Tier 4 Fund Management Discussion

[mhps]

I don’t see how asking tier4 to keep account of every LP is simpler than making deals to rebalance nulagoon (tier 3) and buying nbt on-exchange to burn (tier 2 and 3).

Are addressing to my post? If yes I didn’t ask T4 to keep account of every LP (liquidity provider) but every pool (operator’s) interest wallet.

Nulagoon is just an example of every MLP. What about ALPs? My idea is dealing with every pool, uniformly and automatically.

Buying NBT to burn is the job of T6, no?

[Nagalim]

NuLagoon’s funds are separate from NuLagoon’s monthly cost to Nu. A rebalancing for NuLagoon has to do with their funds (buy vrs sell side), not their monthly cost. In your mechanisms, how would Tier 4 deal with a broken peg? Pay more to LPs to provide funds? That’s just the parking mechanism to an extreme.

T4 is originally designed as the developer fund, and it contains funds held in units of account external to the Nu system. It is a reserve and should be mobilized during periods of extreme network stress to buyback and burn NBT. T6 is indeed shouldered with the responsibility of burning NBT during periods of network stress, but cannot possibly be used in extreme cases without triggering a black swan event. That is why T4 should be mobilized to rebalance NuLagoon (T3) and buy back nbt from T1 custodians directly. In my opinion, the T3 rebalance should have higher priority than the direct NBT buyback, but the absolute fastest way of mobilizing funds in a peg brake is direct insertion into T1.

For example, someone slowly buys 150,000 NBT from the Nu network over the course of the year. Then, they put up every NBT they have as a sell wall all at once at $0.5 on NBT/BTC. Is Nu really going to sell $150,000 of NSR all at once, or are we instead just going to pump all developer funds at that wall? Note that if we decide to pump developer funds at that wall we could recover the peg near-instantly and still have money left over in T4.

[masterOfDisaster]

T4 is originally designed as the developer fund, and it contains funds held in units of account external to the Nu system.

No matter how tier 4 was designed - Nu needs a buffer to buy back NBT; tier 4 is in the ideal position for that.

In my opinion, the T3 rebalance should have higher priority than the direct NBT buyback

This is my opinion as well.
But in the end it doesn’t matter much, as the market can move funds between the tiers 1 to 3 quite fast.
The more urgent NBT need to be removed from the market, the lower tier to place the BTC can be chosen.

For example, someone slowly buys 150,000 NBT from the Nu network over the course of the year. Then, they put up every NBT they have as a sell wall all at once at $0.5 on NBT/BTC.

I’d be happy to buy as many NBT at $0.5 as I can afford as long as I can hope to sell them for $1 to Nu.
Nu could happily do the same.

Is Nu really going to sell $150,000 of NSR all at once, or are we instead just going to pump all developer funds at that wall?

At $0.5 only $75,000 in NSR would be required to buy the wall.
But I don’t think that the market depth of NSR is deep enough to dump $75,000 in NSR on the market without killing the NSR price.

In my opinion that’s exactly what tier 4 is for: buy NBT if the sell side is much bigger than the buy side.
Nu needs to define at which ratio action is expected from tier 4.

Tier 6 is what either

• refills tier 4 (NSR get sold for BTC, the received BTC fill tier 4 buy side) or
• interacts with lower tiers through seeded auctions (NSR get sold for NBT, NBT get burned)

at least in my opinion.

[Nagalim]

You’re right about it only being $75,000 NSR sold, but that’s still way more than we can efficiently do in a short term without black swanning.

what tier 4 is for: buy NBT if the sell side is much bigger than the buy side.

I disagree. Tier 4 is for developer funds. The only time Tier 4 should be used to support the peg is if there is actively a peg break scenario and Nu stands to lose its reputation. Tier 6 should be used to rebalance the global peg.

Refilling tier 4 should come from selling NBT in my opinion, not selling NSR. It should occur when Nu is expanding, either in the economic or the development sense. The genesis refill was of course the IPO, which we are performing buybacks with currently.

