Your model does not seem in contradiction to @masterOfDisaster’s significantly to mee.
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.
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.
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.
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.
Tier 4 is not restricted to development:
…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?
Why create another fund management if NSR holders can grant NSR and NBT on demand?
This threshold is part of my interpretation of the liquidity model.
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
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.
This isn’t about what you call it. I don’t think we should model tiers as interacting with adjacent tiers aside from T1-3 (which I am happy to say follow a waterfall model). T4-6 do not follow a waterfall, but are instead independent reserves.
My argument is that the distinction between T6 and T4 cold reserves is a useful one. It is important to know which funds are reserved for adjusting the nsr:nbt supply directly and which funds are reserved for developers. Of course both reserves will be mobilized to support the peg in a global peg break scenario.
I’m a fan of something like this:
T4 holds $80k in funds not on the network. We can use this to make smart contracts (or whatever) with developers. We can make small nbt&nsr reserves too if developers start accepting them as payment in a reliable fashion.
T6 holds 5% of the nbt and nsr marketcap. It balances the peg globally based on reports from T1-3 and actually looking at orders on exchanges. With a group of human signers and some lines in the sand, we should be able to do this alright.
That brings us to the closing point: when to use T4 on the peg. Basically, my statement is that we use the same rules as for T6 here, but with much more stringent parameters. This way, if shit really hits the fan T4 steps in and Nu refills later via nsr grant after the threat of blackswan has passed.
You can try to interact independently between tier 4-6 and the lower tiers, but it will he harder to develop a rule set, thresholds and actions if you do it that way.
Making triggered actions on tier 6 dependent on the state of tier 4 and the triggered actions on tier 4 dependent on the state of tiers 1-3, overshooting the mark and oscillating systems are less likely.
Tier 5 is and stays something different and was in my interpretation independently.
My proposal creates a connection 6-4-(3,2,1) independent from 5-(3,2,1) in terms of money flow.
I just found it easier to treat tier 5 independently, especially as I see tier 5 activity less suited for emergencies, but well-suited for long-term adjustments.
I agree that accounting wise it is very useful. I thought about it management wise with the foresight to develop a rule set that works with one fund management team for tier 4 and 6 buy and and sell side as well as with 4 independent management teams.
If you look at how hard it is to form a tier 4 management team, can you really imagine having an independent tier 6 fund management team soon, let alone 4 teams - one for each tier and side?
The control over tier 6 could be done by tier 4 management team. Creating and passing grants either way is in the hands of NSR holders.
Practically it would mean, tier 4 fund managers conduct the seeded auctions once they are available or sell the tier 6 NSR if need be.
I like that proposal.
If I understand that right, your choice is to support the buy side peg with NSR (tier 6) funds before BTC are taken.
Allow me to repeat my proposal:
I think we are imagining almost the same, but explain it differently.
I’d have found “tier 4 fund managers managed tier 6 funds” confusing and explained them as “tier 4 funds in NSR”.
When I wrote my interpretation I didn’t expect to have a separate (from tier 4 management) tier 6 fund management team any time soon. It would make things more decentralized, but more complicated as well. I hope that Nu grows and once has different fund management teams; short-term I’d be glad to have one. Even a small team would be more distributed than a single person. This is not the end of evolution, it’s the next step.
I tried to find a way to manage the tier 6 funds that are created by shareholders in advance as buffer without requiring a separate team.
So what about this:
Tier 6 funds on buy side (NSR) are on different addresses than tier 4 funds on buy side (BTC).
Tier 6 funds on sell side (NBT) are on different addresses than tier 4 funds on sell side (NBT).
The latter one isn’t necessary (both funds are in the same unit), but it is useful to have NBT funds on independent addresses, because that allows different multi signature parameters.
“Tier 6” funds are by design (potentially) required more often than tier 4 funds. They could or should have lower requirements in terms of moving funds (faster action).
In fact the tier 6 funds could be held in several buy/sell side addresses: some with low requirements to move funds, which might need only 2 or 3 private keys and some with more funds that require more private keys.
As more and more people are involved in Nu management, we can create a lot of management teams - as much as useful and possible.
For the start… tier 4 fund management team!
Seeing the potential (or need) of tier 4 fund management team to manage tier 6 funds as well is what made me post this:
…and it made me continuing my posts here, although it would fit here as well.
If that’s the way to go, a redesign of FRST is a step that could be taken at the same time.
So here’s how I imagine this happening, in chronological order:
JL continues to operate T4 BTC reserve, keeping it under $80k.
