[withdrawn] Capping the weekly NSR buyback to 5% above market

[woodstockmerkle]

The buybacks have been effective in raising NSR value and providing liquidity for some shareholders to exit the network .

Per the motion, the buyback has an upper-limit of 50% of the weekly price. Though this has not been hit yet.

There are reports that some people are “front-running” the buyback – buying up NSR then putting a sell wall. Perfectly executed, someone could make 50%+ return on the backs of the Nu shareholders.

Although any system can be gamed, it may be prudent for us to tweak the buyback rules, such that the goal of maximizing the amount of NSR burned is maximally fulfilled.

Two proposed changes:

1- cap the “buy up into the wall” for any given week to 5% above the market price from where the buyback started for that week. This will reduce the profit to arbitragers but still provide an opportunity for them to participate in the market. 5% per week increase is still a substantial gain when compounded 52 times.

2- to limit exchange default risk, cap the amount of BTC used in the buy-back to no more than, say, 20% of all of Nu’s BTC reserves.

@tomjoad has been providing a great service to the community in executing these buybacks, and his thoughts would be key.

Also it does seem like the buybacks could continue indefinitely, and with about 3 months’ experience it would be great to talk about the sustainability of this valuable operation.

Either way it has made for some very exciting Thursdays for me.

[zoro]

Will we have a big problem if some (or a lot) of the buyback BTCs become leftovers for the next week?
This could be an effect if we reduce the capping to 5%

[Nagalim]

There are reports that some people are “front-running” the buyback – buying up NSR then putting a sell wall. Perfectly executed, someone could make 50%+ return on the backs of the Nu shareholders.

I fundamentally disagree with this statement. To make a 50% return, you would need to buy back the NSR after you sell it at the higher price. As there is absolutely no guarentee anyone will sell after the weekly buyback (especially when they could be smart and just wait for the next week’s buyback) it is not possible to front run. Front running assumes inside knowledge other traders don’t have. That is not the case with buybacks as we announce them quite publicly.

Why is someone who buys this week a front-runner and someone who bought a month ago an investor? They’re both investors in my opinion.

[masterOfDisaster]

cap the “buy up into the wall” for any given week to 5% above the market price

Just a swift feedback: capping the buy wall price to a much lower threshold perfectly matches the goal to get Nu as many NSR as possible.
The inability to convert a big amount of BTC to NSR (at markets with little depth) has already become transparent. Capping the buy wall price to a lower threshold is a reasonable action.

I’m not going to join the discussion about gambling on NSR price trying to make a gain from the buybacks. I have insufficient experience with trading let alone experience with reading people’s minds.

to limit exchange default risk, cap the amount of BTC used in the buy-back to no more than, say, 20% of all of Nu’s BTC reserves

20% sounds like being too much - if BTC can’t be sold because of the 5% threshold, they should be calculated as T4 buy side funds for the next buyback round, but shouldn’t pile up at exchanges.

[MaVo]

There are reports that some people are “front-running” the buyback – buying up NSR then putting a sell wall. Perfectly executed, someone could make 50%+ return on the backs of the Nu shareholders.

Would you be willing to publicly demonstrate that one time? I am trying to purchase NSR at around 1550 sats for several days now. Couldn’t get one single NSR so far. I would also consider it risky to purchase up to 1850 sats on polo just in case you are in for the short term, because how can you know that nobody is going to place more sells at your max purchase price eating up the bitcoin for buybacks and leaving you with a nice bunch of valuable NSR?

[pennybreaker]

The only problem I see with the current buyback strategy is that moving the walls in increments of 10% is simply way too much. It should be closer to 2-5%. There’s simply no other financial asset markets in the world (which are taken seriously) that fluctuate to these extremes on a weekly basis. Yes, the primary goal of the buybacks is to buy and burn as many NSR as possible, but it should also be a goal of this community to bring rationality and stability to this market. Imagine a 2% strategy …

Monday, wall starts at 94% of market price.
Tuesday, 96%
Wdnesday, 98%
Thursday, 100%
Friday, 102%
Saturday, 104%

Sure, you would still have front running (which is not actually a problem … free market, get over it) but as the beginning price would be so much closer to market on Monday, you would see the gamers competing with each other much earlier in the week, rather than waiting until the last few days when price is closer to 100% of market. This would server to keep the markets more liquid throughout the entire week and it would also serve to significantly tighten the spread. These two things are what outsiders want to see before they get involved in trading a new crypto. Lastly, at the end of the week, when the walls are gone, you would stop seeing these sharp drop offs in price as people anticipate the next wall to be all the way down there at 70% of market price.

