Timeline of events related to the peg break 2016

[jooize]

2016–03–11

@masterOfDisaster determines liquidity pools and NuLagoon are not supporting the NuBit peg. Only @Cybnate’s, @masterOfDisaster’s, and @zoro’s NuBots do.

— [Nubot Gateway] Poloniex @zoro (sell offset:0.25% , buy offset:5% ) - stand by

2016–03–18

@catcow notices liquidity has decreased dramatically.

— Current Liquidity

2016–03–18

@JordanLee asks why liquidity has decreased and for those understanding current liquidity operations to explain what can be done.

— Current Liquidity

2016–03–19

@Cybnate says her PyBot operates at 0.7% spread (0.35% offset on both sides).

— Current Liquidity

2016–03–19

@JordanLee holds 59.8 BTC for Nu.

— Supply, Reserves, and Equilibrium

2016–03–19

@JordanLee finds reserves are below targets and claims NuLaw demands NuShares be sold after 30 consecutive days of park rates.

The latest share buyback calculation indicates reserves are slightly below our targets as established by motions. When reserves fall below the targets set by shareholders, it is time to take action to bring the reserve up. There are two methods of doing this that are under the direct control on shareholders: offering park rates and selling NuShares. Park rates should be used first. There is a regulation in effect that if park rates are offered for 30 consecutive days then NuShares must be sold and NuBit proceeds burned.

— Park Rate Voting

2016–04–18

@masterOfDisaster states his gateway operates at 4% spread, and has for some time.

The spread of my Poloniex NuBot is already at approx 4% (offset 0.02 each side - exchange fees).
I’ll increase the offset to 0.025 during the next maintenance.

— Current Liquidity

2016–04–18

@masterOfDisaster initiates conversation regarding a NuShare sale.

Tier 1–4 reserves were 82 BTC.

At current market rates that a sale of approximately 8 to 10 million is necessary to fill the gap (provided it’s not bigger than my gut feeling tells me).

I’m open to take all $30k from NuSafe, reducing the NSR sale to $10k, equaling 3 to 4 million NSR.

— FLOT NSR Operations (buy side)

2016–04–20

@JordanLee reaffirms his understanding that any devaluation of NuBits is destructive to the whole system, and warns shareholders against supporting such practice.

— [Draft] Shareholder Pledge

2016–05–05

@JordanLee holds 126.04 BTC for Nu.

— Supply, Reserves, and Equilibrium

2016–05–15

@JordanLee posts “Lack of commitment to liquidity is our biggest threat now”.

— Lack of commitment to liquidity is our biggest threat now

2016–05–27

@JordanLee notes 64,000–72,000 US-NBT was sold the last day, about 10% in circulation. He sees NuShare sales are scheduled within a week but urges expediting them and suggests placing NSR on order at 500 satoshi.

— It is time for immediate use of tier 6 liquidity (NSR sales)

2016–05–28

@masterOfDisaster places 1,200,000 NSR at 500 satoshi on Poloniex.

— FLOT NSR Operations (buy side)

2016–05–28

@mhps notices there is someone with 21 BTC on the buy side. Whether that’s the total is unclear.

— FLOT NSR Operations (buy side)

2016–06–01

@masterOfDisaster posts update saying 2.3 BTC of proceeds from NuShare sales so far.

— FLOT NSR Operations (buy side)

2016–06–02

@masterOfDisaster announces 6.9 BTC total from NuShare sale ($3,677 at that time) and places them at 20% 180% spread.

All BTC proceeds (6.9 BTC, at $533 per BTC at the time of writing valued $3,677) from the NSR sale have been put on order at the NBT/BTC pair at offsets of 90% and above - in case someone desperately wants to get rid of NBT

— It is time for immediate use of tier 6 liquidity (NSR sales)

2016–06–04

@masterOfDisaster asks what to do with the remaining NuShares.

@FLOT, what do we do with the NSR, that need to be sold?
Putting them on order at Poloniex again?

