That is called psychology and marketing. There is limited rational beyond panic. It is usually the wrong thing to do anyway, but it is hard for us all to help ourselves given extremely challenging situations.
The current fractional reserve model we have is build on this. That is why we are doing share buybacks. When we need to buy back NuBits NSR is one of the last resort reserves we have. I tend to agree that NSR is not the most effective reserve, but many believe that share buyback is the way to go implying that it is a useful reserve. If that is the case we should use it as such which means before the panic of RNA imo. Not saying we need to sell endless NSR before entering RNA. But say bringing at least 50% to the market shows at least that Shareholders are serious about defending the peg and footing the bill before NBT holders have to do that.
These are key statements that summarize my position quite well, thank you Jooize. I would even go so far as to say that having a Tier 6 that puts 100% of the risk on NuShareholders (through potentially endless NSR dilution that erodes all equity wealth) is unlikely to be effective at all, because no shareholders will authorize endless dilutions as it harms their self-interests. This may even be impairing our current NSR market cap - who wants to buy NSR knowing there is a chance that the share supply could increase by many multiples in an emergency? Having RNA should actually reassure NuBits users that while they may lose temporary access to the network in an emergency (if they don’t want to pay high fees), over time the situation will return to normal.
You cannot reliably back the value of one asset (NuBits) with the value of another (NuShares) that derives the vast majority of its value from demand for the first asset (NuBits). Period. I will continue repeating this over and over. At best, NSR sales serve as a PR tool to convince NBT holders that we suffer during an emergency too, and I’m open to that if NBT users demand it.
@Cybnate@cryptog Taking your most recent comments into consideration, how would you feel about an updated motion text that specifies simultaneous activation of the two tiers? So 25,000,000 NSR (or whatever amount FLOT has at the time of the emergency) is immediately put up for sale, while RNA is activated alongside it. Then, further NSR sales can take place to minimize the time RNA is activated. With very high transaction fees, the NuBits circulating supply will be reduced quickly from users who place the highest priority on network access, reducing the need for extensive NSR dilution.
RNA makes shareholders’ problem a problem of the end users. Transactions between nubits users could suddenly cost an arm and leg even if a localized economy uses nubits to clear internal transactions. What if someone sells you a money that could charge 20% tx fee that you have no way to avoid? Think about it. Will you use it? Will you recommend it to your customers?
On a more technical level we basically don’t know how a variable fee network work. Last time we tried to raise fee there were numerous problems. We are several technical readiness levels away from putting this technology to support a production peg.
I don’t like panic selling nsr either. However with NuSafe and Distributed Reserve and possible hedging I think we could have a decentralized reserve as a significant tool to defend the peg. Any panic sell below Nu’s actual value, which is backed by reserve even its fraction, is a opportunity to buy cheap nbt and nsr.
It’s important when the NSR get sold to remove NBT fom the market!
If you wait too long, maybe even after the peg has taken significant damage, it’s likely that you need to sell way more NSR to fix this, because the NSR price will have gone down.
NSR need to be sold rather early than late:
We need to react on swings in demand fast and must not wait until it’s too late.
If we stuff BTC proceeds fom NBT sale into NSR buybacks, if the T4 reserves are above a threshold, the rational choice is to sell NSR for removing NBT from market, it the T4 are below a certain threshold.
The proposed 9% leave a buffer to the 15%, which allows an early and efficient NSR sale.
9% might not be perfect. It was just a proposal. Yet a way more fair and efficient proposal than having countermeasures, on which neither NSR holders nor customers can rely on and which can’t be tested before without endangering all.
You can test the waters of selling some NSR once the reserves start to run dry without putting all at risk.
Do we want to wait until the whole forest is about to burn down, just because we are afraid to limit that danger by cutting or burning down some trees to prevent the fire from spreading uncontrolled?
Don’t make Nu just another central bank that puts more risk on the customer’s shoulders than on the own shoulders…
…that even risks total failure to avoid (temporary) cutbacks of NSR value and scarcity.
Why risk so much, if you can risk much less?
If there’s (temporary) profit from increasing NBT demand, buy back NSR.
If there’s declining NBT demand and the reserves start to run dry, sell NSR.
Is it really our best plan to wait until it’s literally almost too late?
If so, I’ll just close my eyes and turn away, because I wouldn’t be able to watch this happen.
The demand collapses I’ve mentioned are far in excess of a gradual drop from 10% buy-liquidity to 9%. It could take the network from 50% to 0% in a matter of days. RNA is another protective tool for our network.
NuBits customers have zero risk right now. NuShareholders have indicated through motion that they will sell new NSR until equilibrium is reached, even if NSR are diluted 10,000% in the process. This is almost certainly hurting our NSR adoption, because there is no perceived long-term scarcity. One government announcement could destroy all NSR value. I have slowed my purchases of NSR on the open market since NSR sales were enabled, and I think other shareholders have too.
The hybrid model I proposed to Cybnate and Cryptog above is a responsible shared approach to risk. RNA is inconvenient for NuBits users but ultimately takes zero value from them if they wait until the crisis passes. NSR sales in limited amounts are inconvenient for NuShareholders but necessary. That is the responsible model we should pursue in my opinion.
