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Proposal to Provide Early Stage, Dual-Side Liquidity and Shareholder Dividends

Proposal to Provide Early Stage, Dual-Side Liquidity and Shareholder Dividends



Custodian Kiara Tamm
Submission Date 10-Sept-2014
Revision 0.1.0
Related Proposals None
Requested Grant Amount 1,800,000 NBT
Custodial Fee 36,450 NBT (2.025%)
. .
NuBits Grant Address | B7mmVdVQ1SNNcT9zuQRK1B3Cbvo8vHeoB1 Vote Amount | 1,836,450 NBT



Abstract

This document represents a proposal to act as a custodian in support of the Nu decentralized network. The terms outlined in this document represent actions that will be taken if Nu Shareholder consensus is achieved by casting votes for the unique pairing of the Custodian's NuBits grant address and requested amount, B7mmVdVQ1SNNcT9zuQRK1B3Cbvo8vHeoB1 | 1,836,450.

This proposal will be confirmed by the Nu Shareholders if this voting pair is written within the majority of blocks:

  • solved during a 10,000 block span;
  • and that majority of blocks solved also represents a majority of the coin age destroyed during the same blockspan.

Once the 5001 valid vote is cast, and the coin age requirement has been met, the network will automatically generate and deposit 1,836,450 nubits (NBT) into the custodial grant address. From that amount, a custodial fee of 36,450 NBT will be subtracted and the remaining 1,800,000 NBT will then be deposited into the Custodian's trading account on an exchange (or exchanges) that will support a NuBits / USD or crypto (BTC/PPC) / NBT market.

If the exchange selected supports an NBT/USD pairing, the Grant's nubits will be placed for sale at $1.00, plus exchange fees. If the exchange supports a BTC/NBT or PPC/NBT pair, the grant's nubits will be placed for sale at a rate equivalent to the exchange rate of BTC/$1.00 or PPC/$1.00, plus exchange fees.

During the execution of this proposal, as the initial granted amount of nubits is sold off, 90% of the profits will be placed in support of buy-side liquidity at a price of $1.00001, minus exchange fees. The remaining 10% of the proceeds from the sale of these nubits will be distributed back to the Nu Shareholders as a periodic dividend. These dividends will be paid out using peercoins purchased from the open market during the execution of the operation of this grant.

Note: For the purposes of this proposal, the rest of the document will use a NBT/USD pairing for consistency, and to avoid the complexities of estimation when using a fluid exchange rate.



Goals

This proposal is a modification on the concept of a dividend custodial grant, as described in the Nu white paper. Rather than offering dividends back to the Nu Shareholders at 1:1 (sales to dividends), this proposal is structured continuously cycle liquidity from the sell-side to the buy-side and back again, only slowly removing dividends from the operations. A full dividend payout to Nu Shareholders is expected, but the timeline for that repayment is designed to meet the goals of the Grant, rather than to minimize the time to return the dividend. By recycling liquidity back into the market, instead of immediately paying out the shareholder dividends in full, this proposal will satisfy the following goals:

  1. To provide the early NuBits cryptoasset with a continuously replenished—though slowly decreasing—amount of "extra" liquidity. A stable market with high levels of liquidity is preferred and this proposal is intended to contribute to that state during the early days of the network. In fact, when the anticipated capital provided by liquidity custodians (approximately $250,000 to $400,000) is factored in, shifting profits from the sell-side to the buy-side allows the market to satisfy up to 125% of the outstanding nubits in circulation at a price point of ~$1.00/NBT.

  2. To provide shareholders with dividends from the sale of the custodial grant in a reasonable timeframe while allowing the network to be as self-supporting and resilient as possible.

  3. To attempt to mitigate significant "boom & bust" events of the Peercoin exchange rate that will likely occur if large quantities of peercoins (~$1,800,000 worth, in this case) are required to be purchased by the Custodian to satisfy the second goal of this grant. By spacing out the purchase of peercoins on the open market, and across a number of exchanges, the Custodian will be able to purchase the peercoins to be dispersed without adverse influence on the market. This is expected to result in a higher total number of peercoins acquired for and transferred to Nu Shareholders over the life of this Grant's operation.

    Economic theory suggests that the periodic dividend purchases will result in sustained increased demand for peercoins and subsequently, higher prices over the long-term. Should the value of a peercoin increase over the lifetime of the Grant's operation, the early dividends, if held by the recipient, should appreciate in value. This may result in a positive return for shareholders beyond the expected return of the equivalent of 1,800,000 NBT (minus exchange and transaction fees).