It is important that we focus on attempting to create this stability in the NSR market, now, because we’re going to need it when NSR grants and sells ever need to happen.

[Nagalim]

I can’t help but notice no one is talking about counterparty risk. If we fail to buyback a large portion of our T4 overflow this week, and next week, and the week after that… we end up with huge counterparty risk. The whole point of buybacks is to store our money in our shares, if we fail to buy back our allotted amount each week we are failing to function as intended.

[pennybreaker]

I can’t help but notice no one is talking about counterparty risk. If we fail to buyback a large portion of our T4 overflow this week, and next week, and the week after that… we end up with huge counterparty risk. The whole point of buybacks is to store our money in our shares, if we fail to buy back our allotted amount each week we are failing to function as intended.

I believe it would be very unlikely to be an issue with the change I suggested. As price would be very close to 100% of market for the entire week, there’s a very high likelihood that they would all be sold. There would also be more competition and panic buying due to the fear of missing out caused by tighter increments since it would be so much harder for the trader to perfectly place your sell orders. Honestly, I think we’d see them sold quicker under this strategy.

[desrever]

I agree with @pennybreaker, although I think we can’t go from Mondays @70% to mondays @ 96% all at once. That should be more as a final goal.

Arbitrage and bid/ask spread are sometimes larger than 10% , so the value of “last” doesn’t help much if used to compute the 96% of it.

I suggest we use more conservative number and run a pilot using @pennybreaker inputs

[pennybreaker]

Does this require motion, or can the NSR buyback account change as they see fit? How about just start by incrementing it down by 1% each week? So, the next round would use 9% increments rather than 10%.

[Nagalim]

This has to be done by motion (the buyback motion specifies the method). So, how many weeks would it have taken us to go from 10 microbtc to 20 microbtc if we were going with 5% max increase per week? Seems to me it would have taken close to half a year instead of the short month it actually took. That’s not acceptable from my point of view.

If we assume it takes a certain amount of btc to push the price, despite the time span over which it is used (a false assumption, but not super terrible) then we have to assume it would have taken 6 months to buy back as much as we’ve bought in the last month.

[pennybreaker]

I’m rather fond of the quick change, myself, but what we must ask ourselves is: When does that type of continued growth become “not acceptable” to the rest of the world with which we would like to have take us seriously? We’d like to be viewed as a serious financial assets. I realize that a lot of folks in the crypto space are accustomed to 6 months being a long time, but it’s just not in the real world of financial assets.

I’m simply promoting the idea that buyback wall prices should start and end much closer to market price. Was the NSR market undervalued and in need a boost? Probably. What I’m suggesting would actually allow for much more honest price discovery.

[Nagalim]

market price

What’s your definition of this that it doesn’t have a >10% daily volatility? Why even talk about 2% differences when there’s that kind of volatility?

When does that type of continued growth become “not acceptable” to the rest of the world

When traders start giving NSR volume. If the price just keeps rising, I really don’t care if the rest of the world thinks it’s ‘not acceptable’. If there is someone out there that thinks they can buy today and sell tomorrow or vice versa and make a buck, let them put their money where their mouth is and give our order books some depth.

[woodstockmerkle]

So, how many weeks would it have taken us to go from 10 microbtc to 20 microbtc if we were going with 5% max increase per week? Seems to me it would have taken close to half a year instead of the short month it actually took.

About 3.5 months. (1.05 ^ 14 = 1.97).

A 5% increase over 52 weeks compounds to an 1100% increase.

[Nagalim]

How about:

Mon: 85%
Tues: 90%
Wed: 95%
Thur: 100%
Fri: 110%

[pennybreaker]

What’s your definition of this that it doesn’t have a >10% daily volatility? Why even talk about 2% differences when there’s that kind of volatility?

When traders start giving NSR volume. If the price just keeps rising, I really don’t care if the rest of the world thinks it’s ‘not acceptable’. If there is someone out there that thinks they can buy today and sell tomorrow or vice versa and make a buck, let them put their money where their mouth is and give our order books some depth.

So I take it that you don’t agree that the primary goal of buybacks should be to acquire and burn as many NSR for as cheaply as possible?

