[Withdrawn] T4 Dividends

NuShares Dividends
#21

Dividends and share buybacks have zero difference in terms of total value transferred to shareholders. Because of this, we should choose the method that we think generates the best publicity for NuShares.

I can see the value of this motion; many people don’t understand buybacks very well, whereas dividends are easy to understand. I still think that buybacks are preferable at this stage because the vast majority of our current new userbase comes from people who see NSR rising on coinmarketcap.com. I also prefer buybacks because shareholders (so far) don’t seem to be taking profit after buybacks occur, further amplifying our gains on CMC.

So, I think this is a great motion that I probably won’t vote for while buybacks are still ongoing.

3 Likes
#22

More or less exactly that.

Distributing all revenue as dividends leaves little incentive for NSR holders to defend the peg and it leaves little tools to do that.
In times of pressure on the peg in which NSR grants would be required to support the buy side, Nu and NSR holders might compete in selling NSR.
I consider stuffing a sufficient part of the revenue (please don’t ask me what’s sufficient; I can tell you after the event :wink: ) into Nu value by performing NSR buybacks necessary.
As I realize that PPC dividends can have a positive effect on the total Nu value (demand for NSR because of the dividends -> rising NSR price), I very much appreciate PPC dividends.

I just consider a majority of revenue being paid as dividend unsustainable.
That’s why I’d like to have it connected to NSR buybacks and leave room for NSR buybacks before PPC dividends are being paid.

If this were only a one-time effect, I’d find it ok.
As I said before: conceptually each sold NBT (sold from Nu to the market) hits the tier 4 buy side. This motion would apply to a sale of 1,000,000 NBT.
I can’t imagine having $850,000 distributed as dividend, $80,000 on tier 4 buy side without posing danger to the peg.

Why not do doing weekly dividend distributions together with NSR buybacks to melt down the tier 4 buy side?
As both motions are dealing with percentages of funds in excess, they distribute a lot if there’s a lot in excess.

The only “drawback” I see is that the dividends paid over weeks should create demand for NSR which reduces the effectiveness of NSR buybacks in terms of number of NSR that can be purchased for the same amount of USD.
The new NSR holders could sell the NSR after having received the dividends. But they could hold them for the next round.
Who knows?

Do we really consider that a drawback (pushing the NSR price with PPC dividends)?
Sold NBT need to be matched by an increasing NSR rate, because the NSR value is the distributed collateral for issued NBT.
This value is required if demand for NBT declines: to buy back NBT from the market with issued NSR.
That’s (except for some buffers) the only way to do it, if Nu wants to stay free of reserves.

I see a big benefit for Nu’s situation by combined NSR buybacks and dividend distributions that are done over time.

Dividend distributions - especially when done over weeks - likely have a positive effect on the NSR price as well :wink:
Wouldn’t you want to buy NSR if you did know that x thousand USD need to be distributed as dividend peer week?

#23

I’m convinced, let me sleep on the parameters and I’ll change the OP tomorrow.

#24

For buybacks I think it would be a advantageous to put larger chunks of buyback funds at below market price and perhaps keep it there. It seems that people have been dumping NSR at lower prices to bet on a BTC jump. On the other hand, we also want to quickly transfer value to NSR to avoid BTC volatility.

#25

Well, to me there is a big difference. In dividends distribution, I do not need to lose voting power (sell shares) to get some profits.
At the same time, distributing all profits in dividends is not desirable.
So I am in favor of a hybrid distribution: dividends + buy backs

4 Likes
#26

Can you provide evidence for that claim?

1 Like
#27

a small difference between dividend and buyback – dividends give windfall to excanges.

#28

Alright, ready for a new round of criticism. @masterOfDisaster is it to your liking?

#29

Always and only trying to improve things (even if that requires shutting up from time to time)… :wink:
Let me have a look to find out whether I consider it a version I’d be happy seeing it pass a voting.

I haven’t thought about scheduling the dividend distribution and the NSR buyback in a way that allows NSR holders collect a dividend first and sell NSR afterwards.
I’m not sure whether I find it necessary, but I rather like it.