    It is expected that by staggering the dividend payouts to Nu Shareholders the Peercoin market(s) will not be exposed to large-scale sell-offs immediately after the periodic dividends are issued, supporting the long-term health of Peercoin's per-unit price.

Justification

This proposal represents the largest grant request to date. The primary reason that this request includes such a sizable amount of nubits is that it is the seed amount intended to bootstrap the initial NuBits markets. The size of the grant will allow for deep liquidity, which will be put to use stabilizing the $1.00/NBT peg.

As with any new market, it is very difficult to gauge how quickly the supply will be exhausted, so this first grant is also large enough to cover the situations where we have higher immediate demand than expected. By utilizing the depth provided by this grant, the Nu Shareholders will have time to react to changes in the market (such as introducing new proposals for additional grants to meet higher-than-expected demand). If demand is lower than expected, the structure of the proposed operations of this dividend grant allow it to continue to provide both sides of exchange support for as long as it takes for the utilization of nubits to increase.


Grant Operations

The day-to-day operations of the Grant can be divided into four distinct epochs:

  1. The first period,

  2. the primary operating periods,

  3. the periods of increasing dividend rates, and

  4. the final period.

All liquidity-providing operations described below will employ an automated trading bot (NuBot) to manage the day-to-day trading. The actions related to the purchase of peercoins for dividends is likely to use a customized version of the same bot. The use of the NuBot will allow liquidity information will be reported back to the Nu block chain during operations.

The First Period

the Grant's operation is structured to follow a pattern of actions. Sets of these actions are bundled into periods. During the first period, 001, the Custodian will take the following actions:

  1. the Grant's 1,800,000 nubits will be placed for sale on the most viable cryptocurrency exchange available at the time that the first period begins at the market rate of $1.00201/NBT. This sell-wall will be opposed by an active buy-wall provided by the network's liquidity custodians (estimated price: $0.9980/NBT).

    Note: For the purposes of this proposal, exchange fees are projected to be $0.002 per NBT sold. Unless otherwise noted, the Custodian will attempt to set the rate at $1.00/NBT, plus or minus the exchange transaction fee.
    
  2. As traders purchase nubits on the exchange, any time the Grant's nubits are purchased, the proceeds of that trade (minus exchange fees) will be split into two amounts. 90% of the proceeds will be used as liquidity and placed slightly above the existing buy-wall at an anticipated price of $0.99801, while the remaining 10% will be used to place orders for peercoins to satisfy the shareholder dividend.

  3. When any of the Custodian's open buy orders are executed, 100% of the nubits acquired (again, minus exchange fees) will be returned to the sell-wall at the previously established sale price.

  4. Once 40% of the initial value have been sold (~720,000 NBT), the first dividend distribution will be readied for delivery to all eligible Nu Shareholders within 72 hours. Eligibility for each distribution is covered in the Dividend Distribution Details section of the proposal.

    Disclaimer: Each period's dividend distribution timing is an estimate and will be based on the Custodian's ability to purchase the required number of peercoins on the open market.
    
  5. In parallel, period 001 will come to a close and the next period, 002, will begin.

Primary Operating Periods

Activity during the operation of period 002 and for a majority of the subsequent periods, the custodial actions taken will follow a pattern:

  1. At the start of each period, a period starting value (PSV) will be calculated.

    PSV = (Custodian's Open Asks) + (Custodian's Open Bids)
  2. As the Grant's trading operations continue, 90% of all proceeds (minus exchange fees) from nubits sold from the Custodian's sell-wall will be returned to the buy-wall. The remaining 10% will be used to place orders for peercoins to satisfy the shareholder dividend.

  3. The period will continue until a period sales goal (PSG) is met. The sales goal is calculated as:

    PSG = PERIOD STARTING VALUE * 0.40

    Once the sales goal is reached, the period's dividend distribution will be readied and sent to eligible Nu Shareholders within 72 hours.

