

Equilibrium is Nu having $81,076 in tier 1–4 reserves. We have $77,123. When $3,953 is raised through NuShare, US NuBit, or Chinese NuBit sales on a combined basis, any additional funds raised can go to NuShare buybacks assuming no updated reserve requirements or funds spent.

Daily move to equilibrium is the amount in USD of how many NuShares will be sold or repurchased every day toward reserve equilibrium.


#459

Here is the latest chart of the deviation from reserve equilibrium, which we use to determine whether we do NSR buybacks or NSR sales each day. When the figure is negative, we sell NSR each day, in the amount of 1% of the deviation. When the figure is positive, we buy NSR each day, in the amount of 1% of the deviation:

We have moved from a nearly $70,000 shortfall in November to one just under $4000. This means daily NSR sales have become quite small, currently just $40 per day. Late last year there were periods where we averaged more than $5000 per day in NSR sales. The reduction in the NSR sales have been massive, and if the trend continues, we will soon be performing NSR buybacks, which will start as soon as the deviation becomes positive.


Park Rate Voting
#460

This is promising.

However, due to the small amount of NBT currently circulating, once some confidence comes back into the NSR market it may be possible for traders to game the system due to the relative ease of owning a large portion of NBT on the market.

Due to this potential risk, do you think it may be a good idea to raise the reserve threshold upward from 50% until there’s a larger, more liquid market for NBT?

I’m not a big shareholder, but with reserves going in the right direction, I would prefer to see NSR sales stop once the threshold is reached, with any further NBT sales further increasing the reserve threshold up from 50% toward a higher threshold (e.g.75%) before NSR buybacks begin.


#461

Because there is a causal relationship flowing from changes in NuBit demand to NSR supply, there is some potential to manipulate the NSR supply (and presumably NSR price) by manipulating the NuBit supply. I’m not convinced that an attempt to manipulate the NSR price by purchasing large quantities of NuBits and perhaps selling them later would necessarily be bad for the network, because it requires large purchases of NSR and NuBits, which would be positive for the network. It could cost the network resources, but is unlikely to result in network instability. If we observed a huge and sudden step up in NuBit demand that had a pattern that suggested it was a single buyer, it is likely I would increase the reserve requirements to accommodate the situation. I suspect any attempt at this sort of manipulation would bring good liquidity to NuBits and NSR, which is valuable. It would cause a rise in the NSR price, which would draw new attention and new buyers to NSR, which is also valuable. I suspect such an attempt would likely be of net benefit to the network, even though some costs could be identified. I promise that I will never advocate for the burning or quarantine of NuBits or NSR owned by an entity that is suspected of exploiting the relationship between NuBit supply and NSR supply for financial gain. I take property rights very seriously. The rules of the game allow for this. Changing those rules isn’t easy or simple, because doing so would likely distort our liquidity model in unacceptable ways. It is permitted, and there isn’t much I can do to change that. I am going to spell out what the exploit looks like, because I suspect any attempt to use it has a greater chance of bringing net benefit to the network than net loss, although I acknowledge the risks are there.

  1. Purchase a large quantity of NSR. This will be difficult to do without raising the NSR price quite a bit, due to limited liquidity.
  2. Purchase a large quantity of US-NBT. This purchase would start NSR buybacks, if I did not raise reserve requirements (which I may do). Any NSR buyback that I did allow to proceed would tend to raise the NSR price.
  3. Sell your NSR at a profit. You may not be able to sell much at a good price due to limited liquidity.
  4. The last step is optional: sell your US-NBT.

It appears this type of manipulation, while possible over the last two and a half years, has never been attempted. There are a variety of ways for the network to adapt to any such attempt, some of which involve only the employment of standard market incentives, making the adaptions particularly robust and reliable.

While reserve levels are currently targeted at 48%, in practice during NSR buybacks reserve levels will be higher than this target, and quite possibly much higher, in the case of rapid growth in NuBit demand. So, without any alteration, the current model would increase the tier 1 to tier 4 reserve level in the case of a sudden and large NuBit purchase.

In truth, the most reliable way to take advantage of this phenomena would be to completely omit steps three and four, essentially accumulating NSR first, then US-NBT, and doing nothing more, or selling only slowly over time. This behavior is likely to benefit the network in a variety of ways.


Balance Sheet Attacks
#462

Thanks for clearly outlining the exploit. It’s good to see that you perceive the risk and would consider raising the reserve ratio if patterns of buying seemed suspicious. This alone may put off anyone attempting such an expoit.

While this may be difficult to do now, my concern with the recent dump following Poloniex delisting is that this step may already have been taken on a large scale. For one or more people who wanted to make this play, it was a perfect opportunity to accumulate sufficient NSR to make it work without being noticed.

A few significant sales of NBT following the Poloniex delisting inspired dump is what made my alarm bells ring regarding this risk, given that the opportunity to acquire large amounts of NSR without being noticed had already occurred.

I agree with your analysis that there would be fair risks in trying such a move, and it could benefit Nu in aggregate.

Given the specific circumstances with unnoticed NSR accumulation recently being easy, NBT supply being small, and reserves being close to triggering NSR buybacks, the risks of this play being made are perhaps larger than at any other time I can think of.


#463

@DavidMc0 thank you for the insightful analysis.


#464

Basic frontrun:
Requires Nu to be at or above equilibrium.

  1. Buy y NSR
  2. Buy x NBT
  3. Wait for Nu to equilibrate, pumping NSR by $0.5x
  4. Sell y NSR
  5. Sell x NBT
    This attack results in Nu selling more NSR than it buys due to the frontrun, giving the attacker the difference. This is an extremely low difficulty attack, as it can be done with any amount of liquidity. All it requires is Nu to be at equilibrium or in a buyback phase.