The term macroprudential regulation characterizes the approach to financial regulation aimed to mitigate the risk of the financial system as a whole (or “systemic risk”). In the aftermath of the late-2000s financial crisis, there is a growing consensus among policymakers and economic researchers about the need to re-orient the regulatory framework towards a macroprudential perspective.
All three of the policy objectives mentioned above cannot be pursued simultaneously. A central bank has to forgo one of the three objectives. Therefore, a central bank has three policy combination options:
Though off-topic from the motion at hand, I’d like to re-kindle the idea of a protocol level method to buy NBT for time-locked NSR.
TL;DR: we offer to sell NSR that are discounted to the open market (say, 10%), but time-lock those just-sold NSR using a method similar to the NBT interest rate model.
With this mechanism, if the investment proposition is good, investors would be motivated to buy NBT in the open market and “bring them home” to the network. The Nu Shareholders would have full control of the exchange since this happens in the blockchain. i.e.: this would eliminate the need for Tier-N pools, custodians, exchange defaults, etc.
Since this is a “buying” action and not a “selling” action, this may help retain liquidity in off-blockchain NSR exchange pairs, instead of inducing (more) panic selling because giant NSR sell walls popped up or a custodian had to sell in to the bids (like a hot knife thru butter).
This could also be virtuous in adding buy-side NBT liquidity and be a force to drive the peg up.
This moves the illiquidness (and risk) to NSR and to investors, as is the intent with the coupled NBT (stable) / NSR (risk) model.
And yes the locked-up NSR come to market (eventually). Nothing different than an IPO with locked-up investors.
All of this works if the network imbalance (call it “debt”) is temporary (a liquidity issue). If the network goes insolvent, there is no hope. But, presumably the network has a revenue stream and there would be a way to “pay off the debt” and eventually buy back those shares by way of the revenue stream the network receives.
I think simultaneous activation should be seriously considered.
Which motion exactly?[quote=“tomjoad, post:62, topic:3160”]
This is almost certainly hurting our NSR adoption, because there is no perceived long-term scarcity
[/quote]
I think there is a problem of perceived value of NSR right now because it has not increased significantly since inception. Infinite possible dilution is certainly one reason for that.
Capital control means to control capital flow into or out of an economy. RNA proposes to hinder the entire economy including the internal one. It’s like when saving a bleeding car accident victim, in order to stop bleeding of an open wound, the rescuer tries to stop the victim’s heart from pumping blood.
Even with RNA the on-exchange nubits and nushares are traded with no control. Nu can do nothing on the price.
If Bob has to pay bill due today with nubits and there is a 30% fee, either he pays 30% more or defauts.
It’s something we are not capable to deal with now but I am sure we will know when it shows evidents. And the fear of 10,000% dilution will keep us honest and vigilant.
This motion has received under 10% of the vote in the previous 100 blocks. Without data feed provider support from @Cybnate or @cryptog, this has no chance of passing.
I need to give it some thought on how to re-frame this problem. I’ve clearly explained - using proven economic theory, and not ideological stances - why this sort of mechanism is needed for our network if we want to ensure long-term sustainability. However, it seems there isn’t an appetite for discussion of this idea at this time. Shareholder responses have mainly focused on issues I’ve already explained in the OP, outright dismissals of the idea on ideological grounds, or confusion on how this specific macroeconomic policy tool is any different from what we already use.
I fear shareholders are confusing proven economic theory (for example, capital controls as a solution to the Impossible Trinity problem, or as part of the IMF toolkit) with distrust of governments who have used those economic theories to protect themselves after their corruption and over-spending.
I suspect shareholder attention is on other issues right now, so I will hold off on an immediate re-posting of an updated motion. My last remarks are important though for future debates; they are problems our network has not solved, no matter how much we want to pretend ignoring them will help.
This is just my perception, but I think RNA would find more support, if NSR sale to support the buy side would be an instrument that doesn’t only start to be used if things are already going pear-shaped, but way before that.
I doubt that people completely refuse the RNA concept. It might be more a matter of how and when it’s available.
I guess the RNA approach will have an easier time once we agreed on starting to sell NSR as soon as the T4 reserves drop below, say 10% of NBT in circulation.
Just my 0.02 NBT…
@tomjoad, what do you think of what @mhps said here about the difference between real world capital controls (in and out of an economy) and what you’re suggesting here (halting the entire economy for a period of time)? Are you taking into consideration this difference and does it change anything in your opinion? The proven economic theory you’re talking about is a little different from what we’re talking about here isn’t it?
This is true, but I think it at least prevents even more NuBits from being sent to exchanges, so it’s achieves partial control of the selling, rather than complete control.
RNA should basically be the last resort. It is the panic button. Similar but slightly different is the example with BTER. There are now charging 1% exit fee without notice to their users. It is interesting to see how many customers they would keep and what is the next step. 2% fee? If anyone had shares in BTER they would now plunge as customers walk away to a competitive exchange.
