[Withdrawn] Motion to prohibit Tier 6 NSR sales above a total 1,000,000,000 NSR supply

[cryptog]

What do u think of ethereum which seems to have sky rocketd in price while there is no theoretical supply limitation because of PoS? Please correct me if i m wrong. Also nxt price has plummetted while the supply is limited to 1b.

[tomjoad]

What do u think of ethereum which seems to have sky rocketd in price while there is no theoretical supply limitation because of PoS?

As I quoted here:

(where even “800 million + up to a 50% emergency fund” would be acceptable)

It is not the lack of a fixed supply that hurts us, it’s the lack of a predictable supply. I’m not familiar with Ethereum, but a quick search shows that the supply will increase somewhat predictably because of a number of factors. That predictability (or unpredictability to some investors) is priced into the market cap of Ethereum. Investors constantly ask themselves what an asset is worth, what it might be worth tomorrow, and what might impair that value.

I suspect NXT has lost value because other blockchains are introducing better innovations. A fixed supply isn’t a panacea for a higher market cap.

[Nagalim]

If we pass a motion saying we will cap nsr supply, then we pass a grant for nsr that breaks that cap, what happens? The grant wins, because it is overarching. If a motion says we dilute and we dont pass a grant for the nsr, the motion has no weight. So no, it’s not false, it’s as true as the blockchain. Nsr grants override motions, so using a motion to control future nsr grants is completely pointless. It’s like putting saran wrap over bulletproof glass.

If the dilution motion specifically stated that nsr grants to FLOT constitute a cap on the maximum dilution and further dilution will only occur upon explicit shareholder consensus, would that satisfy your inclinations? I mean, this is already true, but it wouldnt hurt to slip it in if you think it would help from a marketing perspective.

[Sentinelrv]

It is not the lack of a fixed supply that hurts us, it’s the lack of a predictable supply.

I think @tomjoad is right here. The supply of Peercoin, Ethereum, NXT and other crypto networks are all based on predictable rules. While NuShares has a predictable aspect to it with its rules for PoS minting, its use as a final backing for NuBits makes its supply unpredictable, which value investors are very weary of.

I personally (and I’m sure many others here) took a chance investing in NuShares because I believe in the team and our ability to come up with solutions. When faced with adversity we always seem to find a way. While a catastrophic event that wipes out our equity through dilution is always possible, I don’t believe it will really happen.

However, other investors outside our community don’t have that same familiarity and level of trust with our team and shareholders. Before investing, they want to be able to assess the risks and if there is no way to do that because there are no predictable rules about supply, they will most likely deem us too risky and pass on NuShares.

I think a comprehensive model like @Nagalim linked above is very important for gauging the health of the network, knowing when to activate parking rates and when to sell NuShares. A model like this adds some predictability to the NuShares supply because it lets investors know the rules that govern NuShare sales, but the final supply is still left too open ended for them to make a proper judgement, therefore they price in that extreme dilution risk when they may not need to.

At the same time I understand what Nagalim means when he says a NuShare grant would just override any motion we pass. A motion limiting NuShares seems pointless when it can just be overridden like that. Maybe it’s best to pass a motion saying that it is the “intent” of shareholders not to break this limit and that we will use any and all methods available to us to support the peg and further dilution can only occur by the will of shareholders, similar to what Nagalim said above (though I think an official number or percentage is easier to point people to).

@tomjoad, do you think a motion expressing intent to limit NuShares is enough to sway investors, even though there is a possibility we can override it if we run out of options? Will something like intent hold weight with investors or is the only way to build a hard limit directly into the protocol where even shareholders can’t vote for more shares once the limit is hit?

[tomjoad]

While a catastrophic event that wipes out our equity through dilution is always possible, I don’t believe it will really happen.

However, other investors outside our community don’t have that same familiarity and level of trust with our team and shareholders. Before investing, they want to be able to assess the risks and if there is no way to do that because there are no predictable rules about supply, they will most likely deem us too risky and pass on NuShares.

I think this summarizes my position accurately, thank you for your thoughtful comments @Sentinelrv. I also don’t think a catastrophic event is very likely either.

If the dilution motion specifically stated that nsr grants to FLOT constitute a cap on the maximum dilution and further dilution will only occur upon explicit shareholder consensus, would that satisfy your inclinations? I mean, this is already true, but it wouldnt hurt to slip it in if you think it would help from a marketing perspective.

Yes, that would satisfy my concern, but it’s worth pointing out that would invalidate the 25% buy-side liquidity rule in place in Jordan Lee’s motion.