We set up a multisig NSR address (T6). This group is given 5% of the NSR supply (42mil NSR) with the instructions to sell a portion of them for NBT if buy side liquidity in T1-3 goes below $80k while sell side is above $100k (or if buy is <40% of total and total is <$100k)
We set up a multisig NBT address (T6). This group is given 5% of the NBT supply with instructions to sell a portion of them for NBT if sell side liquidity in T1-3 goes below $80k while buy side is above $100k (or if sell is <40% of total and total is <$100k)
If either group has >6% of their respective marketcap, they burn back down to 5%.
Setup up a multisig BTC address for T4. Give this group instructions to buy and burn NBT if buy side liquidity goes below $20k and sell side is above $40k (or if buy is <25% of total and total is <$50k)
T4 can at any time mobilize to buy and burn NBT that is being sold for <$0.9
Develop smart contracts using the T4 multisig such that we can immediately pay developers to fix dire problems if they arise. Also, any other clever contracts with developers we can think up.
Make T4 NSR or NBT reserves if there’s any kind of desire amongst developers to be paid this way.
By step 4 we have a functioning T6. By step 6 we have a functioning T4. Multisig signers can of course use their best judgement on any of the above rules, making bugs in the client or liquidity reporting not as big of an issue (human oversight).
That looks great and very compact!
That’s almost funny, because this discussion was intended to find a solution for tier 4 fund management.
It appears that at least two people find it more important to deal with tier 6 funds, to connect NBT with NSR.
I’m not sure about the limits given in 2.) and 3.).
I think the corridor is too small and a kind of average over some time would be required.
And I’m not sure whether absolute values should be preferred over ratios.
I hope that this
can help the purpose of 2.) and 3.) with data.
What about extending it by
"If either group has <4% of their respective marketcap, shareholders grant up to 5%."
Fixed values for buy and sell side? I like the ratio, though, because it’s the same as I had in mind when I thought about using tier 4 funds to support the peg
Very clever as it’s a good investment for Nu!
I see these two steps in the far future, but it’s good to have some foresight.
I hope that others find the change of priories useful and would like to follow that lead.
In the end we might get from 1 to 6 in the same run.
If there’s no support for doing 1 to 6 in one run, 5 and 6 should be preponed.
This is right, I forgot to add that.
I edited to add ratios below a certain total liquidity. I’m so down to talk more about these limits, this is what I wanted to get to: the meat of the multisig.
As far as time windows are concerned, I think that should be mitigated by use of multisig and human awareness. I also left out mention of velocity, i.e. how many funds are withdrawn from the multisig address how quickly to deal with the problem. For example, if the buy side is low for an hour, perhaps $100/hour are used whereas if it’s been a day of broken pegs we ramp up to $1,000 an hour.
Sorry for being a pain in the ass, but I sincerely only want to have the best start for the next steps and limits play a role for that.
I agree that some flexibility helps in cases where static rules would hinder effective mitigation.
On the other hand that puts a lot more responsibility on the shoulders of the fund keepers. Over time and based on experience some borders should be defined.
I bet that shareholders will do that as soon as they feel in the position for that - which is not at the start of this operation.
What to do with park rates? Is that a useful recommendation for shareholders?
Or did you leave it out, because it has nothing to do with management of funds?
I don’t believe T5 should have to do with T4 or T6 in the same way that T4 and T6 are independent of each other. T1-3 follows waterfall, T4-6 are independent reserves.
T5 is conceptually the same thing – spending money to control liquidity. It just has different time-scale and way better decentralization and way lower operational complexity and cost. It’s the preferred tool over NSR grant for mid-short term (days to weeks) buy side support.
The catch is that parking itself isn’t a very good mechanism that connects its utility to the network and cost as pointed out by @Benjamin.
I have been vocally cautious with T1 liquidity and not a big fan of reliance on parking rates specifically for defending the peg. That said I don’t want to throw away T5 at the current state either, because it’s still cheaper than Tier 1, which has its own other problems.
While I talked about replacing the parking mechanism with deferred transactions I have been too busy for some time to write and think carefully about it…
His arguement was that parking in its current practise currently can cause an open end obligation to pay interest in the future. If it is only used for mid-short term (days to weeks) buy side support, for example by a motion to never pay interest for parking longer than a month, then the risk is gone and the benefit stays.
What do people think about this? I think this would be a good first step.
Perhaps we should say that the group should use an increasing market velocity of $5/hour for every hour the above conditions are met. So that would mean that 10 hours of that condition will result in $225 of NSR going to market. 24 hours would result in $1,500.
Paying for tier 1 liquidity is an open end obligation to pay as well. Liquidity needs to be paid for immediately, parking rates in the future.
Raising parking rates only in case of danger for the peg is less reliable than activity on tier 4 and tier 6.
Is parking rate really more expensive than paying for tier 1 (sell side) liquidity?