But I struggle understanding the terms. If the dividends are calculated the same Saturday as the buyback is, wouldn’t the dividend distribution need to happen earlier than 11 days after that?
The current wording gives room for accumulating NSR to receive a dividend for holding NSR a few days.

I would really prefer having dividends distributed first and the NSR buyback afterwards, because it would allow (long-term) holders to receive a dividend and sell the NSR then (which I consider more fair than rewarding NSR holders that hold NSR for a few days with a dividend).

Or do you mean to have the dividends distributed 11 days after the NSR buyback, but with a timestamp 11 days in the past (to effectively have the point of time for dividend distribution first and the NSR buyback afterwards)?

nud distribute <cutoff timestamp> <amount> [<proceed>]

If so, I’d like that, but the motion needs to state that clearly.

Addendum:
I’m not sure which has a bigger effect on the NSR price: the dividend or the buyback.
I think no one can tell in advance and Nu needs to find out.

I expect an announced dividend distribution to have a positive effect on the NSR price.
And I expect an NSR buyback to have a positive effect on the NSR price.
Postponing the NSR buyback after the dividend distribution might have a negative effect on NSR price, which would then allow Nu buy back more NSR for the same amount of money.
I can’t say that I don’t like that :wink:

All this is a little bit academic, because the dividend distribution and NSR buybacks will (based on current BTC price) be conducted for weeks while the assessment above is strictly only true for a single week.

1 Like
#30

I have to say I am pretty happy with the text of this motion

1 Like
#31

The dividends happen above $120k, buybacks happen above $80k. In almost every situation there will be an additional week of buybacks after the dividends have stopped and so there will always be a buyback after each distribution. The only situation where there wouldn’t be is if the BTC price (which our T4 is denominated in) dropped >33% in a week. Not unheard of, but also not the biggest concern when the weekly dividend probably isn’t going to be that big anyway.

I could have it be 4 days for PPC purchase instead of 11 days, but I thought it would be better to spread the PPC purchase out over the full week.

Interesting idea about timestamping it in the past. We could have it be a full week for the ppc purchase, but timestamp the dividend on the wednesday after the dividend calculation.

An example with timestamping in the past:
On Saturday, Nu has $150k in T4. The calculation reveals $7k for buybacks and $3k for dividends.
On Wednesday, everyone who tries to make sure they have the NSR they want for the distribution.
On Friday, shareholders sell into the buyback to keep the price low.
On Saturday again, the PPC gets distributed based on the holders Wednesday.
Rinse and repeat.

An example with the current phrasing:
On Saturday, Nu has $150k in T4. The calculation reveals $7k for buybacks and $3k for dividends.
On Friday, buybacks occur boughtback.
On Saturday, Nu has $140k in T4. The calculation reveals $6k for buybacks and $2k for dividends.
On Wednesday, PPC is distributed.
On Friday, shareholders sell into the buyback to keep the price low.
Rinse and repeat.

Edit: I took @masterOfDisaster’s suggestion again. Please rererereview.

1 Like
#32

When considering whether to conduct share buybacks or dividends, or both, the key question is which one will elevate the market cap the most.

Because there have been dividends and share buybacks in the past, there is a limited body of evidence to give us clues about which approach enhances the market cap most efficiently. Also, many other organizations have faced this issue and there is much we can learn from their experience.

Of US based S&P 500 companies, they spent 50% more on average on share buybacks than dividends. Dividends are more likely to be offered by utility and well established financial companies than tech sector companies. This is partly due to the stable revenues of the utility companies compared to tech companies. Dividends appeal more to investors looking for low risk investments than investors with a higher appetite for risk and reward. Our network is definitely far on the the high risk / high reward side of the spectrum, suggesting dividends are a mismatch in some ways.

At one point when the NuShare market cap was below 1.5 million, our annualized dividend yield reached at least 29%, which is unheard of. It appeared to have little or no effect, even though $410,000 was delivered as dividends. The argument could be made that most of that was as one issuance of BlockShares and that the two early Peercoin dividends were not regular either. While dividends might be able to be sustained for a longer period going forward, it is unlikely that they will be consistently handed out, or consistent in terms of the amount distributed.

