USD walls only?

[Nagalim]

We have ALPs running on fiat currency pools and we have NuSafe hedging T4 reserves into USD. The only thing we don’t have is a gateway mechanism for fiat. And if you think about it, that’s for very good reason - legality. You mention tether, but have you tried using tether? Every actor needs to be completely known and verified. And finally, BitUSD is a scam where we’d lose 10% immediately upon purchase.

[jgeewax]

We have ALPs running on fiat currency pools and we have NuSafe hedging T4 reserves into USD.

OK – but we also still have BTC/US-NBT walls right? I suppose I’m suggesting two things:

1. Make sure we have USD/US-NBT walls (sounds like that’s all set !)
2. Get rid of the BTC/US-NBT walls (for reasons above)

Not sure if #2 is reasonable…

[Nagalim]

Im pretty sure you’re asking about gateways. Depositing btc to an exchange from multisig is easy. Transferring usd in a decentralized way, not so much.

If you arent asking about gateways, well we’re already doing 1 and we dont do 2 because it would be bad from a network effect perspective (we’d lose momentum). Also, T4>6 uses btc to buy nsr. And good luck buying ppc with usd without a legally dubious wire transfer to btc-e.

[mhps]

US-NBT wouldn’t be used for hedging (USD would)

Not sure this would be the case. NBT is more liquid among exchanges than USD. There is a ~2% fee to move USD and it takes hours even days to transfer it. The lower friction of moving NBT will make BTC/NBT price more uniform among exchanges. (Compare it with BTC/USD which can vary by 10% among exchanges.) So it seems that people would choose NBT to hedge BTC volatility over USD, given the option.

[Nagalim]

If we’re talking ALP, we should just talk about how much money we want to spend on each pair. Each pairing should be analyzed independently, i.e. polo btc/nbt is just as different from bittrex btc/nbt as it is ccedk eur/nbt. Then, pick a level of funding and we get what we get.

For example, i am paying 10 nbt/day for my cny pool and 4 nbt/day for my btc pool. Then we simply look at key metrics like volume and provided liquidity and balance. If we like the performance (whatever we want that to be) we can increase the funding or vice versa.

[masterOfDisaster]

I very much appreciate your efforts to tackle one of the biggest risks Nu faces - depending so much on BTC (especially the price level).

This idea (evade BTC volatility risk) isn’t entirely new as the drawbacks of offering a hedging instrument have become clear quitre early:

Park Rate Voting

I'm glad to find a proponent for what I propose at every single place where it may apply! Brief version of how to reduce the risk posed by customers using NBT to hedge falling BTC prices. if BTC get dumped into the NBT/BTC proxy them to a BTC/fiat pair. One of the more detailed posts is this:

Strangely - so far there hasn’t been much interest in it.
NuSafe is the only contracted provider offering a reserve in USD.
MLP could do the same, albeit in different way:

[Nu Lagoon] The Nu Lagoon is supportting Bitcoin.co.id now | NAV: 1.062 @ 14 May

Does NuLagoon plan to support CCEDK? I can think of using CCEDK's commission free trading plan to provide liquidity in non-fiat trading pairs with zero hedging risk by proxying the non-fiat pairs to USD - at a flat fee of 99 NBT per year. This approach might be worthwhile for a concept like NuLagoon, which operates with the users funds, but isn't compatible with the TLLP concept as far as I understand it. By proxying I mean: NuLagoon offers BTC/NBT. In case of dwindling BTC prices, trad…

The paradigm shift might pave the road for a more focussed liquidity provision scheme, in which focussing on USD trading pairs for US-NBT could be accomplished as well.

By maintaining only small order sizes (with Nu funds) at an offset of above 1%, Nu evades the hedging risk partially.
Smaller offsets will be covered by ALP, which receive a compensation from Nu for taking the main hedging risk.
So Nu still has to pay a price for that hedging instrument, but only in a limited way compared to now.

[jgeewax]

To clarify further, I’m not suggesting a push to remove BTC/US-NBT pairings on exchanges. I’m suggesting that our automated buying and selling bots on these exchanges would only operate via USD… Not sure if that came through - if so, sorry for being dense…

For example, on exchanges like Poloniex, a bot technically wouldn’t be maintaining a 1 USD = 1 NBT peg… but a 1 USD = N BTC = 1 NBT peg… And with BTC going up and down a bunch in the middle, that sounds like a bad way to establish a 1:1 USD:US-NBT ratio…

So it seems that people would choose NBT to hedge BTC volatility over USD, given the option.

Yea… of course… but I think this is the problem…

Did we intend NBT to be “the thing people use when they want to avoid BTC volatility” ? And then go back to BTC when things calm down?

In other words, are we willing to say “we’ll take your BTC anytime you want to give it to us, and deal with the ups and downs of that, and we’ll also make sure that what we gave to you is always going to be 1 USD” ?

I thought our goal was to make a currency that was good for buying stuff and “saving” money – avoiding stock-market-like volatility (that’s NSR…), not absorbing BTC volatility for people when things get rocky…?

Happy to call this “[Silly]” and move along, just want to make sure I understand…

[Nagalim]

What im trying to say is that 0 is infinitely far away from 1 nbt/day when considering pool support. Instead of dropping to 0, could shareholders afford 10 cents/day? Then it’s really just about the cost of the operator, which tends to not only be cheap but also be an investment in trustable humans. Dropping support to 0 just seems like we’d be shooting ourselves in the foot for very little gain. Try dropping support by an order of magnitude or two, instead of infinite orders of magnitude.