I would support RNA as well, but I agree with MoD and Cybnate. Don’t think the low voting percentage is because people reject RNA itself. I don’t think that’s true at all.
Nowhere have I said that this motion is about halting the economy at a full stop. It is absolutely about exactly what mhps said, which is reducing the USD capital flows out of the Nu economy. We want to prioritize servicing those users who are willing to reduce our circulating supply of NBT when needed, through very high transaction fees. You’ll recall:
And:
You should think of the Nu network as having USD in our system as internal capital. As long as US-NBT demand matches US-NBT supply, we’re all happy, and the peg is maintained at $1.00. The danger of our system is if USD begins leaving the system through users selling their US-NBT for USD. If we only have 500,000 USD worth of demand, but 1,000,000 NBT in circulation, we have a big problem on our hands.
This is exactly what capital controls are intended to do; to slow the loss of capital from a monetary system. If we forecast that a negative event will decrease demand from 1,000,000 USD to 500,000 USD, we can place controls at the onset of an event that restrict the flight of USD capital from the system. US-NBT users will know that they may have to wait a few days or weeks while transaction fees reduce from 50% to 40% to 30%, etc, but that eventually equilibrium will be regained.
This is no different than if Bob made a deal with a loan collector to pay back 5000 Euros worth of cash, and then discovered that he was restricted to 60 Euros in withdrawals per day in Greece during the 2015 capital controls. Bob is in trouble, which should be expected in a financial crisis. However, in Greece the capital controls were slowly lifted, and the same would be expected in Nu as the crisis passes.
I realize thinking about unpleasant events is not fun. I fully support a dual RNA-NSR sale activation and will work on new wording for a motion that reflects this.
Tier 6 is the last line of defense in our liquidity operations model; it is not there to be put into motion well in advance of an emergency. Your line of thinking is correct I think, but it is an issue of Tier 4 percentage reserves, not Tier 6. If we’re worried about the protection, let’s increase our USD reserves in Tier 4 from 15% to 50%. It is far more effective than selling NSR when it is anywhere near being devalued.
That, and I think if tier 4 reserves go lower still, the next step would be to raise tier 5 parking rates before we resort to printing and selling NuShares. Parking rates may only need to be raised until tier 4 reserves return to normal levels, which means we would have never had to sell a single NuShare. If however parking rates are sustained for a period of time, then it may be time to look into tier 6 and 7.
I honestly think we need to determine a lower tier 4 reserve threshold where shareholders should activate tier 5 parking rates.
Holding USD reserves, that is potentially expensive due to the risk of confiscation, I suppose you refer to the equivalent in USD in crypto-currencies.
Maybe we need to define better what NSR is at risk. To me that are the NSR FLOT is holding (25m) as a reserve. As others have mentioned you can argue whether this is tier 4 or tier 6. Suggest to make it all tier 4 in your proposal.
Next thing is that we are looking for a trigger to activate tier 6. With selling all NSR we are already having parking rates for more than 30 days. What timeframe and under what rules do we consider the NSR selling as complete? When they have all been sold to any price? In a day, a week? Does it matter? A better indicator is probably whether the buy side is still under a % threshold.
A scenario
Given we have already high parking rates for 30 days and have sold all the T4 reserves, the current 15% and the 25m NSR (current T6) are on the exchange for sale decreasing say daily in value with 10% to meet the market. When we can’t keep up meeting the sell demand of the NBT and say the buy side is still sustained under a certain threshold (say 20%), then we would activate RNA.
In this scenario the NSR are still for sale while the RNA gears up with ever higher transactions costs. This would suit your perspective, wouldn’t it?
Other issues
Thinking of these scenarios the following occurred to me:
I think it is clear that in the above scenario the peg is already lost when T4 is being sold on many exchanges to some extent. The selling of the NBT on exchanges are not subject to transaction costs and speculators would jump in to determine a marketprice based on partly potential Nu reserves left to buyback the coins and emotional senses (not likely to be rational) for the NBT still floating around on these exchanges.
To reduce the risk of this situation from occurring in the first place it would make sense to increase the T4 reserves from 15% to say 50%. I would support that as the above scenario is not attractive as a Shareholder. I also know this comes at a cost as always when you are trying to cover risks. It is a difficult balancing act for Shareholders between costs and risk taken.
Also just like to say that the measures to prevent a risk from occurring are different than the measures when a risk is eventuating and actions are urgently needed to protect the peg and NBT holders. They should be clearly separated out and weighed against each other in future proposals.
I agree control capital into and out of the system is a useful tool.
NuBot actually already does it by increasing spread when volatility is high, to discourage hedging which is at the expense of Nu. How about we go a step further in this direction, and drastically increase spread or even pull liquidity out of peg when sutained extreme selling side pressure happens (BTC price collapsed) or buying side pressure happens (BTC price exploded) ? Nu could do this as long as the pressure doesn’t let up, and resume after chaos is over.
This taxes those who sell/buy (traders), instead of those who pay/receive (end users and merchants).