NSR has expectionally low liquidity, much less than any other top 20 crypto asset. This suggests NSR may benefit more from buybacks than more liquid assets.

Share buybacks are easier for the shareholder because they require no action, while dividend keys must be exported and then possibly transferred to an exchange and sold.

The NSR price has added around 1.5 million USD in market cap in the five weeks during which approximately $14,000 was spent on share buyback. It is likely most of this market cap increase is a result of the rise in the Bitcoin price. Still, the price of NSR in Bitcoin has risen 18.5% during the short period in which buybacks have been conducted. 18.5% of our market cap is $470,000. While there are many confounding factors, I suspect the majority of that $470,000 in market cap came from the approximately $14,000 in share buyback. That is stunningly efficient if true. Another way to examine the effectiveness of share buybacks is to look at the what effect it would have on the price by eating up the existing NSR sell orders. Within 10% of the current price, there are only $7800 in sell orders on Poloniex and Bter, so $300,000 in market cap could be created with $7800 in share buybacks, at least for a moment. The rise would bring in more sell orders, but I suspect half the increase could be retained (although I admit that isn’t based on any evidence), for a gain of $150,000. Additional evidence that share buybacks have had a positive effect is that NuShares rose from being ranked 24th to 18th on coinmarketcap.com during the recent buybacks, which can’t be attributed to the rise in the Bitcoin price.

While I concede the evidence is inconclusive due to confounding factors, it appears dividends have performed poorly for us in the past while share buybacks have had a spectacular effect on the NuShare price. Therefore, I am inclined to oppose dividends at this time. It may make sense to allocate a small percentage of extra tier 4 buy side funds to dividends to observe the result as an experiment, however. 25% of the share buyback/dividend pool is the most that should be allocated to dividends for such an experiment, in my opinion.

Before too long we will want to look at using extra funds for development of various kinds. However, I doubt that during a wild Bitcoin rally is the right time to do that. Now is a time to seek maximum visibility by doing everything we can to enhance the market cap right now while the crypto economy is getting a high level of attention. Share buybacks are our best bet to accomplish that.

8 Likes
#33

I will not argue about the effects dividends might have on price when compared with buybacks, as I think you’re mostly right there. The way I am looking at this motion is that it is a method by which we can further reduce counter party risk without completely unhinging the NSR price. In fact, I think that the BKS dividend showed that a dividend is actually a very good way to plummet the price at a specific time, allowing us to perform timely buybacks to most efficiently absorb that market reaction. Instead of comparing dividends to buybacks, think about the synergy when we combine them in the proper manner.

You give the number 25%, which is a reasonable number. If this motion passes, the majority of situations will have PPC dividends below that 25% number. Specifically, that threshold is crossed only when T4 has $140k.

If we reduced the rate from 10% to 5%, it would always be below 33% even at T4=$infinity (crossing 25% at T4=$200k). Would that cause you to vote for this motion @JordanLee?

1 Like
#34

Yes, through Google Analytics. “Referrals” is the largest category of new traffic to nubits.com. Other categories are “Direct” (I email you a link to nubits.com), “Organic Search” (you search for NuBits on Google), and “Social” (you click a tweet with nubits.com linked within).

Within the Referrals category, Coinmarketcap has delivered 39.95% of new users over the past 365 days. BTER is second at 5%. My language was a little strong; a better statement would be to say that coinmarketcap.com is by far the largest source of referral traffic into nubits.com. Given that another price-displaying website (BTER) is in second place, I think it’s reasonable to assume that as the price of NSR increases we acquire more new users from those referral category sites.

4 Likes
#35

But couldn’t a large portion be from the Nubits part of cmc, rather than the Nushares section? For instance, perhaps people are drawn in by the trade volume rather than the price increase.

3 Likes
#36

Very true. It is difficult to determine exactly how it breaks down though, because “NuBits” are often considered the brand name for our entire network by uninformed outsiders. We have focused most of our marketing messaging to date on promoting NuBits.