— FLOT NSR Operations (buy side)

2016–06–04

@Nagalim responds with a calculation suggesting the weekly amount. Is that number according to NuLaw or simply useful?

4,762 * 0.0015 = 3.175 mil nsr for sale this week.

— FLOT NSR Operations (buy side)

2016–06–05

@NuWorld argues NuShare sales have been ineffective and suggests multiple more aggressive approaches.

— FLOT NSR Operations (buy side)

2016–06–05 – 2016–06–06

FLOT fails to create a transaction for further sales and determines there’s a problem with Cointoolkit.

— FLOT NSR Operations (buy side)

2016–06–06

@masterOfDisaster creates a transaction with fixed Cointoolkit. Only @mhps (and @masterOfDisaster) signed it.

— FLOT NSR Operations (buy side)

2016–06–06

@JordanLee posts “Make Firing and Replacing Incompetent Liquidity Providers Our Top Priority”.

— [Withdrawn] Make Firing and Replacing Incompetent Liquidity Providers Our Top Priority

2016–06–06

@jooize posts “Get NuBits’ liquidity flowing”.

— Get NuBits' liquidity flowing

2016–06–06

• FLOT has 35.74 BTC
• @zoro’s gateway has 12.28748625 BTC, spread undetermined.
• @masterOfDisaster’s gateway reports 10568.606 US-NBT worth of BTC, reportedly at a spread of 4% or more.

2016–06–06

@masterOfDisaster displays fundamental misconceptions of Nu’s model for peg support.

You can’t demonstrate commitment to the peg, if you are out of BTC.
The only reason we’re not out of the BTC is, because the buyside offset was increased.

— [Withdrawn] Make Firing and Replacing Incompetent Liquidity Providers Our Top Priority

2016–06–09

@jooize concludes that all remaining funds must be used for buy side support and creates a transaction.

The Bitcoins FLOT holds belong to NuBit holders. Only legitimate reason to withhold them may be to better serve more NuBit holders, but that is not mandated. FLOT is supposed to provide Tier 4 funds when liquidity balance in the network is below 40% on either side.

Selling NuShares have all along been the consensus plan for peg support. That shouldn’t come as a surprise.

— Get NuBits' liquidity flowing

2016–07–20

@Phoenix posts and later passes motion allowing him discretion over NuShare sales and buybacks.

— [Passed] Make NSR Buyback and Sales Requirements a Guideline

2016–11–26

@jooize summarizes the amount of Bitcoin spent on NuShare buybacks.

— NSR Buybacks in BTC

[jooize]

Please add or correct information.

[Nagalim]

This was one of the most divisive posts that started the alienation of the custodians, May 15, 2016.

Lack of commitment to liquidity is our biggest threat now

Perhaps the biggest surprise for me in the course of our monetary experiment is that a growing chorus of voices in the community are advocating policies of intentionally reduced liquidity as a part of planned operations. This surprises me because I would expect the community to understand that NuShares will only have value to the extent the network is viewed as reliable in maintaining liquidity, the quality of which is simply measured by the depth and spread of the liquidity. These proposals rep…

[cryptog]

what was the motion that mandated the sell of nsrs to support the peg?
in any case regardless of this motion, as a flot nsr member i was reluctant to sell nsr. The reason is simple. I got all my nsr at 0.2c the unit back in 2014. jordan lee should not be surprised that people are reluctant to decreasing the value of their holding by fostering sales unless you have a short position. I was long. The error of Jordan was to ignore that flot members were all long.

[Cybnate]

The reason is simple. I got all my nsr at 0.2c the unit back in 2014. jordan lee should not be surprised that people are reluctant to decreasing the value of their holding by fostering sales unless you have a short position. I was long. The error of Jordan was to ignore that flot members were all long.

