The collapse in the price of NuShares has occurred with less than 10% redemption of outstanding NuBits. It should now be clear to all shareholders that NuShares cannot be a reliable store of value for NuBits, because they rely on NuBits demand for its value. I have been saying this for months. NuShare sales are circular, flawed economics that has a basis in wishful thinking rather than reality.
As we rebound from this event, shareholders should consider implementing two improvements.
The network should hold higher levels of USD reserves, especially as a percentage of outstanding NBT, while the network is young. These reserves should be diversified into multiple cryptoassets to reduce systemic risk. I would suggest 50-60% coverage at a minimum.
NuShares sales should be permanently abandoned. We now have data showing that NSR sales will be useless if demand ever collapsed by a catastrophic amount, such as 50%. Our share price has never been lower. NuShares can be diluted an unlimited amount and the market punishes its valuation because of this risk. The network should revert back to Tier 5 (Parking Rates) as a final line of defense, and explore proven capital control mechanisms such as Restricted Network Access and other unimagined solutions to strengthen the currency. We cannot continue to ignore proven economic techniques because they feel uncomfortable. The number of NuShares should only increase through the PoS reward, and decline through buybacks as custodians burn them.
Ultimately, NuBits users will have to assume some risk of a currency collapse, just as all fiat currency users do. Our attempts at transferring all risk onto NuShareholders has been admirable but futile, and we need to correct this if we have any hope of becoming a widely used product.
In fact, as long as a partial reserve company, the “bank run” is always the threat.
Let F. A Hayek guide for us:(ducat is a private currency, stable buying power)
The kind of trust on which private money would rest would not be very different from the trust on which today all private banking rests (or in the United States rested before the governmental deposit insurance scheme!). People today trust that a bank, to preserve its business, will arrange its affairs so that it will at all times be able to exchange demand deposits for cash, although they know that banks do not have enough cash to do so if everyone exercised his right to demand instant payment at the same time. Similarly, under the proposed scheme, the managers of the bank would learn that its business depended on the unshaken confidence that it would continue to regulate its issue of ducats (etc.) so that their purchasing power remained approximately constant.
Is the risk in the venture therefore too big to justify entry by men with the kind of conservative temper its successful conduct probably requires?It is not to be denied that, once announced and undertaken, the decision on how large the commitment was to grow would be taken out of the hands of the issuing institution. To achieve its announced aim of maintaining the purchasing power of its currency constant, the amount would have to be promptly adapted to any change of demand, whether increase or decrease. Indeed, so long as the bank succeeded in keeping the value of its currency constant, there would be little reason to fear a sudden large reduction of the demand for it (though successful competitors might well make considerable inroads on its circulation). The most embarrassing development might be a rapid growth of demand beyond the limits a private institution likes to handle. But we can be fairly sure that, in the event of such success, new competition would soon relieve a bank of this anxiety.
The issuing bank could, at first, at no prohibitive cost keep in cash a 100 per cent reserve of the currencies in terms of which it had undertaken to redeem its issue and still treat the premiums received as freely available for general business. But once these other currencies had, as the result of further inflation, substantially depreciated relative to the ducat, the bank would have to be prepared, in order to maintain the value of the ducat, to buy back substantial amounts of ducats at the prevailing higher rate of exchange. This means that it would have to be able rapidly to liquidate investments of very large amounts indeed. These investments would therefore have to be chosen very carefully if a temporary rush of demand for its currency were not to lead to later embarrassment when the institution that had initiated the development had to share the market with imitators. Incidentally, the difficulty of finding investments of an assured stable value to match similar obligations would not be anything like as difficult for such a bank as we are considering as present-day bankers seem to find it: all the loans made in its own currency would of course represent such stable assets. The curious fact that such an issuing bank would have claims and obligations in terms of a unit the value of which it determined itself, though it could not do so arbitrarily or capriciously without destroying the basis of its business, may at first appear disturbing but should not create real difficulties. What may at first appear somewhat puzzling accounting problems largely disappear when it is remembered that such a bank would of course keep its accounts in terms of its own currency. The outstanding notes and deposits of such a bank are not claims on it in terms of some other unit of value; it determines itself the value of the unit in terms of which it has debts and claims and keeps its books. This will cease to seem shocking when we remember that this is precisely what practically all central banks have been doing for nearly half a century—their notes were of course redeemable in precisely nothing. But notes which may appreciate relatively to most other capital assets may indeed present to accountants problems with which they never before had to deal. Initially the issuing bank would of course be under a legal obligation to redeem its currency in terms of the other currencies against which it was at first issued. But after it has existed for some time their value may have shrunk to very little or they may have altogether disappeared.
In early stage, keep 100% reserve because the ecosystem is small and prone to random impact.
We’ve got the lesson of very low reserve level, peg in danger.
When the business growing, reserve ratio may be lower, but try to avoid SUDDEN currency demand changes.
However, the BTC/NBT is arbitrage usually lend to sudden demand change, so we may consider the USD/NBT pair.
When business grown up, must carefully choose investments, it is a difficult but possible mission, these inverstment must provide enough profit to support the private currency buy back and can be withdrawed at any time.
e.g. If deposite Nu’s money to 3rd party at 40% annual interest rate for 2 years, the profit is high, but we cannot withdraw it freely. So this is not the ideal investment for private money price maintain although we can put a small portion of money into this investment.
Absolutely necessary. I’d like to floor as well and a percentage of outstanding NBT on top of it (e.g. $100,000 + 50%)
RNA damages the usability of NBT.
Market aware offsets doesn’t.
It’s a proven economic observation that an increased demand for limited goods leads to a rising price.
In case of liquidity provision the economic technique should be: an increased offset, if a side loses funds rapidly - the bigger the offset, as a feedback of the faster the funds get traded.
Are both possible to implement? As I understand it, RNA is only supposed to be used in the event everything else fails. Wouldn’t it be good to have in the event our reserve is wiped out, interest rates fail to encourage buy pressure and market aware offsets don’t cut it? It would be our final option after all other peg support mechanisms fail.
We don’t even know the extent yet, but we have some time to try selling NSR left until Friday.
We are already in that state - at least if you look at official measures.
The peg at the NBT/BTC is only kept to some level by NuBot gateways that operate at a quite big buyside offset.
That offset is not part of the gateway contracts and is based in big parts on things in my head.
All that is done with the gateways is done so by best guess based on a mixture of experience and gut feeling.
I think my experience and gut feeling served us well so far.