[masterOfDisaster]

Tier 4 is for developer funds.

Why should Nu keep developer funds in a volatile form?
I see demand for a tier 4 and a tier 4 sell side that interact with lower and higher tiers.

[Nagalim]

That’s tier 3 by definition though. Tier 4 is developer funds that also happen to be a reserve. It’s just that most developers in the crypto world prefer to be paid in BTC.

[masterOfDisaster]

Nu does not by definition hold tier 3 funds.
BTC could be exchanged close to payment with granted NSR.

edit: sorry for this extremely short reply. It was not meant unfriendly. I was typing on mobile phone. I think I’ll start a new thread that tries to supplement this discussion here by trying to draw a bigger picture in which the T4 fund management discussion hopefully fits.

[mhps]

In your mechanisms, how would Tier 4 deal with a broken peg? Pay more to LPs to provide funds? That’s just the parking mechanism to an extreme.

So? Does it not solve the problem?

@nagalim

For example, someone slowly buys 150,000 NBT from the Nu network over the course of the year. Then, they put up every NBT they have as a sell wall all at once at $0.5 on NBT/BTC.

I’d be happy to buy as many NBT at $0.5 as I can afford as long as I can hope to sell them for $1 to Nu.Nu could happily do the same.

Exactly. If the price is not going t bounce back to $1, I’d rather keep the developers paid than extending the peg for another few hours/days, because the developers are the source of hope.

We may first need to agree on this first: when is the T4 fund, which is mainly for paying developers, to be used as liquidity support fund? T4 managers need to clearly understand this to do their job.
To me these two things are an odd couple.

[masterOfDisaster]

Do we have a chance to speed the development of tier 4 fund management up?
I’m asking because of this:

[Passed] Motion to end LPC operations of KTm, Jamie and NSR sales of Jordan

This NSR burn is required by motion, but it's very bad timing. A pity that the community didn't put more efforts in forming a tier 4 (buy side) fund management - the NSR would be better there than burned only because of the time it takes to create them by grant. Keeping a part of tier 4 buy side funds in NSR instead of BTC seems wise in terms of BTC volatility and potential BTC default risk (which might be low, but not 0).

[Nagalim]

Can we have a thread like this one but for Tier 6? I think we might be able to come to consensus for Tier 6 more quickly than Tier 4.

[masterOfDisaster]

I don’t see the reason or need for that.

Tier 6 consists of NBT or NSR that are granted by NSR holders for a reason.
The addresses where the NBT and NSR are granted could very well be tier 4 multi signature fund management addresses.
Conceptual the 40 million NSR that will be burned soon would fit in tier 4 buy side - if the tier 4 buy side would hold NSR next to BTC.

At least this is my interpretation of the liquidity model.
I see no reason for having a(n additional) tier 6 management team - effectively the NSR holders are the tier 6 management team!

[Nagalim]

Tier 4 holds BTC currently and is reserved for paying developers. Tier 6 holds NSR with the sole purpose of defending the peg and is about to be burned. All I’m saying is that we need a multisig team to hold a reserve of NSR with the sole purpose of defending the peg. If you don’t want to call it T6, fine, let’s call it the Magical Unicorn Signers, whatever, let’s just get a multisig group with control over an NSR address with the sole purpose of supporting the peg according to some simple rules (like those that JL just posted).

[masterOfDisaster]

Tier 4 holds BTC currently and is reserved for paying developers.

Reserved for that, but not limited to it.

Tier 6 holds NSR with the sole purpose of defending the peg and is about to be burned.

I beg to differ. Tier 6 creates NBT or NSR if necessary - by grants - to defend the peg.
Using feedback loops from lower tiers reduces the risk for the peg.

All I’m saying is that we need a multisig team to hold a reserve of NSR with the sole purpose of defending the peg. If you don’t want to call it T6, fine, let’s call it the Magical Unicorn Signers, whatever, let’s just get a multisig group with control over an NSR address with the sole purpose of supporting the peg according to some simple rules (like those that JL just posted).