From a marketing perspective, if our network can say that the maximum NSR supply is (circulating supply + maximum XX% in emergencies), that is far superior to (circulating supply + 25 million + whatever amount is required to hit 25% buy-side liquidity, depending on the impact on NSR price). It also reduces potential negative PR, as shareholders can rightfully point out that they only promised to dilute their shares to a capped amount. Any amount diluted past this cap would be an act of generosity or self-preservation from shareholders.

[mhps]

From a marketing perspective, if our network can say that the maximum NSR supply is (circulating supply + maximum XX% in emergencies), that is far superior to (circulating supply + 25 million + whatever amount is required to hit 25% buy-side liquidity, depending on the impact on NSR price)

From a trading perspective a known dilution firewall will allow a floor price of NSR be estimated during possible selloffs when dilution is activated. This floor will initiate a usual positive feedback to enforce itself.

[masterOfDisaster]

When evaluating this floor, it will be necessary to consider one effect stopping NSR sale (before they really can’t be sold any longer, because there’s no buyers left) to keep/restore the peg has:
it’s a signal indicating that the peg for Nu products is less safe than it could be, if NSR holders went as far as possible.

This impairs the quality of the products Nu offers and has an effect on the NSR price - just as not really predictable scarcity has.

I can’t tell, which effect is bigger, but I feel the current operating scheme of Nu has found a good balance between having shares as scarce as possible and protecting the peg as good as possible.

Only 25 million NSR can be used to support the peg, before NSR holders need to decide what to do next.
Basically that limits the expected number - including the already forseeable potential increase - of NSR to a maximum of (NSR in circulation + 25 million NSR).
Frivolously increasing that amount isn’t possible.
It will only happen, if an NSR grant passes.
But if the situation would become very dire, NSR holders might prefer selling their NSR instead of voting for an NSR grant.
While this makes passing the grant for the remaining NSR holders easier (they continue minting and the difficulty drops because of the NSR holders, who sell), it puts sell pressure on a market, in which Nu needs to sell the granted NSR.

I’d like to have a declaration of intent “forbidding” NSR holders to sell their shares in such a condition.
It would increase the money per NSR Nu could earn from the NSR sale, having a positive effect and limiting the dilution, which is nescessary to keep/restore the peg.
Ultimately that would have the same effect as a motion limiting the number or percentage of NSR that will be created to support the peg: none.

NSR holders can always do with their property, what they see fit - be it to dilute until there’s no more NSR that can be sold for 1 Satoshi or sell the NSR to flee the boat that is considered sinking.

The free market needs to deal with it.
We can’t.
I dare say, the market might be better with it than we can ever be.
We (community, pool operators, gateway operators, etc.) try to improve Nu and provide products with liquidity and keep the peg as safe and sound as the NSR holders want/allow.

I really appreciate the discussion regarding what I perceive as “declaration of intent” or “code of conduct”.
I find it very valuable, but I also think we need to be honest.
It can’t be more than an intention. NSR holders can do whatever they want to do.
Anything else would be compulsory acquisition, which isn’t possible at Nu, because there’s no entity having power over Nu, but Nu itself.

I’d very much appreciate having a motion that describes how NSR holders expect to behave.
But let’s name it what it is and make no promises, we can’t be sure they’ll be kept.
It can be a tightrope walk between marketing and a lie.

[Cybnate]

There are clearly two perspectives on how to ensure our network grows:

1. The OP who believes that capping NSR or making agreements of intent to cap it would increase the network value and with that more people would be attracted as Shareholders and somehow hoping that it would attract more users.

2. Others who believes that marketing NuBits, our main product, against the perception of failure by strengthening the governance, balancing Shareholder’s risks with those of NBT holders and increasing reserves is the way to sell more NuBits, create profits and the demand for Shares will increase naturally.

Both ways have some validity, but it is clear that I believe more in 2.

However when Shareholders wish to go down path 1, I think we will need an offset e.g. in increasing the reserves to say 50% to be able to sell NuBits with the same levels of confidence after measures as in the OPs way are not likely to increase the demand for our product. It is already hard to sell NuBits in the current low reserve climate. I have to admit that I have a hard time to advise outside people to save some of their reserves in NuBits versus Peercoin, Bitcoin or even Tether (with their 100%+ reserves) because of the relatively unfavourable conditions around holding NuBits.

[masterOfDisaster]

increasing the reserves to say 50% to be able to sell NuBits with the same levels of confidence after measures as in the OPs way are not likely to increase the demand for our product.

With or without measures as in the OPs way increasing the reserves is a good idea or even necessary to increase the confidence as long as NSR have such a low trading volume.

The challenge is to find a way to keep the reserve in a way that is not prone to volatility (against USD).
NuSafe paved the ground for creating a USD reserve.

If Nu could provide 100% reserve (or close to it; without risk of losing a part of it for whatever reason), I’d believe in a very low risk of NSR dilution.
The less the reserve, the less credible the prospect of having no NSR dilution to save the peg.