  4. Meeting the current period's sales goal triggers the close to the period and the beginning of the next one.

Estimated Allocation of Dual-side Liquidity and Dividends

Distribution Per Period

Periods of Increasing Dividend Rates

Operations will continue to run as described above until a point when the expected dividends for the current period are scheduled to be under $10,000 in value. When this occurs, the dividend percentage will be increased by the amount required to yield a dividend of between $10,000 and $11,000. Based on the models used to support this proposal, the first period of increasing dividend percentage will be 050, when the allocated dividend are estimated to shift from 10% to 11%, and ```051`` when the dividend percentage adjusts to 11.5%. Subsequent periods will experience an increase on a period-over-period change that is roughly exponential in its growth.

Dividend Yield

Late Period Dividends (Estimated)
Period Start Value (NBT) Sales Goal (NBT) Div. Yield (%) Div. Dist. ($) Div / 10k NSR ($)
001 1,800,000 720,000 10.0 72,000 0.720000
002 1,728,000 691,200 10.0 69,120 0.691200
... ... ... ... ... ...
049 253,683 101,473 10.0 10,147 0.101473
050 243,536 97,414 11.0 10,716 0.107156
051 232,820 93,128 11.5 10,710 0.107097
052 222,111 88,844 12.0 10,661 0.106613
053 211,449 84,580 12.0 10,150 0.101496
054 201,300 80,520 13.0 10,468 0.104676
055 190,832 76,333 14.0 10,687 0.106866
056 180,146 72,058 15.0 10,809 0.108087
057 169,337 67,735 16.0 10,838 0.108376
058 158,499 63,400 17.0 10,778 0.107779
059 147,721 59,089 18.0 10,636 0.106359
060 137,085 54,834 19.0 10,418 0.104185
061 126,667 50,667 20.0 10,133 0.101333
062 116,534 46,613 22.0 10,255 0.102549
063 106,279 42,511 24.0 10,203 0.102027
064 96,076 38,430 27.0 10,376 0.103762
065 85,700 34,280 30.0 10,284 0.102840
066 75,416 30,166 34.0 10,257 0.102565
067 65,159 26,064 39.0 10,165 0.101648
068 54,994 21,998 46.0 10,119 0.101190
069 44,875 17,950 56.0 10,052 0.100521
070 34,823 13,929 72.0 10,029 0.100291
071 24,794 12,000 85.0 10,200 0.102000
072 14,594 14,594 100.0 14,594 0.145940

Final Period

The final period for the Grant's operation will be reached when the dividend percentage has reached 100% of the period sales goal and the dividend yield would be under the $10,000 floor. When this occurs, the full balance of the period starting value for the period will be sold and all remaining proceeds will be distributed as a dividend. Based on projections, this will occur on or slightly before period 072. At this time, all remaining grant assets will be accounted for, the final dividend will be prepared for distribution within 72 hours.

After the last period has ended, a final reporting of the Grant's operations will be tallied and published publicly to https://nu.pearlknight.com for community review once the proposal's vote has been passed.


Alternative Period Fulfillment Scheme If Demand Exceeds Expectations

It is not possible to forecast the initial demand for nubits, so one scenario is that there is disproportionate buy-side pressure. In that case, the time between periods could be significantly extended, as it will take a while for the liquidity placed on the buy-side by the custodian to be used to buy nubits from people selling. In this situation, relying on the Grant's proposal to cycle through liquidity based on set period sales goals will not work as planned.

In this scenario, the Grant's dividends will be issued following the same formula, but rather than waiting for liquidity to be recycled and new nubit sales to occur, distributions would be made every 72 hours (corresponding to a period).


Alternative Liquidity Scenario

Scenario: within the first three periods, 1,800,000 nubits are sold and no buy-side liquidity is required.

  1. Immediately upon reaching the proscribed period sales goal for period 001, the first dividend payment is made.

  2. The second dividend payment is made after the next 575,000 nubits are sold (payout occurs no less than 72 hours after the first payout is made).

  3. The third dividend is made when the remaining nubits in the Grant's initial sell-wall are purchased.

  4. From this point forward, dividend payments will be made following the same pattern that was described above, but rather than based on the period sales goal, payments will be dispersed very 72 hours. Each payout will signify the end of a period.

If the demand stays high for nubits for a long enough period of time, the full distribution of dividends during the final period will occur on or before period 072, approximately 210 days after the Grant begins it's operation.

Shareholders should not expect to see the dividend for this grant returned quickly. The value provided to Nu Shareholders is more than just the dividends accrued; it's the stability and security of the network during the initial days and months. Protecting the network from allowing the buy price to drop below the $1.00/NBT peg is more dangerous to long-term profits than the quick return on this Grant's proceeds.

