I would like to propose two simple guidelines for liquidity operations. They won’t express the totality of our policy toward open market operations, but they really do capture the essential elements of it. I mention it here before implementing it to give shareholders and others a chance to comment, with the understanding amendments to the guidelines may be made.
They are prefaced on the reserve equilibrium concept: that there is an optimal reserve level (50% at zero money supply and 25% at 2 million USD and above, with linear reductions as we move from zero to 2 million USD money supply). The guidelines govern how we move toward equilibrium. Here they are:
Move 1% toward reserve equilibrium each day. Let us suppose we are $45,000 below equilibrium. $450 in NuShares should then be sold each day and placed in tier 1 to tier 4 reserves. As we move closer to equilibrium, the open market operation decreases in size, as it should. The rule has symmetry regarding buybacks and sales. If we were $45,000 above equilibrium, then $450 in NuShares would be purchased (for burning) each day.
Immediate NSR sales to meet a minimum reserve of 20% of reserve equilibrium. At last count, equilibrium reserve was $70,579. This means if our total T1 and T4 reserves do not equal or exceed $14,116 (20% of the equilibrium reserve figure), NSR should be immediately sold on the open market to restore the minimum reserve.
Where does the data come from? Have you deduced this conclusion in a scientific way?
What about “70% at zero money supply and 35% at 2 million USD and above”? Why should nushare holders accept “50->25%” criterion rather than “70->35%”?
Partial reserve is feasible only when you can invest the money into a profitable business and can help the peg with the revenue from business. Otherwise, the system is a ponzi.
If you don’t change your mind, then continue to do such an experiment which is doomed to be failed. The total truth is that many foolish investors including myself believed in you and invested into these projects.
The regulations on reserve level have been set directly by shareholder motion. I don’t have the discretion to the change the figures. However, I did author the passed motion on reserves. The numbers are based on what history has demonstrated we need. Too many reserves, and we have too much money out of the hands of shareholders, which can be very dangerous as we have seen recently. However well mitigated, there is always a chance shareholders will lose control of any value not stored in the NuShare market cap. Too low and we can’t respond quickly enough to large sales of NuBits. Where we have kept the peg for three months straight starting with zero reserve and while having very little reserve the entire time, it has become clear very little reserve is needed if liquidity operations are managed well. However, reserves can give us an extra margin of safety in the event of large and sudden sales of NuBits from customers.
I agree with you that Nushare market cap can “store” money/value for nushareholders, but disagree on “how”.
Your solution: take value form NBT reserve to NSR via nushare official buyback; and reverse the value flow via selling NSR and reinforce the NBT reserve.
One big problem of this solution is NSR’s volatility, the fact of recent months has demonstrated that we usually have to buyback at high NSR price level and sell NSR at very low price. Losing money mecahnism for Nu! Those NSR sellers at official buyback get rich, and those loyal NSR holders get poor/diluted. When Nu need to sell NSR to help peg, it means Nu need money, and usually peg in danger, in this situation Nu need to sell NSR, this will ruin NSR’s price, have you heared of The Matthew effect?
For unto every one that hath shall be given, and he shall have abundance: but from him that hath not shall be taken even that which he hath.
— Matthew 25:29, King James Version.
If you cannot remove this flaw, Nu has no future.
Psychology involved heavily in share price, you need to build up a mechanism that encourage people to hoard NSR, cherish NSR rather than panic selling on official buyback.
Look at the success of bitcoin, the PoW mechamism makes people cherish BTC.
Our NSR<->NBT dual direction value transafer will be feasible only when NSR price is relative stable, . I.e. We can withdraw roughly same amount of value from NSR as we transfered from NBT before, and put back into NBT peg defend.
" The law of conservation of energy " is our goal while right now we suffer a lot from the inbalance/serious leakage: we spend 500+ BTC to NSR buyback but can only collect much fewer BTC via NSR selling even the volatility of BTC price is considered.
According to almost two years operation of Nu, and market capital of NSR is almost always higher than NBT in circulation.
In 2014, Jordan said the NBT’s flexible mechanism is that: we can issue as many NBT as we wish, and don’t worry about the guaranty market capital insuffient just like Bitshares’ bitUSD.
The fact has proved that free market dislikes such wishful flexible mechanism. A DAO issues much more currency than its share market cap is ridiculous just like a government issues much more paper money out of its control.
So my suggestion is "Pack NSR to borrow NBT and provide liquidity." In this way, the reserve is still in Nushareholders hand’s even at 100% reserve ratio because any NBT theft can be compensated by NSR (as guaranty) confiscation. At first glance, this mechanism is like Bitshare’s, but it isn’t totally indentical.