[masterOfDisaster]

I think I got that.
Did you read the references that dealt with “proxying BTC to USD”?
The main problem I see (apart from the technical implementation): if you trade received BTC to USD, you

• have to leave the USD on exchange, if you want to have them ready
• have to pay the fee for converting BTC to USD and vice versa

Instead of leaving the USD at the exchange account, you could withdraw them (the risk of an operator going rogue is always there when having operators dealing with Nu funds).
But I bet this can lead to some confusion regarding tax.

So for the T1-T2 liquidity this could be a solution.
T1-T2 deal only with a limited part of the reserve.
The higher tiers require a more complex solution.

[Mark]

If I understand you correctly your proposal is to modify TLLP bot to something like this:

[NuPool] Announcing: Trustless liquidity pool operation “NuPool” on Bittrex.com has started

@creon, is it possible to implement BTC hedging with slightly modified version of @Hyena idea: Options to configure on client side: btchedging:true/false, default:false btcsell_limitorder:true/false, default:false (market order) btcbuy_limitorder:true/false, default:false (market order) === Example, if you choose this options: btchedging:true btcsell_limitorder:false btcbuy_limitorder:false The custodian must open an account in exchange with a high liquidity, like Bitstamp for exam…

[mhps]

Strangely - so far there hasn’t been much interest in it.

I think the reason is that T4 buyback reserve has 118k NBT on the buy side and liquidity cost is 10k, so at current rate Nu seems to be able to afford to go on for another year, ignoring the value in NSR. Most shareholders have the illusion that the problem is far in the future.

But the problem actually can be felt starting this week as the buyback fund has run out of surplus for the first time ever. From now on if BTC price is stable, every NBT printed to pay for liquidity will push buyback fund to more negative, eventually triggering park rate, followed by share dilution. The resereve-erosion rate due to liquidity ops will be $1,500 a month.

[masterOfDisaster]

The solution is simple:
Paradigm shift now!
Focus on US-NBT/NBT!

[Nagalim]

The solution must be to reduce costs or increase demand. If we reduce costs, we have to do it on some pool. We spend 500/month on bter, 1.5k on ccedk, 5k on the tube (for god knows what reason), 1.5k nupool, 500 gateways. It seems obvious to me that we should be focusing on reducing the costs for NuLagoon and ccedk.

[zoro]

5k on the tube (for god knows what reason)

what do you think about this reason?

[Passed] The Nu Lagoon Custodian Fee Request of Mar 2016

Now, consider the below self-destructive scenario for NU: (something i don’t want to believe)“NSR holders investing heavily in NU lagoon’s pools and then they are willing to vote for any “high” fee in orderto protect their profits. Without any insurance that their money (investment) are indeed used to add value in NU.”

[Nagalim]

Yah, i basically think we should just cut nulagoon in half and see what happens. Unfortunately, i think we’ll get an ultimatum of all or nothing from @henry. However, i simply dont think liquidity is worth 10k/month anymore now thay we have a working gateway/T4 system. Nupool took a cut, nupond took a cut, only pools left are liquidbits and nulagoon, neither of which have cut substantially in 6 months.

[masterOfDisaster]

If the “paradigm shift” continues, all ALP and MLP will have to face cuts…
I suppose, those who provide an important service (fiat trading pairs, NuLagoon Tube) will be spared to some degree.

[Nagalim]

Tube doesn’t need 40k total. Cut it in half, 10k per side is plenty.

[cryptog]

As you can see here, the vision of jordan lee is to have a nubits whose liquidity is superior than bitcoin for trading any crypto asset including bitcoin.

So it seems inevitable to be exposed to hedgers’ play.

If the “paradigm shift” continues, all ALP and MLP will have to face cuts…

The problem with “paradigm shift” is that it reduces drastically the liquidity which seems to be incompatible with the original goal but looks like a good band-aid solution that lets Nu try to create a lot of demand for NuBits.

As pointed here by nagalim, [quote=“Nagalim, post:14, topic:3698”]
The solution must be to reduce costs or increase demand.
[/quote]

I think that ultimately we need to increase drastically the demand for NuBits, so that the costs (for liquidity operations) is much lower than revenues.

We might need to increase rates or even dilute nushares, but if it creates a long-standing demand for NuBits, it makes sense.

[masterOfDisaster]

Nu can’t increase demand by will, but can reduce costs.
Nu won’t survive for very long, if the (liquidity) costs can’t be reduced significantly.

Not performing the paradigm shift endangers Nu and can lead to its bancruptcy.

After the paradigm shift less money will be lost by offering a convenient BTC hedging tool.
There are then still tens of thousands of USD value in NBT and BTC availabe, just no longer anywhere both of it (at some exchanges Nu will be offering NBT only) and no longer tens of thousands of USD value at a small spread.

Don’t be dazzled by the big trading volume that comes from a big liquidity at a small spread!
This is not the business Nu is needing.
That only makes traders rich at the expense of Nu.
This has nothing to do with the payment system Nu was designed for.

[zoro]

I would like a comment (or more) how NU Lagoon can fit into the above scheme. Not as it is right now, i guess.
Only me and Nagalim are expressing our concerns about NU Lagoon recently!

Edit: Moreover, i would be very pleased and feel much more secure about NU if the “active” people here
that “drive” in some way the NU give us some clues about their speciality area (economics,software,management,etc)