I agree that an NSR reserve with the sole purpose of defending the peg is useful.
I recognize tier 4 as the ideal layer for that; multi sig included.
I like “Magical Unicorn Signers” and would like to call the tier 4 fund management team that.
What about the draft of rules I proposed?

[Nagalim]

Tier 6 doesn’t print nsr or nbt, shareholders do. The tiers are each a separated reserve. Tier 6 is an nsr reserve held for the sole purpose of supporting the peg in times of need.

Sorry, if you summarized the rules into a simple list somewhere I must have missed it.

[masterOfDisaster]

It is my understanding as well that tier 6 is dealing with NBT or NSR printed by shareholders.
But I don’t expect NBT or NSR to be kept by custodians on tier 6 - for what reason?
They are granted on demand.

Sorry, if you summarized the rules into a simple list somewhere I must have missed it.

I wouldn’t call it summarized rules, but it’s here:

Interpretation of the liquidity tiers, a waterfall model, triggers, metrics and actions

Continuing the discussion from Tier 4 Fund Management Discussion: The "Tier 4 Fund Management Discussion" would greatly benefit from an overview of the all liquidity tiers and an understanding how they interact with each other. The "Finalized evolution of liquidity operations" defined the different tiers, but lacks the feedback loops between the different tiers. The category "NuShares" might not be ideal, but I haven't found a better one. TL;DR The current Nu liquidity operation still is ra…

Trying to summarize it:
Tiers 1 to 3 are outside of direct control by Nu.
Tiers 4 to 6 are in full direct control by Nu.

Tiers could be interpreted in a waterfall model (this is my interpretation, please add to it if you like; the triggered actions are just a draft, a proposal).
Each tier interacts with the adjacent tiers; tier 5 is something different.
Nu provides an incentive for putting funds on tier 1.
Tier 1 drains funds from tier 2, which drains funds from tier 3, etc.

Tier 4 holds funds for paying development operational costs and keeping the peg (BTC and NSR to reduce the dependency on BTC; ratio between BTC and NSR needs to be defined - why not 50/50?).
If the ratio of buy side sell side (or vice versa) is below 1.5 nothing happens.

Connection of tier 4 to lower tiers:
Between a ratio of 1.5 and 2 seeded auctions try to balance the sides (most effective likely on tier tier 3, less effective on tier 2, least effective on tier 1). Funds are taken from tier 4 (buy or sell side/ NSR or NBT). The seeded side is the smaller one.

Above a ratio of 2 funds from tier 4 are being injected to tier 1 to support the peg (BTC or NBT; depending on the side that needs support).

Connection of tier 4 to higher tiers:
If tier 4 (buy side) is below 12% of the value of NBT in the wild, shareholders are expected to fill it. A corridor of 3 percent points tries to limit the involvement of NSR holders.
Once tier 4 buy side is below 9% NBT value in the wild tier 4 buy side (multi signature fund management address) gets filled with an NSR grant (tier 6 triggered).
Once tier 4 buy side is above 15% of NBT value in the wild, NBT get burned by the fund managers.
The same rules could apply to tier 4 sell side (then tier 4 buy/sell side should try to get balanced before NBT get burned or NSR granted), but as funds on tier 4 sell side pose no default or volatility risk they can be vastly different.

On tier 5 shareholders are expected to raise parking interest above 0% if the average sum of tier 1 to tier 3 in the last time frame x of sell side liquidity is bigger than buy side.
To go into greater detail about parking rates is out of the scope of this attempt to summarize the rules - I don’t even have a detailed proposal in the verbose version.

[Nagalim]

NBT in the wild

Do you have a rigorous definition for this? Remember that liquidity data from tiers 1-3 can be manipulated fairly easily (just get shareholders to pass a 1 NBT grant).