On second thought, I need to say that @Cybnate hit the nail on the head.
I want to propse that as a way to limit the risk of NSR dilution as well as the degree of necessary dilution:
increase the reserves!

That’s beyond marketing and instead a measureable and verifiable measure to keep the peg safe without diluting NSR.
It will both increase the trust in Nu’s products and increase the trust in the scarcity of NSR.

It unifies both perspectives, allows fulfilling both of them and really deals with the core business of Nu:
provide reliable products.

Basically it boils down to:
do NSR holders prefer an increased amount of temporary revenue¹ now at an increased risk of future NSR dilution?
Or do they want to have a lower temporary revenue for a reduced risk of future dilution?
It’s all about risk management.

The level of reserve is the way to declare the stance of NSR holders; not a declaration of intent.

---

¹ temporary revenue:
perform NSR buybacks or distribute dividends from the revenue, that is made from selling NBT to customers - knowing that customers might want to sell the NBT back to Nu. If that depletes the reserves, park rates or NSR sale needs to step in.
This is in difference to final revenue that comes from burned NBT.

[Nagalim]

Increasing the intended reserves actually results in more share dilution not less by setting the bar for a healthy network higher.

[masterOfDisaster]

…only because the reserves are now lower than they would be, if no buybacks had been done…

If Nu increases the reserves (percentage of NBT incirculation!) by organic growth of the network (instead of diluting NSR), the risk for dilution is lowered.

In the “Comprehensive Upper Tier Model” you can increase the standard for beginning buybacks from $2,500 to $3,000 (or $4,000 or even higer) and increase the reserves without diluting NSR - you just don’t pay out temporary revenue.
The standard for beginning dilutions would stay the same.
That way you increase the corridor in which the reserves can be and support increasing the reserve ratio.

Admittedly this only works if Nu can sell more NBT, but that is what we expect Nu to do, right?
We just want to be better prepared for rainy days…

[Nagalim]

Ok, but you were talking about increasing the % dynamic reserves, which will reduce the standard no matter what the outstanding nubit balance is.

My favorite was the tether motion. Having a stable multisig-compatible counterparty would give FLOT a belly to leverage to keep the standard in the ideal region in addition to nsr leveraging and park rates.

[jooize]

I view a NuShare dilution limit as an aspect in operations that should be addressed to clarify Nu’s stance and with that also help investors value NuShares. I have no idea whether a perceived lack of scarcity is actually holding the NuShare value back, but surely scarcity is a factor for many when investing?

NuShare dilution is quite directly mapped to Nu governance. How large portion of Nu dare shareholders have in control of emergency investors? Doomsday scenario being they don’t know enough about Nu to vote the network back on track (or only mint, voting no to everything). Pre-doomsday shareholders may get cold feet and sell their shares, potentially resulting NuNet be NuNot.

Overdramatic perhaps.

I see no value in a toothless prohibition of shareholders selling. Nu can’t enforce long-term promises except in protocol, but don’t we make promises anyway? There is the idea of motions that require more than just another motion to overrule. I would value Nu based on protocol, governance, and performance. Governance is consensus plus execution. It’s difficult to enforce execution according to consensus, so what remains is to judge by track record. Shareholders should for that reason be meticulous in abiding by such motions as not to lose that trust.

Forbidding shareholders from selling NuShares sounds like it could be part of Restricted Network Access. I’m in favor of RNA. Not sure about this particular aspect.

Nu should have well defined NuShare dilution limits per each currency it provides. A percentage feels better than this 1 billion NSR limit, but I am not confident in that feeling. How will Nu handle NuShare dilution for peg protection of multiple currencies, by the way?

How about …

1. Nu decides an amount FLOT should hold for peg protection (used between Tier 5 and 6 in this example) after having used all other reserves (Tier 4). Currently 25,000,000 NSR.
2. Nu gives its word not to further or overall dilute NuShares beyond some percentage of something (value of currency, amount of NuShares?).
3. If FLOT is determined to run out of Tier 4 reserves for a currency, shareholders vote for Tier 5 park rates.
4. If park rates don’t seem to help enough, FLOT sells NuShares from the NuShare fund for immediate use.
5. If the NuShare fund runs low, Nu activates Restricted Network Access for the currency (and NuShares?).
6. Nu may now either comply with a potential motion disallowing further NuShare dilution in order to maintain future trust, or decide immediate action breaking NuLaw is more valuable.

I’m curious what degree of potential NuShare dilution that would result in, but:

Why don’t we enforce in protocol how many NuShares can be printed within a timeframe (“blockframe”) or until an extra long protocol consensus is reached, making it impossibe to dilute beyond what’s promised?