Great to see you speaking up on this one. That is the perverse incentive I talked about before in another thread with Phoenix. I still believe that was/is the major flaw of the system. Those who execute the ‘liquidity engine’ should preferably be rewarded by other means and maybe shouldn’t even be shareholders. When it was more decentralised with liquidity providers this wasn’t a real problem as they were paid separately and mostly based on performance, but when this was cut back due to the cost of those liquidity providers with gateways and FLOT to oversee it. It was forgotten that is was actually the cost of ‘safe’ decentralised liquidity. I don’t think anyone saw clearly or appreciated the change in risk when we only had two or three liquidity providers left running the show and a bunch of shareholders in FLOT with a lot of self-interest.

It was one of the reasons I jumped in at the time offering a gateway to spread the risk (and workload) again, but it wasn’t enough in the end and I also hesitated in loudly supporting the sell of NuShares knowing that there was a lot of controversy about it and that eventually some shares were sold which satisfied me (and others) at the time, but too little to late. The ‘handover’ was too rough and alienated a lot of people which contributed even more to the damage and duration of the peg loss. I believe the handover could have been done in different ways, but that is in hindsight.

Anyway, I believe it is really important to separate the facts from the emotions (which were real) and learn from it and improve the model so this can’t happen again. But we also have to be careful to throw away the things which I think did work well but were too costly and abandoned. Let’s think creatively on how we could reduce those costs or what could be done differently why keeping liquidity provisioning decentralised.

[jooize]

I don’t know when Tier 6 was established, but added the following (and a few other things) to the timeline.

2016–07–20

@Phoenix posts and later passes motion allowing him discretion over NuShare sales and buybacks.

— [Passed] Make NSR Buyback and Sales Requirements a Guideline

My ultimate aim is not to determine who to blame, but to enable us to continue ahead. Hopefully without resentment.

in any case regardless of this motion, as a flot nsr member i was reluctant to sell nsr. The reason is simple. I got all my nsr at 0.2c the unit back in 2014. jordan lee should not be surprised that people are reluctant to decreasing the value of their holding by fostering sales unless you have a short position. I was long. The error of Jordan was to ignore that flot members were all long.

I guess that’s the emotional factor @Phoenix talks about when calling you authoritarian rebels who went against mandated practice. Without experience and no established method to sell NuShares, of course it’s difficult. I don’t think even @JordanLee knew quite how to operate Tier 6. He probably expected FLOT to figure that out.

Shareholders should have made sure FLOT knew what they were doing and would do it. @JordanLee realised that not being the case too late. Either call that believing in people or being reckless.

When the FLOT teams were created I didn’t understand what would be expected of FLOT NSR, so I avoided taking on that responsibility, but I could just as well have become a signer and not known what to do. Luckily, I also later got the opportunity to help fix the problem. It’s of course a lot easier for me to be optimistic having been compensated.

I don’t particularly blame you or FLOT, but I think the fact is that FLOT NSR was incompetent. If that’s incorrect, I’d like to establish that.

Skeptics would do well to dig into the history the way I do and build their own narratives. I’ve welcomed scrutiny of my posts, but seen few refutals with substance. I expect to have made mistakes, and can often imagine a few when posting. I still submit because I believe the overall message, the dialogue with others can be more efficient than my own proof-reading, and I’m always open to reevaluate.

I’m grateful of the ones who conduct themselves respectfully even in the face of unfairness, whether real, intended, or inadvertent.

[Sabreiib]

Let’s think creatively on how we could reduce those costs or what could be done differently why keeping liquidity provisioning decentralised.

What’s your opinion about my “Plan B” ? I believe it’s sustainable and decentralized.

[Phoenix]

I appreciate the tone of this conversation.

in any case regardless of this motion, as a flot nsr member i was reluctant to sell nsr. The reason is simple. I got all my nsr at 0.2c the unit back in 2014. jordan lee should not be surprised that people are reluctant to decreasing the value of their holding by fostering sales unless you have a short position. I was long. The error of Jordan was to ignore that flot members were all long.