Tiers 1 to 3 are outside of direct control by Nu.
Tiers 4 to 6 are in full direct control by Nu.

My instinct is to call this false. The only thing that shareholders are directly in control over is the creation of NBT and NSR, which leads me to a different model than the waterfall model:

Nu can create NBT or NSR at will to incentivize reserves with different intents and rules.

1. T1 is the front line reserves. Highly decentralized
2. T2 is transient backup reserves for the front lines. Decentralized.
3. T3 is cold reserves for the front lines. Mildly decentralized.
4. T4 is cold reserves for developers. Can be mobilized for the front lines. Multisig.
5. T5 is negative nbt reserves that can be considered out of circulation. Highly decentralized.
6. T6 is operational cold reserves. Can be mobilized for the front lines. Multisig.

Motions and grants affect these tiers directly and can cause funds to flow between them.

The operational cold reserves are for converting NSR to buy liquidity (or directly dealing with NBT:NSR via seeded auctions eventually) in a short period of time. Effectively, our % reserve is:
[T1+T2+T3+T4+T6]buy / (NBT marketcap - [T1+T2+T3+T4+T6]sell - T5)

[masterOfDisaster]

NBT in the wild

Do you have a rigorous definition for this? Remember that liquidity data from tiers 1-3 can be manipulated fairly easily (just get shareholders to pass a 1 NBT grant).

With “NBT in the wild” I mean the amount of NBT sold from Nu to people:

nud -unit=B getinfo | grep supply
    "moneysupply" : 4625463.0383,

The 4,000,000 NBT of the FSRT needs to be subtracted from that number, because obviously the FSRT is still in possession of Nu. The 40,000 NBT management fee for the FSRT are a part of NBT in the wild. They will not need to get sold to enter the market, or the tier 1-3 sell side, respectively.

As a result I consider 625463.0383 NBT in the wild.
This number can’t be manipulated except for burns and grants.

Tiers 1 to 3 are outside of direct control by Nu.Tiers 4 to 6 are in full direct control by Nu.

My instinct is to call this false. The only thing that shareholders are directly in control over is the creation of NBT and NSR, which leads me to a different model than the waterfall model:

Maybe I should have written funds on tier 4 to 6 are “(temporarily) owned/held” by Nu.
I’m not saying that Nu possesses all the funds (e.g. tier 5). But on tier 4 and 6 Nu possesses the funds is free to do as NSR holders decide.
Funds on tier 1 to 3 are “managed” by people who possess NBT and BTC.

Nu can create NBT or NSR at will to incentivize reserves with different intents and rules.

T1 is the front line reserves. Highly decentralized
T2 is transient backup reserves for the front lines. Decentralized.
T3 is cold reserves for the front lines. Mildly decentralized.
T4 is cold reserves for developers. Can be mobilized for the front lines. Multisig.
T5 is negative nbt reserves that can be considered out of circulation. Highly decentralized.
T6 is operational cold reserves. Can be mobilized for the front lines. Multisig.

Motions and grants affect these tiers directly and can cause funds to flow between them.

I don’t see why T2 is less decentralized than T3, because all funds on tier 1 to 3 are in the hands of the same people - more or less.
The NBT in these tiers have been sold from Nu.
The BTC in these tiers is provided by LPs, because they are incentivized (by Nu) to do so.

T4 is reserves for developers, but for ongoing costs and supporting the peg as well.

T6 is NBT or NSR granted by NSR holders.
Why have another fund management team dealing with multisig addresses, if the NBT or NSR can be granted to tier 4 multisig addresses as well? That makes things more complicated, but what’s the benefit?

[mhps]

a different model than the waterfall model

Your model does not seem in contradiction to @masterOfDisaster’s significantly to mee.

[Nagalim]

The difference is in how funds flow. Waterfall assumes funds flow down. My model assumes funds can enter and exit any tier, the biggest difference between tiers being intent.