Look, I don’t really understand the rest of what you’re saying nor do I have the time for the back and forth. 2% was just an example that I used. A 2% daily move happens to be a pretty big move in just about any traditional financial asset. Also, I think you failed to understand the spread tightening benefits that would come from a more aggressively fought over buy wall, which would also make NSR more attractive to traders and thus bring additional liquidity. This is something that absolutely must begin to develop if we’d ever like to be able to sell NSR without destroying the price and creating a pacific ocean of a spread. Just think about it.

[Nagalim]

the primary goal of buybacks should be to acquire and burn as many NSR for as cheaply as possible

Sure it is. You’re making the case that buybacks are about increasing market liquidity and looking like a traditional financial asset. I’m making the case that those things will happen either way and that the bigger factor is stuff like NBT adoption rather than what % we place the buy wall at.

a more aggressively fought over buy wall

I don’t think that just because you’re making smaller wall movements there’ll be a whole bunch of traders that come out of the woodwork. The walls are already fought over and we can use what we have seen so far to look to the future. We need to look at our history, where a 2% move is less than the normal spread, and not to other unrelated financial assets. By looking at our history, it seems to me that 5%/day with a 10% overbuy on friday would be very reasonable based on the way the market has reacted to our buybacks. This is a 2x decrease in the daily wall motion and a 5x decrease in the overbuy. You are proposing a 5x decrease in daily motion and a >10x decrease in the overbuy. I’m arguing for moderation, nothing else.

[dysconnect]

In principle I object to pushing up prices during buybacks, but when we’re not “gambling” with NSR price we’d be “gambling” with BTC price. When nobody sells NSR at 100% market price while BTC drops it’s a pure loss.

On the other hand, if we have a stable profit then it is not a bad thing that the buybacks push prices up to a price point where people are actually willing to sell, as that would be a fair price for NSR. But I am not sure that Nu is financially healthy enough to carry out buybacks that regularly.

[tomjoad]

Others who are more experienced in trading have made their thoughts known, and I’m sure the @NSRBuyback account will adhere to any motion specifying different repurchase price percentages during buyback weeks. My analysis is just from observation.

I will say that I suspect our analysis of trading patterns is biased, because we’ve mainly observed Thursday (market price) or Friday (market premium) sales. In the beginning we had a few sells at 80% and 90% market discounts, but those have largely disappeared with broader awareness of the buybacks.

This can likely be attributed to the fact that the share buyback pool is growing each week in USD value. If the buyback pool is growing each week, and only 10% of excess Tier 4 BTC are being used, most shareholders are gambling that higher prices will be available many weeks from now. It may feel like the network is not acquiring as many NSR for burning as would be expected when this is occurring.

However, consider what will likely happen if the buyback pool begins to decrease in size each week. Shareholders who want to guarantee their NSR are repurchased will begin selling at 90%, then 80%, and maybe even 70% of the share price if they think short-term peak NSR pricing has already been reached. Casual traders who gambled on the price of NSR continuing to climb may sell at a slight loss to prevent deeper losses. In this situation, the network will acquire more NSR than it expects.

The market’s expectation of the buyback pool size may be the strongest predictive factor of NSR pricing right now. So far we have gotten the benefit (higher public NSR price) at the cost of fewer shares, but we would receive a different benefit (more repurchased shares) at the cost of a lower public price if the market expectations of buyback pool size changed.

Relevant:

A firm will announce that it will repurchase some shares in the open market from time to time as market conditions dictate and maintains the option of deciding whether, when, and how much to repurchase. Open-market repurchases can span months or even years. […] Open-market stock repurchases which greatly add to the long-term demand for shares in the market are likely to affect prices as long as the repurchase operations continue.

If shareholders wanted a more stable price, there are solutions that could dampen the volatility. One option would be to introduce a greater time uncertainty factor to trading by scheduling buyback weeks only once per month, using perhaps 25% of all excess BTC in Tier 4 instead of 10%. This would eliminate the certainty speculators might feel in “knowing” that the price is likely to go even higher during the next buyback period, and might cause them to buy and sell NSR closer to our offered market price. The trade-off would be less trading activity during non-buyback weeks.

[cryptog]

There’s simply no other financial asset markets in the world (which are taken seriously) that fluctuate to these extremes on a weekly basis.

bitcoin can double in a few days. cryptos are not traditional financial assets.