I disagree that FLOT members being shareholders was a problem. More likely the problem was not understanding what dropping the peg would do to the NuShare price. It seemed like Jordan Lee talked about the tremendous hit NuShares would take in the event of compromised liquidity quite pointedly and repeatedly in the weeks before the peg was abandoned.

Whatever FLOT members thought about how dropping the peg would impact the NuShare price a year ago, can we all agree this portion of the system is architected with proper incentives that only require accurate perception of self interest? The system was designed to punish NuShare holders for poor liquidity and reward them for excellent liquidity. Our experience provides ample evidence that is working just as designed. The problem is FLOT members didn’t seem to understand this cornerstone of the design. They thought they could cheat NuBit holders and be alright themselves as NuShare holders. We have learned this last year that isn’t the case. If shareholders try to cheat NuBit holders in any way, the resulting hit on the NuShare price will be much worse than the expense of paying the pegged price to NuBit holders.

So, while the architecture doesn’t guarantee the peg will be kept, it does guarantee that NuShare holders cannot gain financially from abandoning the peg. Do we have agreement on this point?

[Cybnate]

The system was designed to punish NuShare holders for poor liquidity and reward them for excellent liquidity.

The punishment was not timely enough and after the peg broke. Apparently the threat of it was not strong enough or not recognised. Either way something has to change in either simplifying the model with direct feedback incentives instead of way after the fact or by training the people who need to operate it.

The problem is FLOT members didn’t seem to understand this cornerstone of the design.

If so, the question is why? I don’t believe they were all dumb people. Something else we overlook must have been at play. Possibly seeing a doom scenario unfold and clutching at straws while the ship was sinking? Some group thinking possibly in combination with a lack of time/attention. I’m kind of guessing based on what I saw happening from the outside. I still stick with the (irrational) fear of their (and other NuShareholders) investments being hurt by selling NuShares fast and swiftly. The consequence of pulling that trigger can cause hesitating and division with untrained and unprepared people. Going with my black hat some might have also tried to beat the market so they could sell their NSR themselves before selling on behalf of Nu knowing the price would go down fast. Whether that happened is of less importance, it is important to address these false incentives in the operating model going forward.

it does guarantee that NuShare holders cannot gain financially from abandoning the peg. Do we have agreement on this point?

That makes sense, but we still have a problem to solve/address…

the architecture doesn’t guarantee the peg will be kept,

I agree that this can never be achieved for 100%, as there will be many external factors and attack vectors we can’t barely think off, but we should start by addressing the most obvious ones and those which can be fixed at relatively low cost.

[cryptog]

it does guarantee that NuShare holders cannot gain financially from abandoning the peg.

agreed.
however asking shareholders to defend the peg by selling shares invites obviously many opportunities for insider trading. well it s the crypto world: we cannot prevent that from happening.

so far selling shares for liquidity provision has been proved to work; i cannot deny that.

we need now to create a need for liquidity if we want nushares to go up.

[Dhume]

Conveniently left out of this whole timeline is the methodology by which FLOT was supposed to sell all this NSR. At the time there was no precedent set by either shareholders or Jordan on how to actually conduct such an emergency NSR sale. Also at the time there were between 10-15 BTC on the total buy side on Poloniex. In order to get even 5 BTC we’d already be forced to crash NSR price by over 50%.

It’s very easy to “claim” NSR sales is a viable mechanism when you have months upon months to slowly sell them to the market. If there was a way in which FLOT could have sold enough NSR in a short enough timeframe to prevent the peg from collapsing we’d have done so without a doubt. Unfortunately there was no method available as there was and is next to no demand for NSR.

[jooize]

I haven’t intentionally excluded anything relevant, but I have no doubt picked with bias when I browsed for data points. I planned to have more in the timeline before publishing, but as I began replying in “Actively Maintained Data Feeds” the other content I’d written came together in form of “Possibility and implications of a majority shareholder” and “Cause of the peg break 2016” so I posted them all.

At the time there was no precedent set by either shareholders or Jordan on how to actually conduct such an emergency NSR sale.