For reference, during the previous 365 days on CMC we had 45.34% of new users come through the NuBits listing, 39.42% through the NuShares listing, with the remainder through /all, /bitcoin, /litecoin, and non-defined links.

3 Likes
#37

If dividends were to be disbursed, I would prefer to see 15% to 25% of the share buyback amount each week allocated to dividends.

Critical questions in deciding whether there should be dividends at all are:

  1. Will dividends cause some people to purchase NuShares that otherwise would not?
  2. Will dividends cause some NuShare holders to hold where a lack of dividends would induce a sale?

I suspect shareholders commenting on those questions can help us understand what the best course of action is. In my own mind there is considerable uncertainty about the correct answers. While it certain that the answer is technically yes to both questions, the real intent of the questions is to understand how much capital will change its behavior based on dividends.

Edit: Some support for dividends is based on spending tier 4 funds quickly to minimise counterparty risk. This is not a significant concern to me because I expect FLOT will soon be managing funds in a more secure multisig manner. I am also not concerned about myself running with the funds before FLOT takes them, but I can understand why others would be.

1 Like
#38

It is not just how much capital, but the timing of it. I don’t think we have anywhere near enough information to speculate on the question of how much and I really am not keen to as the data simply isn’t there. The timing is the thing we can really talk about, and I have tried to make this motion as sensitive to the correct timing as possible.

I have cut the rate of dividends in half from what was previously proposed. Please, everyone, make any additional comments about the structure of the motion that you have and I will hash it soon.

1 Like
#39

If they do the math, dividends from distributing a couple of k USD will bring something like 0.1% gain for the shares held. That is nothing compared with the kind of increase buybacks make (many %). The effect of buyback will totally overwhelm that of short term dividends. Jordan is right that dividends is very good if they are known to be regularly distributed.

5 Likes
#40

I think the current version of the motion is in a very reasonable state (for the current situation).

That should not overly concern those who hold equity in Nu which requires much more than exporting dividend keys.

Shareholders seem to be shy, but they are able to vote for this motion if they are in favour of it :wink:

To sum the effect of this motion up in my own words.
First weeks
Tier 4 buy side in excess of $120,000 will be used for PPC dividends and NSR buybacks with ratio 1:2 (5% : 10%).

Next weeks
As long as the tier 4 buy side stays between $80,000 and $120,000 only NSR buybacks will be conducted.
This is supposedly the more effective way to improve the market value of Nu and the motion takes this into regard by preferring it.
I only say supposedly, because Nu so far only had multiple one-time dividend distributions (in different forms: PPC, BKS), while this motion makes ongoing distributions (for some weeks) possible. And even with this motion in place it will be hard to tell the effects from the NSR buyback apart from the effect of PPC dividends; without additional motions, there might be NSR buybacks without dividend distributions, but no dividend distributions without buybacks!
I generally agree that especially with the low market depth of NSR buybacks have an immense effect on NSR price.

If PPC dividends would increase the market depth of NSR (and possibly the value of NSR by creating a continuous demand for NSR) it would be very positive in case Nu comes in a situation where it needs to grant and sell NSR to buy back NBT!
With the current liquidity of NSR you could as well plummet the price as you can boost it with little value being traded.
PPC dividends (potentially) increasing the NSR price - and more importantly the NSR market depth - could pose a benefit that might mitigate the reduced effect of NSR buybacks on market value.
And if that could be derived from the effects of the combination of dividends and buybacks, I would propose an amendment to this motion that always distributes revenue as a combination of dividends and buybacks with a certain ratio:

Future
Even if the tier 4 buy side funds exceed $120,000 again - because a big amount of NBT needs to be sold to the market in a short period of time - NSR buybacks will be conducted with double the value than PPC dividends (10% opposed to 5%).
Like @Nagalim pointed out that means for PPC dividends will always be less than 33% (5/15) of the buyback/dividend pool available.

In case (much) more NBT are being sold, I’d like to see an adjustment of the values ($80,000; $120,000; maybe even the percentages).
I just can’t imagine having a static buffer for a dynamic number of NBT in the wild being sufficient.
That should be something for the agenda as soon as a lot more NBT are in the wild.

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