It will always be the case that NSR buybacks will tend to be performed at a higher price than NSR sales. That is an expense for Nu, but it certainly isn’t wasted money. This feature (and it is just that) buys us something important that is the essence of the strength of our pegs: NSR liquidity. We have seen very clearly in recent months that NSR liquidity is the most important factor in peg strength.
The vast majority of the recent drop in NSR price is due to the illegal and destructive Augeas default, as opposed to normal cyclical recessions in NuBit demand that are a part of our model. As a result, the difference in price between recent NSR sales and the most recent NSR is much larger than our model calls for. We want the spread between NSR buybacks and NSR sales to be as small as possible. My expectation and understanding of the model is that with each cycle, the spread between NSR buyback prices and NSR sale prices will tend to collapse as more investors become aware there is an opportunity that looks a little like arbitrage to be exploited here. We want investors to exploit this: that is our NSR liquidity.
The goal as an NSR investor is to buy at the low price at the depth of a recession and sell at the height of an expansion. No one knows what those points are in real time, and this fact creates NSR buy pressure when we are in recession and NSR sell pressure when we are in expansion. It is an important part of our design. And it is working. Some weeks ago I publicly examined the historical liquidity of NSR. I had concluded that while daily NSR liquidity had been about 0.1% of the market cap of NuShares prior to my time as Chief of Liquidity Operations, daily NSR liquidity was at the time of my analysis about 3% of the NSR market cap each day. That is a 30 fold increase in NSR liquidity that resulted from my proper application of our liquidity model! The model is working: it is gathering NSR liquidity in defence of the peg.
Let’s continue with the model that has brought us success. By doing so, I expect we will see enhanced NSR liquidity as the spread between NSR buybacks and sales collapses.
Now I understand your model. With this model we try to maintain two cryptos (NBT & NSR) both at high liquidity and relative stable price at same time. And this mechanism demands most NSR holders act like well trained army to fight in a serious rule: sell a portion of their NSR when NSR buyback, and buy NSR back when selling NSR to help NBT peg. Any shareholder disobeys this rule will be punished: diluted heavily or losing money .
This model may work well, but the assumption is that most nushareholders must be united together, understand the game rule, act in good organization. So that the official NSR buyback will “give back” majority NBT pegging reserve(in BTC) to nushareholders, and nushareholders will spend the BTC to buy NSR when peg in danger. So the Nu ecosystem’s money can be safe(in nushareholders’ hands) and immune to theft.
The key is whether you(Jordan) can organize and train such an army or not.
Jordan failed to educate most nushareholders about the model mechanism. In original whitepaper, there is no such NBT-NSR transafer description. And even tomjoad disagreed with Jordan about the NSR selling after the crisis.Do most nushareholders agree with this mechanism ?
And I guess most of them didn’t sell NSR when buyback occured in 2015, and many of them have no enough BTC to help NBT pegging. It means the 500+ BTC has flowed to many who won’t come back to Nu’s ecosystem. The probability of Nu’s recovery is uncertain.
To sum up, our shareholders were badly educated/trained, and the battle result is terrible due to Jordan’s bad leadship. In fact, most nushareholders are slaughtered in the financial battlefield.
The architect of Nu should review his model because this mechanism demand very highly to ordinary shareholders, perhaps impractical in real world. The time and facts will prove the model in future.
An interesting perspective, for sure. Furthering this line of thinking, if a FLOT or RSOT comprised of community members that are the most up-to-date and have demonstrated some technical and financial skill, “can’t be trusted”, what hope is there for any cryptocurrency to rely on the mass of shareholders to fulfill their duties?
I agree with the point that apathy is a major concern. (Revenue even more so, but we digress…)
Feeds were an interesting addition, and that solved for the voting portion of the shareholder responsibility, but a feed can’t direct a shareholder to buy some NSR using NBT.
The mechanism for providing NSR liquidity is much simpler than represented by @Sabreiib and @woodstockmerkle. All that is needed from NuShare holders is the motivation to buy low and sell high. It is that simple. We can rely on some NuShare holders doing this. Those who don’t buy low and sell high will be at a disadvantage, just like with any other financial instrument.
Not so simple, there is tragedy of the commons in it.
The tragedy of the commons is an economic theory of a situation within a shared-resource system where individual users acting independently according to their own self-interest behave contrary to the common good of all users by depleting that resource through their collective action.
People know When will Nu buyback/sell NSR and now many BTC to spend or collect. The buyback calculator and some websites tell them all the ongoing information.
Anyone strictly obey Jordan/Phoenix’s order, will find them in a disadvantage situation because they act “too early” during buyback/selling period. Some nushareholders may think in this way,“Why not wait for a while, so that I can sell my NSR at higher price or buy NSR at even lower price.”
For myself, I am considering 1000$ to buy NSR now, because I know Nu will pump the NSR price after collecting enough BTC via NSR selling, but I know you are still lack of 50,000$ value BTC to gather, I can wait , and you have to continue to sell NSR at even lower price because you must accomplish your mission at any cost.
