[Voting] NuBit reserve policy

[Phoenix]

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Reserves are a source of risk. They may be lost, as @Benjamin pointed out, and cannot be used to reliably support a peg. In fact, Nu’s entire
reserve, though small at the time, became inaccessible to shareholders
at the end of May. Attempts to return it to shareholder control have
been unsuccessful to date (September 18th), after more than 3 months
have passed. This is a very good reason to avoid reliance on a reserve.
Furthermore, reserves are very costly and are not the most efficient
method of maintaining a peg.

Also important in the decision to lower reserve requirements is the proven effectiveness of NSR sales to raise new reserves in large amounts quickly. In the two months after I became Chief of Liquidity Operations, approximately $300,000 USD were raised from NSR sales created by shareholder custodial grants. This was done with a NuShare market capitalization of around $400,000. This is about 75% of the market cap in 60 days. While specific circumstances will always have a material impact on our ability to sell NuShares to raise new reserves, there is good reason to think that if our market capitalization were 100 million, 75 million in new reserves could be raised in 60 days. The powerful and well demonstrated capacity of NuShare sales to create new reserves dramatically reduces our need to maintain a reserve. Essentially, the NuShare market cap acts like a reserve in some respects. However, when we speak of reserve here, it should not be understood to refer to the NuShare market cap.

Furthermore, the US-NBT peg was restored from a starting point of just under $0.20 with absolutely zero use of reserves. This emperically proves we can accomplish the relatively difficult task of raising an asset price without using a reserve.

What is really needed is liquidity, not reserves. Reserves can be
used to create liquidity, but liquidity can be had without reserves.
Zero reserves are the destiny and goal of Nu. However, current tested
methods do not permit a reliable maintenance of liquidity without the
use of reserves. Over a period of years, I expect development to occur
that will facilitate the practice of zero reserve. Much of this is
expected to come from the escrow products that we can expect B&C
Exchange to provide.

Today, however, there is need of a reserve to ensure constant liquidity, or constant buy orders at 0.995, even in the presence of heavy selling pressure. The smaller the money supply, the greater the reserve percent should be. We had approximately 100,000 US-NBT likely sold by a single person on May 27th. To gracefully handle such events, the reserve percent needs to be larger if the money supply is low, such as 300,000. If the money supply is larger, like 10 million, such sales can be handled at a much lower reserve percent level. There is an economy of scale.

In keeping with these observations, reserve shall be 50% at zero
money supply and 25% at 2 million and greater. It should be blended
between zero and 2 million. This means at a money supply of 1,000,000,
the reserve requirement would be 37.5%.

This isn’t the final word on reserve requirements, but a further reduction from the above figures should be passed by motion.

[Cybnate]

Reserves are a source of risk.

And they are usually expensive to maintain due to mitigation of that risk.

Reserves can be used to create liquidity, but liquidity can be had without reserves.

Reserves are mitigation when running out of liquidity, e.g. by big NBT sells or exchange defaults.
Reserves in our world are liquidity off-exchange, currently not exposed to exchange default risk.
So this will still need to be held in multi-sig accounts to reduce the single point of failure risks.

In keeping with these observations, reserve shall be 50% at zero
money supply and 25% at 2 million and greater. It should be blended
between zero and 2 million. This means at a money supply of 1,000,000,
the reserve requirement would be 37.5%.

I think this is reasonable for USNBT. However an eye may need to be kept on the distribution of sold USNBT especially high sales in relative short amount of time could be tricky. And when there are a handful of people each buying 250k USNBT then I would hesitate to lower the reserves and maybe even consider holding a higher reserve temporarily. So it would be good to be somewhat flexible in holding reserves/additional liquidity while maintaining the minimum percentages you propose.

[Sabreiib]

We had approximately 100,000 US-NBT likely sold by a single person on May 27th.

What if that man wanted to sell 200,000 but found that the peg was broken so he stopped selling NBT? You like patial reserve, so would you start another NSR buyback to eliminate the extra reserve?

Most nushareholders get heavily diluted by extra NSR, and with very low price level I believe they are suffering great loss now. You are not volunteer, and will charge fee for being the Chief of Liquidity Operations, so I guess NSR holders will be diluted further.

IMO, we have not found a good model to build up a sustainable business.

[ConfusedObserver]

IMO, we have not found a good model to build up a sustainable business.

My assessment concurs with yours.
But that attitude isn’t wanted among those who say what to do. It’s regarded as pessimistic, although it’s just dealing with the facts.

Having restored the peg (at least for the moment) is getting hyped and the question how to make money is yet to be answered.
Spread trading is being treated like witch craft, although it’s in terms of revenue a low hanging fruit and can be implemented without changes in code and merely a change of business conduct.

I raise stern warnings for the upcoming sale of currency units:

• sell them with an uplift and only guarantee to buy them back at a pegged rate
• keep a high reserve stable in terms of the pegged currency (NSR obviously don’t fulfill this requirement)
• get rid of the centralization - if Phoenix dies holding the reserve (other ways of losing the reserve are possible as well…), Nu is dead

Failing to deal with these important points will disqualify Nu as sustainable, trustworthy, decentralized currency provider and reduce it to a ponzi scheme.

Nu will have a hard time to build a sustainable business with revenue, if it shies away from sale uplifts or spread trading, respectively.
The only source of revenue would be speculating with the currencies Nu received in exchange for NBT.
Don’t tell me that’s a sustainable, reliable business!
Tx fees won’t be a sufficient source of revenue anytime soon.
Think hard about spread trading or other sources of revenue or prepare to fail.
Lending - especially together with Blocks&Chains Exchange - should be on your radar. But that’s one for the future.
Off the cuff there’s no source of revenue that can be had instantly - or do I miss something obvious?

Do you realize how lending could profit from sales by Nu at an uplift?
It would provide an incentive for traders to lend them from Nu at a certain rate and sell them at an offset below Nu’s offset - if money can be made from it.
That would close the spread/offset, provide a source of revenue, etc.
Better keep ignoring me…

[Sabreiib]

Spread trading is being treated like witch craft, although it’s in terms of revenue a low hanging fruit and can be implemented without changes in code and merely a change of business conduct.

Spread trading seems not bad, and when I travelling aross different countries, I usually change some foreign money and the spread is there, very natural.

In real world, exchange dealers are very interesting, they earn their livings by spread trading, they are self sustainable liquidity provider.

The Nu’s dilemma is that if we pay for those LP with high reward as we did in last year, we are running out of money while share buying back in order to keep low reserve ratio makes situation even worse. Without revenue we are reversly speculating the BTC price; if we don’t pay decetralized LP or Phoenix, no one will serve.

The key problem is LP activity itself is not beneficial and we can solve this by spread trading and let many shareholders naturally become LPs.

[Phoenix]

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