Agreed. I’ve addressed that.

Actively Maintained Data Feeds

Actively Maintained Data Feeds

FLOT failed to sustain the peg with Tier 6.

Explain to me how FLOT could have raised 50-100k in a few days with less than 15 BTC on the buyside on Poloniex. Don’t confuse the slow selling of small amounts of NSR over a period of months if not years with the ability to generate large amount of funds in a short interval. We needed to raise at least 50-100k USD in a matter of days to prevent the peg from collapsing which was impossible. Trying to claim that the current method of selling a few hundred bucks a day for months on end is proof that tier 6 works in an emergency situation is absolute nonsense.

Also at the time there were between 10-15 BTC on the total buy side on Poloniex. In order to get even 5 BTC we’d already be forced to crash NSR price by over 50%.

Do you remember when? The day FLOT placed NuShares on Poloniex (2016–05–28), @mhps saw at least 21 BTC on the buy side.

The day @JordanLee held 59.8 BTC (2016–03–19), he said that after park rates have been offered for 30 consecutive days (without satisfactory results I assume), NuShares must be sold. I’d like to see the motion for this. Could NuShares be sold anyway?

About 30 days later (2016–04–18), @masterOfDisaster begins talks of NuShare sales. At that time Tier 1–4 contained 82 BTC, then 2016–05–05 @JordanLee holds 126.04 BTC. Can someone explain how his holdings increased by the way?

NuShares were put on the market at Poloniex 40 days after NuShare sales were mandated according to a supposed motion I don’t have, and 70 days after @JordanLee had stated that NuShares will likely have to be sold soon.

The reserves may have been too low at 15% to handle realistic sell-offs regardless of panic using Tier 6. A problem could have been lack of NuShare buy support. Was that a problem and reason not to sell any NuShares for 40 days?

Was it idiotic (or malicious) timing by @JordanLee posting the firing motion? He did that four days after @masterOfDisaster announced the proceeds of the NuShare sales had been placed at … 180% spread! I paraphrased to “20% spread” in the timeline thinking 10% offset.

Again, I probably wouldn’t have done better, but FLOT was incompetent.

---

Is there any software to work with timelines?

[ConfusedObserver]

FLOT was incompetent

From a more distant point of view it looks like FLOT did remarkably good in an environment that didn’t have regulations for extreme situations.
I know there have been attempts to create feedback loops between the reserve ratio and NSR sales. But I don’t know about any attempt that was put in a motion that passed.

You blame FLOT for a design that’s flawed, that relies on selling shares in times of trouble where no sane person would pay high prices.
Waiting until the price has bottomed out and until the prospect of the corp is more clear is the rational choice.

The problem was homemade and started with the NSR buybacks and the thinking that in times of need NSR could be sold without massive discount.
NSR can’t be a reliable store of value.
If Nu had followed the design and focussed on NBT/USD, where custodians get paid for providing liquidity with own funds, all trouble would never have existed.
It would have worked with NBT/BTC as well as long as liquidity providers had served the market with own funds instead of Nu funds.

Alas, that hadn’t brought BTC under control of Nu, which then could be used for dividends and NSR buybacks.

The root cause for Nu’s failure was not an incompetent FLOT or a bank run.
It was the decision to provide liquidity with Nu funds, which allowed the abuse of the proceeds from sold NBT.
Who proposed providing liquidity with Nu funds?

[DavidMc0]

You blame FLOT for a design that’s flawed, that relies on selling shares in times of trouble where no sane person would pay high prices.

The model doesn’t require sane people to pay high prices - it requires enough people to pay enough to provide liquidity until the situation improves. Those who took the risk at that stage would be richly rewarded if the system made it through, and given BTC prices wouldn’t keep rising forever, there was a real chance this would work.

Can you be sure that it wouldn’t have worked?

It seems clear that by removing the ability for people to convert Nubits for an amount very close to $1, confidence was hit spectacularly. And so it should have been given this action undermined the product Nu is offering.