Collapsing NBT:
Assume there are x circulating NBT.

  1. Buy (x+y) NBT.
  2. Wait for Nu to equilibrate, leaving the reserves at $(x+y/2).
  3. Sell (x+y/2) NBT, thereby breaking the peg.
  4. Use your y/2 uncollateralized NBT to make the market panic at will.
    This requires a lot of liquidity (at least equal to the number of circulating NBT) but as the NBT is sold at the same price it is bought at, the actual costs are very very low (y/2 times the desired reduction in NBT price). The time it takes Nu to restabilize is given by the dilution velocity.

Park Rate Voting
#465

This latest daily NSR sale of 370,667 NSR sets a new record low since this series of NSR sales. Despite the Poloniex delisting and the corresponding drop in NSR price from 47 satoshis to 6 satoshis, network fundamentals are better in most ways than when NSR was going for 47 satoshis on April 19th, just before the delist announcement was made. We are closer to the reserve equilibrium, have smaller daily NSR sales, and total demand for NuBits (circulating currency) has increased around 7% since the Poloniex delist announcement less than a month ago. This currency demand growth rate is 157% per year. I hope we can create a higher growth rate, but the growth rate we have since the delist is certainly to high enough to see us grow and development the network in a broad variety of ways.

There has been a massive divergence of the NSR price and most other fundamental metrics. At least 37% of all NSR were on deposit at Poloniex near the time of the delist announcement. Many, if not most investors who were holding their NSR on Poloniex appeared to be unwilling to be troubled with downloading our full client and blockchain or figuring out what new exchange to send their NSR to. Their only other alternative was to sell before May 2. And that is what they did. It is an unusual moment in Nu’s history when the NSR price and most other network fundamentals are highly divergent, with most fundamentals showing consistent improvement and the NSR price dropping from 47 satoshis to 6.


#466

:smiley: love it!


#467

@Phoenix it is time for some urgently needed fake volume. Would you be so kind? NSR liquidity is of utter importance!


#468

Another tremendous achievement by the Chief of Liquidity Operations: trading volume exploded and is now 200% of what it was yesterday. I’d say: bonus time!


#469

Supply 2017–05–19

US NuBits (US-NBT)

Blockheight: 1,409,632

Existing: 838,391.1442
Parked: 25,785.6167

Liquidity Operations*: 545,324.8312
Liquidity Operations**: 25,180.8400
Bittrex: 21,043.6188
Cryptopia: 14,633.7608
NuLagoon Tube: 27,421.8698
Nu-owned: 633,604.9206

Circulating: 179,000.6069

* BJLmVRdGFi4q7Zidwzr4CPPsLT6pozR31a
** B71AkDjzm4S24KoXGoq6W3hynexAyNb9FV

Chinese NuBits (CN-NBT)

Existing: 2,000,000
Parked: 0

Liquidity Operations*: 2,000,000

Circulating: 0

* YhSEw9AGBJ3KtqLrxeQrcsTVk5u57pA88m

NuShares (NSR)

Blockheight: 1,409,632

Existing: 3,317,727,158

Liquidity Operations*: 320,000,040
Liquidity Operations**: 58,240,000
FLOT 1***: 64,344,685
FLOT 2****: 5,940,000
Cryptopia: 5,311,357
Alcurex: 34,936,411
Nu-owned: 488,772,493

Circulating: 2,828,954,665

* SiyWZ1WCedKRXLg7u8fmVkUtF3JRC9QATv
** SaaP8P3TH8HU27MBkhH6j8EhQ9AvAEY27J
*** SvtGbNjWE49pTM2TiUZrYKSNkxTJx75mmC
**** Snvrc5q82wfe2NjEjaQAyStpPKseWrsNqn


#470

Reserves 2017–05–19

Dollar amounts represent BTC in USD.

BTC = 1,996.82 USD

Tier 1–2

Bittrex: $23,021.90
Cryptopia: $11,897.03
Cryptopia: $11,546.88
Alcurex: $7,269.88

Tier 3 (Not in effect)

Tier 4

Liquidity Operations*: $43,388.20

* 17owruzTRANDYwCq77bSABQLXBxx3QaCea

Tier 5

Refer to parked amounts for current utilisation.

Tier 6

Monthly liquidity of NuShares: $159,459

Total Tier 1–4

$97,123.90


#471

Equilibrium 2017–05–19

Circulating US-NBT: 179,000.6069
Reserve percentage: (50 - 179,000.6069 / (2,000,000 / 25)) / 100 = 0.4776
Equilibrium reserve: 0.4776 * 179,000.6069 = 85,491
Current tier 1–4 reserve: 97,124
Minimum tier 1–4 reserve: 0.20 * 85,491 = 17,098
Daily move to equilibrium: 0.01 * (85,491 - 97,124) = -116

Equilibrium is Nu having $85,491 in tier 1–4 reserves. We have $97,124. Buybacks for the amount $116 per day will begin.

Daily move to equilibrium is the amount in USD of how many NuShares will be sold or repurchased every day toward reserve equilibrium.


#472

Great milestone of the recovery following the collapse of the peg last year.

While I believe much needs to change to make Nu profitable and highly secure, It’s worth celebrating this cautiously.

In before the merchants of negativity rain on the parade :smiley:


#473

Here is the latest chart of the deviation from reserve equilibrium:

The deviation became positive for the first time since 2015, so we start NSR buybacks today to begin to gently reduce the deviation. If we sell even a modest quantity of NuBits in the near future, I expect the size of the daily buyback to increase quite a bit from $116.