Tier 2 is more decentralized than tier 3 because we still have targets for our bots, meaning some users of the ALPs have funds on exchange that are not up on the pools. It is also a general trend that we should continue to support that T2 is more decentralized than T3.

Funds in a multisig are not funds Nu controls, they are funds the multisig owners control. What makes the multisig users more reliable than, say, NuLagoon?

T4 is reserved for developer fund. T6 is an operational reserve used to adjust nsr and nbt supply directly. T6 should have a threshold at which it starts converting nsr to nbt or nbt to nsr, and should be doing this on a semi-regular basis. T4 should have a more stringent threshold at which it starts using funds, which should be a rare occurance.

[masterOfDisaster]

The difference is in how funds flow. Waterfall assumes funds flow down. My model assumes funds can enter and exit any tier, the biggest difference between tiers being intent.

In my interpretation of the liquidity model funds can flow in both directions - the direction the water flows might change.
Are we really discussing names?
I will change the expression “waterfall model” to “a reference to the OSI model” in that case.

A layer serves the layer above it and is served by the layer below it.

My intention for that verbose post which dealt with this interpretation was to develop a liquidity model in which the tiers interact with adjacent tiers based on thresholds that trigger actions - something I did miss.

Did you read Interpretation of the liquidity tiers, a waterfall model, triggers, metrics and actions?

Funds in a multisig are not funds Nu controls, they are funds the multisig owners control. What makes the multisig users more reliable than, say, NuLagoon?

The custodians of the funds that are held by the multi signature address are chosen by NSR holders; they receive funds that are in the possession of Nu.
The funds at NuLagoon aren’t in the possession of Nu. NuLagoon receives funds for the compensation - not the funds! - from Nu.
NuLagoon can mess with the granted compensation, but if NuLagoon messes with the funds it’S not harming Nu.
That’s why the tier managers need to be chosen chosen more wisely than NuLagoon or other LPs.
I hope the process of forming and electing the tier 4 management team serves the purpose of making it reliable.

In the start of Nu single custodians were trusted with hundreds of thousands of NBT value.
We are talking about tens of thousands of NBT value in the hands of multi signature custodians.
This is not perfect, but a big improvement.

The only way to get rid of custodians is to eliminate tier 4 and do all with NBT and NSR grants which end up at custodian addresses to fund development or operational costs or in seeded auctions to support the peg - not very agile in times of peg at risk.

T4 is reserved for developer fund.

Tier 4 is not restricted to development:

Finalized evolution of liquidity operations

Tier 4
This liquidity can be provided by custodians not dedicated to liquidity operations. A present example are the proceeds of NuShare sales. They are intended for operational and development expenses, but can be used to support the critical function of liquidity provision as needed. When these funds are used for liquidity, they are exchanged from one type of asset to another, but are still available for their original purpose, such as development. These funds can be promoted to tier 3 in hours and the cost is exchange rate risk.

…nor should it be. Tier 4 can be the hub of liquidity management. An explanation in greater detail can be found in Interpretation of the liquidity tiers, a waterfall model, triggers, metrics and actions?

T6 is an operational reserve used to adjust nsr and nbt supply directly.

Why create another fund management if NSR holders can grant NSR and NBT on demand?

T6 should have a threshold at which it starts converting nsr to nbt or nbt to nsr, and should be doing this on a semi-regular basis.

This threshold is part of my interpretation of the liquidity model.

T4 should have a more stringent threshold at which it starts using funds, which should be a rare occurance.

Would you agree that tier 4 and tier 6 funds could be managed by the same fund management team - even with the same multi signature addresses?
…that’s what I meant with

Interpretation of the liquidity tiers, a waterfall model, triggers, metrics and actions

It might be helpful to distinguish between “colors” of tier 4 funds.

Tier 4 can play a central role in the liquidity management.

An idea how to move funds between tiers and example thresholds that trigger actions as well as the actions can be found in my text wall post with an interpretation of the liquidity model.

All it requires is to widen the view of the capabilities or roles of tier 4.