If Nushares were printed to the point of worthlessness & then the peg was lost, the model would have failed. But this was never tested due to the actions of FLOT.

If I had been in their position, I can’t say I would certainly have done any better. I agree that NSR buybacks were premature, and reserve ratios too low, but for now I can’t conclude that the model failed because the rug was pulled from under its feet ahead of the crunch that would have severely tested the model.

The make or break test for Nu was avoided by accidental self-destructive actions of FLOT.

In hindsight (and a non-thorough understanding of Nu, which is quite complex), that’s the way I currently see it.

[Phoenix]

Thank you for your thoughtful and accurate post @DavidMc0. I agree with what you have said.

[ConfusedObserver]

Can you be sure that it wouldn’t have worked?

Ikr, having proceeds from NSR sale of daily a few hundred bucks would have done the trick although tens or even hundreds of thousands USD have been needed within a short time.
But I get it. You want to believe.
That’s why you don’t wonder that @Phoenix doesn’t answer crucial questions and gets away with it. It looks like he inherited both from @JordanLee.
Dream on.

[DavidMc0]

But I get it. You want to believe.
That’s why you don’t wonder that @Phoenix doesn’t answer crucial questions and gets away with it. It looks like he inherited both from @JordanLee.
Dream on.

I only want to see things as they are. As I said, one possibility was that the system would have failed, but there are also alternative possibilities, and we didn’t get to find out which way it would have been had different actions been taken.

I have seen questions go ununswered. If there are important unanswered questions, perhaps these could be noted and re-asked in a thread? I can’t remember any critical ununswered questions other that what happened in the first recently reported theft of NSR (the second theft has been explained well, which is good).

Jooize is doing a great job at laying out important events and the order of them, and this is helping me clarify my view on events.

If you feel Jooize misrepresent what happened, please post quotes and notes to show your thoughts. If there is a good argument to contradict the story Jooize has put forward, it should be laid out (though I’m aware this would take time).

I don’t want to falsely believe in an unworkable system, but the evidence so far leads me to think that it could work, especially with higher reserves.

Of course weaknesses going forward should be addressed & improvements made, but I certainly see promise & the peg failure doesn’t prove the system to be unworkable due to explaining factors that seem to make sense. In my view the network’s recovery from that state and its strengthening foundations demonstrates real potential.

However, if there is good reason to suspect the model can’t work, I’m willing to listen & see if the issues can be overcome.

[ConfusedObserver]

I only want to see things as they are.

Feel free.

If there are important unanswered questions, perhaps these could be noted and re-asked in a thread? I can’t remember any critical ununswered questions other that what happened in the first recently reported theft of NSR

The questions reach far back, way beyond the first odd blackballing of addresses. I won’t dig here to find and list them, because I already know they won’t get answered.

I don’t want to falsely believe in an unworkable system, but the evidence so far leads me to think that it could work, especially with higher reserves.

There’s no revenue. Nu can only survive as long as NSR can get sold to pay for its efforts. Reserves play a role, but the missing revenue will break Nu’s neck.
Can you explain why Nu is no Ponzi scheme?

[cryptog]

There’s no revenue. Nu can only survive as long as NSR can get sold to pay for its efforts. Reserves play a role, but the missing revenue will break Nu’s neck.
Can you explain why Nu is no Ponzi scheme?

The same statement is valid for all cryptos, including bitcoin, no revenues and yet …

[ConfusedObserver]

You are comparing apples and oranges.
Bitcoin or other cryptos don’t claim to be a DAC. They don’t offer a product about which they purport it has a stable price.
Without revenue for Nu, NBT can only have a stable price as long as Nu can sell NSR. Reserves etc. are just a buffer prolonging the inevitable end.
That can only be changed with revenue. It’s pretty much economics 101.

If you want to compare Nu with Bitcoin, you have to scratch out NBT and only deal with NSR.

Again, why is Nu no Ponzi scheme, if it can only survive by selling NSR?