Continuing the discussion from [Passed] T4 Circulating NBT Threshold:
T4 buy side needs to be kept above a minimum USD value to ensure the quality of Nu products, to keep the peg. Starting NSR sale to support the peg only after T4 buy side funds are completely depleted, is an option, but a bad choice, because it pushes the price of NSR down harder than selling smaller amounts of NSR earlier (but not too early). Pushing the NSR price down by selling NSR creates a negative feedback loop. This can be avoided to some degree.
It’s good to see that the USD value of T4 buy side has been tied to the value of circulating NBT (or even more general: circulating Nu products).
Motion b1ef96aed5c7f9dec482467b254b40c82bf66d23 defines an upper limit for T4 buy side. If this limit is surpassed, funds can be used for other things (e.g. NSR buybacks).
But what about a lower limit of T4 buy side funds? Shouldn’t something happen if the funds are below a certain threshold?
The T4 buy side funds are required as buffer to fill the (T1-T3) buy side with BTC of the side starts to run dry, to remove NBT or other Nu products (like CN-NBT, EU-NBT, X-NBT; below only called nubits) from the market, if demand for nubits is less than supply.
With a dwindling T4 buy side the danger for the peg is increasing.
The T4 buy side value can be reduced by
- funds being consumed to support the peg
In both cases Nu should consider propping up the funds.
If NSR are only sold after the T4 buy side funds are depleted this has several disadvantages:
- the T4 buy side funds will be managed transparently (known FLOT multisig addresses). The status as well as the trend can be read from the value of the UTXO. This can be used to game the sale of NSR (selling NSR before T4 funds are depleted, buy back NSR from the sale cheaply) to the disadvantage of Nu
- trying to sell a big amount of NSR in a short period of time has a bigger effect on the market value of NSR than selling a smaller amount. NSR sale after all T4 funds are depleted makes Nu look in a worse situation than by selling NSR to support the peg if there are still T4 funds left. So NSR price is affected negatively from
- NSR holders trying to game the situation (holders selling NSR before the NSR sale by Nu and buying back NSR cheaper)
- trying to sell NSR in a market of unknown depth
- having no T4 buy side funds left, making Nu look desperate
Starting NSR sale before T4 buy side funds are depleted might be a better option. Both T4 funds volatility and using the funds can reduce the T4 fund value. To save Nu from buying back NSR (T4 > 15%) today and selling NSR tomorrow (T4 < x%) x will be chosen to have some buffer before NSR sale starts.
And to make gaming it hard, a limit at which NSR sale SHOULD start and a lower limit at which it MUST start will be defined.
It seems to me that in the current situation and lacking experience, relying on the discretion of the FLOT is preferred to defining hard limits, thresholds which trigger actions.
What about this proposal (which only has one hard limit, but a lot of room for discretion):
Motion RIPEMD160 hash: 685bcc7211db2536734042c65d78d150348a3ec5
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‘Circulating Nubits’ and additional pegged network currencies that will also be backed by Tier 4 have been defined in motion b1ef96aed5c7f9dec482467b254b40c82bf66d23
The Tier 4 buy side reserve SHOULD be increased by selling NSR when the total value in USD of the currencies held in Tier 4 buy side falls below 10% of the circulating nubit supply.
The Tier 4 buy side reserve MUST be increased by selling NSR when the total value in USD of the currencies held in Tier 4 buy side falls below 5% of the circulating nubit supply.
The number of circulating nubits will be determined at the same time as the Tier 4 reserve percentage once a week. Percentages keep based on the number of circulating nubits until a new assessment occurs.
The average of the 12 hours before that point of time is being used for accounting.
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