Those NSR buyers since July may regret that they buy too early, that’s the problem. Therefore the price gap between the NSR buyback and selling are usually as big as several times. In this way, the NSR<->NBT transfer model has serious flaw: you demand most nushareholders are altruistic and honest to strictly obey your order, but the real world is cold and selfish.
There is no tragedy of the commons because there are no commons. Every NuShare has a single owner who may indulge their own self interest. When NuShare owners indulge their own self interest it serves the needs of the network, for instance, by providing liquidity merely out of a desire to buy low and sell high.
You mention you are waiting to purchase NuShares because you think there will be a better time (just before we reach equilibrium reserve). Unfortunately, the calculation isn’t that simple. There are many factors, most of which are at least partially unknowable to individual market participants. When the minimum reserve is breached (currently a little over $14,000), that is when most NSR sales occur. Market participants don’t know in advance when this will occur. All it takes is one person selling NuBits in sufficient quantity to make it happen. Right now, if anyone sold 4,000 US-NBT, the minimum reserve would be breached and some NSR sales would occur immediately. Due to the requirement to meet the minimum reserve there has been a very high rate of NSR sales in recent months. I don’t have figures calculated, but it has probably been more than 500 million NSR sold in each month the last couple of months. If the minimum reserve is not breached and NSR prices remain below 70 satoshi, there will only be around 70 or 80 million NSR sold in the next month, at most. Perhaps @jooize can clarify when the minimum reserve was last breached, but I think it has been a week or two. This dramatically slows the rate of NSR sales, which, all other things being equal, will raise the NSR price. Of course, all other things will not be equal. A large buyer or a large seller may enter the market. So, there is a great deal of uncertainty about the best time to buy or sell NuShares, causing market participants to buy and sell NSR at a wide variety of times, which provides us with constant liquidity.
As I explained in this post to some degree, this is entirely false. No altruism is required. No obedience from shareholders is required. All that is required of shareholders in respect to their NSR purchases and sales is that they be motivated to buy low and sell high. We can count on that being case in at least a large number of cases, which is good enough.
I think the commons is NBT peg reserve(in BTC), you dislike 100% reserve because it’s prone to exchange theft, multi signatures team failure, etc, so you want to give 75-50% reserve to shareholders via NSR buyback.
I remember that in 2015 buyback we pumped NSR price to 4-5 times higher and cost Nu 's commons 500+ BTC, during this a period, those high price NSR sellers made a"tragedy of the commons" true because they consumed our commons-- reserve in BTC. If they come back today to buy NSR, they will earn a lot, and harm the majority of shareholders. Of course, if in 2015 all nushareholdes sold same apportion of NSR of their own, there will be no victims, but that’s not true.
Even worse thing is that those 500+BTC receivers will not come back at all, they flee from the Nu’s ecosystem, because they don’t think Nu is an sustainable/profitable model, I hope this not happen. All we can do is just hope/wish/beg, we’ve lost the initiative.
One thing I worry is during buyback the NSR price climbing to several times high and during selling period the price plumbs to 1/10. If the gap is so huge, the transfer model of NBT<->NSR is impractical. You need to find solution to eliminate this gap. During NSR buyback/selling, the traders don’t know when you finish it, don’t know what’s the highest/lowest price will be. But you have put our cards on the table: you will spend 500+ BTC to buyback, and you must do it. Counterparty risk is quite high, and they have good chances to sell NSR higher.
Distribution has always been opaque in Nu, starting from a whitepaper that barely mentioned it and spent most of its time talking about the barely used park rates. Hoping that the market ‘buys low and sells high’ is the exact same mechanism by which btc is supposed to rid itself of volatility, and we all know that’s not happening even with a known distribution method. With an unknown distribution and insider trading running amock, Nu is a hotbed for volatility. Buying low and selling high in Nu is far harder than in btc or even a hyper volatile penny stock. Nu may be one of the most volatile organizations ever created, in what way is predicting such volatility a ‘simple’ task?
This method of share distribution will not result in a knowledgable share base. It wont even result in a share base of opportunists. It will simply result in a base comprised of those that have insider knowledge and those that were lucky.
That is an explanation of how a perpetual motion machine would work. Jordan/Phoenix may be a great craftsman who knows the cogs of market dynamics but his refusal to recognize the law of conservation of energy, the need of revenue, in order to sustain the system, will lead to an eventual collaps.
Phoenix treats Nu as a gambling house, people come here to gamble, some people earn other people’s money. In this money liquidity, a stable currency is hoped to be maintained.
No, this world is never lack of gamblers, if they continuously put money in this gambling house, everything is ok. But who can assure gamblers will always come here?