Where Do Dividends & Network Revenue Come From?

NuShares
#23

This is an old thread. It asked a fundamental question that is of critical importance to Nu.

I have some thoughts on one of the possible ways to reliablly and fairly generate income to the Nu Network. The idea is to profit from the spread of buy and sell prices of the dual side liquidity provider operated by custodians, without adding undue burden to the Nu economy.

Analysis
After the initial period there will be many NBT/USD exchanges. Most of them do not have custodians involved. The recycle Nebits already in circulation. The Nu Network cannot practically get revenue from them. They offer competitive exchange rates of which the spread is determined by the market demand. When the market demand for NBT is high, the spread increases. Then people would pay at premium rate to buy NBT. This is the time when the Nu Network should inject new NBT into the market and generate income connected to NTB issuing. When the market demand is low, the spread is low, the Nu Network should not inject new NBT into the market, and does not deserve income connected to NTB issuing.

Execution
Injecting new NBT to the market according to market demand is very simple. It is automatically realized by setting the spread of the trading bots, operated by dual side liqiudity providers, a tad wider than market average. When the commercial third party exchanges can meet the demand, people don’t come to the bots. When Nu economy is expanding and more NBTs are needed, people will come to the trading bots to pay extra to get them. The Nu Network will collect the sell/buy spread, less exchange fee and custodian commisions, as Network revenue.

To simplify things I think setting the spread to +/-1% at the bot is good for a start. Since we are still in the initial period of Nu, we need Nubits to be widely used. We can set the liquid provider such way that there are 50,000 NBT (to be determined) availabe at +/-0.002% spread every day. If the quota runs out, the spread will be 1%. There can be more steps. The parameters can be fine tuned.

Outcome estimate and discussion
This revenue connected to NTB issuing is tied to the market cap of NuBits at >1% (sell ~1%, buy ~1%, multiplied by possibly many buy-sell cycles).

Note that due to the destroyed transaction fee, there is a natural demand to have new NBT created if Nu economy is active. This revenue scales to the size of GDP of Nu economy. If the dividends to the shareholders is only taken from this revenue, the interest of NBT users and that of the Nu shareholders are aligned.

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#24

Thank you for elaborating the idea to this level.
I was already trying to explain the beauty of using the spread (and the importance of a proper setting of that spread).

But with your words and detailed explanation I hope it is easier to understand the chance that lies within the idea of using the spread not only to have a buffer for misplaced walls!

#25

Thanks, MoD. Price spread attracts commercial exchanges that provide liquidity the Nu network needs but could have difficulty to provide (like now). Arbitrage trading bots are not entirely a bad thing – they narrow the floating band 7x24, paid by someone else.
We could widen the band in the initial period, forster the ecosystem, and tighten it according to market condition later so Nubits is still regarded as pegged.

#26

With the daily trading volume so big, how much has the bots made from the 0.2% buy-sell spread so far?

#27

The daily trading volume isn’t as large as CMC would make it seem.

Presuming everything stays stable with the latest version of the code, we should begin to be able to answer these types of questions.

#28

does a shareholder need to vote in order to receive dividents? then i guess no dividents have been sent out just yet?

#29

At the moment, a shareholder need not vote in order to receive dividends. None have been sent out at the moment, but right when you posted this we got an update on the status:

#30

when dividents are sent, then if you have your NUshares to an exchange, the exchange get the equivalent ppc? am i right?

#31

Correct. They must be in your wallet when they’re sent out. Also it depends on the date/time the custodian configured in their client. It looks at the distribution of NuShares from a specific time, so trying to send your shares back to your wallet at the last minute may be too late.

#32

thanks for the videos, much helpfull.
i wonder, if the supply and demand i see in my wallet are correct then shouldn’t we vote to increase
the parking rates?
buy: 141K
sell: 871K

#33

I want to go back to the spread discussion. Until we reach an agreement at design level, NuBot will have the spread as a dormant parameter .

Is thanks to comment like yours that we keep the discussion going. We reached a point where we need an official discussion thread about the bot spread which will then give origin hopefully to a motion (or motions) to vote on. There are many implications to analyse.

What do you think of this approach?

#34

while buy and sell liquidity represent an important parameter when evaluating interest rates, those cannot be the only variables taken into the judgement. Someone wiser will probably explain how to do that. Please visit the parking rate category to see where we are at.

#35

So there must be a mechanism in which the exchange created and allocated automatically a peercoin dividend address based on a given nushare address…Am i right?

#36

I think that is a good approach.

#37

It’s the only approach that makes sense to me.
The bot spread directly affects the revenue of the network.

If the spread is to high, NuBits’ adoption and trade is hindered, because a high spread disencourages trading. And as long as you can’t pay everywhere with NBT, sooner or later you have to trade them.

If the spread is too low, revenue gets lost.

The spread needs to be determined by those who have a stake in the Nu network.
So this needs a kind of vote.

#38

I agree, moD. Natural spread is an indicator of market demand. In the expansion period a tight spread helps adoption. It’s equivalent to subsidizing a compensation against natural spread. This subsidity should be considered an investment of the shareholders just like fund spent on PR and marketing. The effectiveness of this subsidity should be evaluated, perhaps periodically. The spread should be determined according to the result of evaluation.

#39

vote for a bot spread is good, another solution is let custodians compete each other.

If a custodian choose a very small spread, the probablity of his/her buy/sell wall trade is high, but profit is low,vice versa.

There will be a “equilibrium” spread where most custodians and users are happy, and that’s the free market determined spread at that time.

#40

when is the next dividend distribution?

#41

I suggest reading KTm’s latest proposal here.

#42

Tks for the pointer.