It previously appeared many preferred some NuShare sales before RNA. I’m still hesitant to accept that it’s better than first activating RNA, at the point when (other) Tier 4 reserves are dry. I haven’t understood (and currently oppose) the notion of there being value in selling shares before activating RNA for the specific purpose of displaying shareholder stake in the responsibility of NuBit solvency, but there may be additional reasons.

Solvency should be the ultimate concern over immediate spendability, and while peg endurance is a sign of health, what NuBit owners presumably care most about is not losing their funds in the end. I believe RNA puts the interests of NuBit holders in a safer position in an emergency situation.

It is not defeatist to prepare for worst case scenarios. It’s responsible.

[Nagalim]

impossibe

I want to address this one more time. If 50% of shareholders want to dilute, we cannot stop them. If 50% of btc miners want to break the cap, no one can stop them. It’s just a matter of forking the client.

I agree with 1-4, the upper tier motion addresses these concerns. 5 is fine, if volume-dep fees work the way we think they will. It’s clever to use the nsr pool size as a trigger for fee voting; however, I am not convinced we should do this with the current flat fee and it would be confusing and possibly jeopardize the word of Nu to institute a real threshold now if we don’t intend on actually using it.

6 is a very clarifying way of restating the OP. By attaching the value of ‘the word of Nu’ on blockchain actions other than simple grant proposals we give those outside the voting shareholder base (like market traders) confidence in certain things. But more than that, we give shareholders a backbone network-like effect where those that are unconvinced default to a certain performance.

I’m down with 1 million cap. I’ll put it in the model, we can change it to something more official later in an individual motion when we know more.

@tomjoad I’m sorry i discouraged you idea.

[jooize]

Of course you quote my one typo ever!

1 million cap

*1 billion

Hah!

If 50% of shareholders want to dilute, we cannot stop them. If 50% of btc miners want to break the cap, no one can stop them. It’s just a matter of forking the client.

True, but doesn’t the friction of forking make a fork so unlikely in the eyes of most that there is value in such protocol parameters?

I have yet to really read and understand your Upper Tier Model.

Thanks for your feedback!

[Nagalim]

So here’s the attack this opens up:
There is a theoretical number of nbt that, if bought from Nu and Nu is allowed to reach steady state, will allow for a breaking of the peg. Basically, imagine someone buys 1 million nbt, Nu keeps 20%, or even 50% let’s say in the future. Then, that person drops all million, consuming all reserves and diluting the nsr pool. There is an nsr price below which this move will break the peg, depending on the effects of park rates and market sentiment and such. The attacker loses almost nothing other than opportunity cost as they get the nbt for $1 and sell it for $1.

The key here is that buybacks of the magnitude required for such an attack would probably push the price high enough and the supply low enough that we could handle a $1 million attack even right now. This is basically just the BSSF attack.

Balance Sheet Attacks

Alright, so I guess we start simple. What is a balance sheet attack? A Balance Sheet Attack (BSA) is an attempt to profit off of the logic of passed motions or fabricating situations that force shareholders to pass certain motions that can be profited off of. There are only three ways to defend against a BSA: Make the attack very expensive Make the attack require extremely large amounts of liquidity (preferably invested in the system) Make the attacker take on an extremely large risk I th…

[mhps]

Solvency should be the ultimate concern over immediate spendability

Only if I put more than I can afford to lose in nubits. If I am a nubits user keeping nubits for random shopping, knowing that all these crypto stuff is beta, the thing I hate most is not being able to spend when I want to because the network is frozen. Look how people are dismayed when the network is temporarily paralyzed by say a fork. That gives you a sense of how an out-of-service network will be received.

[Cybnate]

Agree, I think there are only a few shareholders using NuBits on a regular bases to pay for goods and services, probably mainly through NuDroid. As soon as the Nu network goes into RNA I will swap to another wallet, count my losses and move on and I believe most would do in such an event.

That’s why I think a RNA is basically the end station for the Nu network as a payments settlement network, it only serves as a temporary stop and the shareprice would already have plunged to close to zero by then. I have yet to think of a scenario where the network can recover from an RNA and will be trusted going forward. That’s why it is important to do as much as we can before we enter such a state including selling shares for what it is worth.

[Raythma]

As @Nagalim said, there is absolutely no way for an investor to trust any aspect of Nu as a given fact, with such robust governance and consensus mechanism, even hard coding a cap means nothing.

Investors may only trust that shareholders will act rationally and tend to protect their investments and hope that they know what they are doing.

[mhps]

act rationally and tend to protect their investments and hope that they know what they are doing.

One would hope for the same when adopting any coin. Actually true for investing in a company, a fund, selecting a president, a government, a spouse …