NSR holders can find out how many NBT get parked for x% per month and compare it with compensation for tier 1 liquidity.
If you pay 10% per month for $x (tier 1 sell side) liquidity, you have 1.1 times $x at the end of the month - the same is true for paying 10% interest for 1 month parking.
My gut feeling tells me that in the end “emergency short-term insanely spiked interest” is more expensive than offering decent interest continuously and not necessarily more expensive than compensation for tier 1 liquidity.
This is a rather extended side note, but I wanted to shed light on my perception of it.
My understanding is that
- parking rates (tier 5) should have a mid-term to long-term effect,
- NSR sales (tier 6) a short-term to mid-term effect and
- BTC sale (tier 4) an immediate effect on reducing the sell side.
If you remove NBT in excess from the market (paid for liquidity or interest) by exchanging them for NSR in a continuous process, you likely get more NBT for the NSR compared to selling NSR in a situation in which the peg is under pressure; which means it’s cheaper for Nu.
Selling NSR in case the peg is threatened is still possible.
Maybe my thinking is flawed, though.
Dealing with an hourly increasing market velocity might be the hardest part of that, because it would require frequent activity of the custodians. I doubt that is possible.
Or do you mean selling NSR once a day with the resulting $ of the formula $5/h? That should be possible, especially if different multi signature addresses are used. For managing only several hundred to a few thousand $ value 2-of-x or 3-of-x should be fine. The big amounts should require more custodians and a majority of total signers.
And once again I think how beautiful it would be to have seeded auctions for that, send NSR once a day to the auction, put a current status (=NSR market rate) and the remaining time of the auction on the auction website or on nubits.com and exchange NBT for NSR that way!
The ability to bring tier 6 funds to market needs to be delegated to custodians (the future tier 4 fund managers?). Shareholders can grant NBT or NSR, but the process to sell them is not ready yet.
This would be a start in the right direction.
@Nagalim’s proposal is simple and efficient.
What do the other potential tier 4 fund managers think of that?
Right, it wouldn’t require a sell every hour, just a nominal way to calculate how much to bring to market, whether that occurs once per day or whatever. The precise numbers can be fuzzy because the signers are human and can account to the best of their ability and a broken peg has no strict definition. There will need to be a strict protocol, of course, whereby funds are brought to market.
Seeded auctions will easily take advantage of these rules, we don’t need to worry about how that will fit in now.
You get it wrong. If you set 1 year interest to 120% pa (10% per mo), the protocol will pay 10% per mo after 11 months to those who parked. Park rate can have 1 year 5 year 10 year terms… There is no way to stop paying interest to those who have parked short of a hardfork. That long term open end obligation was what @Benjamin was talking about. If you set liquidity interest to 10% per mo, you can stop it with a motion any time.
No. Park interest is like 1/10 of T1 cost. See posts starting from this in “Park rates are our method for short term peg maintenance”.
No park rate should be used only for mid and short term to avoid obligation in the future. Specifically rate longer than 1 month shouldn’t be offered.
Burnt NBT are by definition effective forever. Once its burnt it’s gone.
I might have explained it badly. Exactly that was what I had in mind: parking interest for short periods of parking, but which are continuously offered.
Nu currently has per minute compensation for ALP and per month compensation for MLP.
Why not offer parking interest for one month parking period?
I agree that the parking period should be short and in case the incentive needs to be increased an increase of interest rate should be the means.
And once again I might have chosen the wrong words. I’m aware of the lasting effect of burned NBT.
- parking rates (tier 5) as mid-term to long-term,
- NSR sales (tier 6) as short-term to mid-term effect and
- BTC sale (tier 4) as immediate
I didn’t mean how long the effect lasts, but instead the speed with that an action is effective on sell side reduction.
Raising parking interest takes some time to kick in.
But offering paring interest for one month parking and removing 10,000 NBT from sell side this way might be cheaper (per month) than paying compensation for reducing tier 1 sell side by 10,000 NBT or increasing buy side by 10,000 NBT value.
For the dilution of NSR (that might be necessary to remove NBT from the market) it plays no role whether the NBT entered the market for paying parking interest or tier 1 liquidity compensation.
I say Nu doesn’t know what’s cheaper at the moment and should try to find out.
Why not offering 5% monthly parking interest (with one month duration) if tier 1 liquidity compensation is double of that rate?
Pretty please can we stop talking about T5 here?
<80k buy and >100k sell activates T6, as does >60% sell when total liquidity is <100k, also if nbt is being sold for <$0.9. Acceleration is 5nbt/hr^2.
Are these parameters acceptable?
It’s just to understand the full picture or why are you talking about T6?
I think trading volume (how fast the wall is being eaten) should be considered.