When designing a cryptoasset network consisting of shares and other assets backed by shares, there are two ways to do this: by pairing a specific asset with a specific share, or collectively, where all assets are backed by all shares in a fungible manner. The individual approach has the added construct that a particular asset (such as a dollar pegged unit of currency) is backed by specific collateral owned by a single shareholder. With the collective approach, all the assets created are collectively backed by the collateral in the shares, without direct pairing of specific assets and specific shares.
The most important difference between these two approaches is that the paired approach impairs the use of the capital by shareholders. This is because when an asset is created it is the property of a specific shareholder, not shareholders generally. Using the collective approach, when assets are created, at the moment they are created they become the property of an individual who may or may not be a shareholder. The important difference is the decision of who receives the assets is communal, shared by all minting shareholders. This facilitates investment in network infrastructure and services. In the paired approach, an individual shareholder creates the asset. If the new asset were used to develop network infrastructure, that specific shareholder would bear the entire cost while benefits of his investment would be shared by all shareholders. This is contrary to his economic interests, so it won’t be done. In contrast, using the collective approach, the costs and liabilities of infrastructure development using created assets is borne equally among all shareholders, just as changes in network value (as expressed in the market cap) are distributed equally among all shareholders.
So, the paired approach does not permit created assets to be invested in the network to increase its value, while collective approach easily permits this. In the collective approach, when assets are created and spent, it does not reduce collateral, so long as the market perceives that the spending adds value. If newly created assets were used to feed hungry children, that would presumably reduce the market cap because a network liability is being created without an offsetting increase in network value. However, if newly created assets are spent wisely and efficiently on core software development, such expenditures can add more to the market cap or collateral than they add to network liabilities. Even dividends, in reasonable amounts, may create more collateral (via increased share price) than the additional liabilities they create.
The approach to collateralizing assets in the Nu network is collective, permitting us to use newly created assets to fund initiatives that add value to the network.