Continuing the discussion from [Passed] Proposal to create a strategic reserve of NuBits:
This brings focus on another topic NSR holders need to discuss: what to do with the proceeds of sold NBT?
Paying operational costs as well as development comes into mind. I want to focus on something different, on distributing the net revenue, because operational costs and development are not strictly tied to selling NBT. Both should be ongoing processes, independent from recently sold NBT.
Here I want to focus on distributing and investing the proceeds.
I can imagine 3 ways in which the proceeds could be used for:
- dividend distribution
- filling/increasing tier 4 buy side
- NSR buybacks
Not only the interaction between the tiers needs to be defined - feedback loops between the tiers need to be created as well.
To put it simple:
if more NBT are in tier 1-3 (“in the wild”), more value needs to be in tier 4 and 6 as well. Tier 5 has been left out, because this is a tier which would not be used in times NBT are being distributed; NSR holders wouldn’t increase parking rate interest the same time loads of NBT get sold, right?
I’m aware that the white paper deals with dividend distribution (https://nubits.com/about/white-paper#overview):
Neither does the whitepaper say that network revenues must be distributed as dividends (not even if you subtract the operating expenses before), nor would it be wise to do that.
I’d argue that in case new NBT enter the market, the tier 4 buy side should to increased (feedback from increased tier 1-3).
Further I’d argue that a part of the net revenue (operating expenses already subtracted) should be used for NSR buybacks (feedback from increased tier 1-3).
The reasoning is simple:
if all revenue would be distributed as dividends it could lead to a situation in which the rational choice for NSR holders would be to leave the boat, let the peg fail and Nu perish instead of defending it.
the world gets crazy for NBT, the FSRT sells 4,000,000 NBT for BTC and distributes the value as PPC dividends. NSR holders are happy. One week later the world is annoyed by NBT (for whatever reason) and wants to sell a big part of the 4,000,000 NBT back to Nu.
Tier 4 buy side gets depleted, tier 6 reserve of NSR as well, NSR holders don’t care for defending the peg, because they have received dividends double the value of their NSR. And even if they care and let NSR grants pass, they have to create insane amounts of NSR and sell them. The NSR price will drop the more they (try to) sell. One reason is because of the immense sell pressure, another reason is the perception of Nu’s situation - who would buy NSR in such a situation?
It could be very well possible that (former) NSR holders dump their NSR and leave.
Admittedly this is an extreme scenario.
But it’s useful to see the benefit of considering an adjustment of tier 4 buy side and NSR buybacks.
I perceive Nu as being in the long run a stable crypto currency.
What can be done to improve Nu’s situation, to provide NSR holders with incentives to stay with Nu, defend the peg?
Regarding Tier 4
Tier 4 buy side carries a volatility as well as a default risk, because it holds BTC. Still the tier 4 buy side is what buffers falling demand for NBT in the first line.
The more NBT that are out, the bigger tier 4 buy side should be. A formula needs to be developed.
Regarding Tier 6
Using revenue to create NSR buybacks has an effect on the NSR price and hence on the value of Nu that should always be (far) above the value of the NBT that are in the wild.
Nu can hope for the NSR price to rise in case a lot of NBT get sold. This will happen, if people are aware that (at least a part of the) revenue will be used for dividend distribution.
One question will be important for that effect: what’s the point of time NSR need to be owned in order to get a dividend?
If the point of time (block height) is far enough in the future, people might want to buy NSR to get a dividend. This should make NSR very attractive.
The inherent risk is that this attractiveness has only a limited lifetime and they sell NSR right after they received the dividend.
But maybe they get interested in NSR and realize the future potential. The more NSR owners the better the distribution. I’d seriously consider that for the timing of the dividend distribution.
If Nu doesn’t want to rely on that mechanism, it can create NSR buy pressure by performing NSR buybacks. The buybacks increase the net value of Nu. This could be another mechanism to draw people’s attention to Nu.
Ideally Nu would try to buy back NSR before a dividend distribution gets announced - which would be great for marketing, but should increase the price.
With NSR buybacks being performed first the increased value of NSR should draw attention to Nu which possibly makes people aware of the dividend distribution - even better marketing than advertising dividend distribution!
I wrote this lengthy post, because it’s not only related to the FSRT, it’s important for the operation of Nu in general.
For example it’s important when Nu introduces new products and sells CH-NBT or EU-NBT.
The decision about what to do with proceeds from selling products is in the hands of NSR holders.
Depending on the outcome of that decision it will become clear, whether NSR holders want to be in the long run NSR holders or try to make advantage of a hit and run scenario.