Dividends

The peercoins required to fulfil the distribution of dividends will be purchased on the open market.

  • Exchanges with a lower amount of peercoin trading volume are preferred, primarily because we'll be able to offer better-than-average prices for larger blocks of peercoins. If attempted on a deeply liquid exchange (such as BTC-e), the net effect will likely be a run-up of price, or a backing-away of the order because traders will view it as an intentionally placed "wall," rather than a real order.

  • A premium may be required to attain a better price.

  • We will attempt to push traders to raise volume on secondary markets through their attempts to arbitrage the price difference made available.

  • The Custodian will split orders between one and four exchanges (divided proportionately each exchange).

  • Splitting the trades across exchanges lowers the exposure risk of exchange default(s).

### Dividend Distribution Details
Note: For the purpose of this grant, all times described will use GMT.

Because the dividend distribution process can take up to 72 hours after the end of the period (or longer, and possibly longer, due to unforeseen factors or market conditions beyond the custodian's control), there is the possibility that an offset will develop between the current active period and the period that the next dividend will be distributed for. Dividend distributions will not occur more frequently than once every 72 hour period.

To be included in a period's dividend payout, a Nu Shareholder must be in possession of their shares prior to the point 36 hours before the distribution was announced. For example, if the period dividend is announced on December 3, 2014, at 1:00PM GMT, only Nu Shareholders who were in possession of nushares as of December 1, 1:00AM will be eligible to receive the distribution from the period.

Additionally, shareholders must consider the following:

  • Dividends will be sent in proportionate amounts to the holdings of the individual eligible shareholders in peercoins.

  • If a dividend payment for a shareholders is expected to be smaller than 0.01 PPC, the dividend will not be sent (need to get the approximate number of NSR this represents at the lowest point during the dividend payout period)

  • To access their distributed dividends, shareholders will need to export their dividend address keys from Nu to their Peercoin wallet (Core or Peerunity). This can be done before or after the dividend distribution (dividends are allocated in the block chain, but need to be connected to the shareholder's Peercoin wallet) and will need to be run again if new nushare addresses are created.


## Commitment to Transparency

Reporting

During the operation of the activities described in this proposal, information about the current state of the Grant's funds and past and upcoming dividends can be found at https://nu.pearlknight.com. Reports will be available with frequently updated measures of the Custodian's performance and accounting of the activities that have been conducted for the benefit of the Nu Shareholders:

  1. Total funds granted
  2. Total funds already paid in distribution
  3. Total funds still in custodian control (close to (1) minus (2), other than trade fees)
  4. Current sale price(s) that the funds are set at, since this could be in BTC, PPC, or USD
  5. Total funds ready for next distribution, valued in PPC
  6. Estimated date of next distribution, based on past sales volume and anticipated nubits demand
  7. Estimated PPC to be distributed at next distribution, per 100,000 NSR held (including projections for the future sales of funds based on rates over the past week)
Note: The Grant's reports will not be posted until the proposal has been approved and the operations have started. The final URL of the Grant's reports will be subject to change. Any modifications to the URL will be publicly announced on the Nu forums (http://discuss.nubits.com).

Accountability

This proposal, when passed by the Nu Shareholders will be considered binding and the Custodian will proceed with the Grant's operations as described. If at any point during the operation Nu Shareholders deem the elected custodian to be conducting actions that they feel differ from what is described here, or if the network's economic forecasts change, a fully certified motion (majority of votes cast) will be required to make amendments.




Risks

The Nu protocol represents a revolutionary form of decentralized asset policy. The predominant risk that the Grant's operations face is one of an uncertain market. While there is strong experimental evidence to suggest that the NuBit peg can be maintained for an as long as required by the network, it should not be viewed as a certainty. The projects used in this proposal are based on a stable $1.00/NBT peg, and are subject to reasonable change based on the market evolving market conditions.

If the Custodian determines that the performance of the Grant will be under-performing due to external market factors, public notification will be provided on the Nu forums at (http://discuss.nubits.com) and on the Custodian's reporting site. Should that be required, the Custodian reserves the right to propose a motion to adjust the terms to maximize the Grant's usefulness to the Nu network and shareholder returns.

Should the NuBits market fail to deliver the expected return, the Custodian will not be held liable for claims of lost profits related to operations of the Grant.

External, non-market threats include technical problems, adverse regulatory environments, and the actions of bad actors attempting to gain control or to disrupt the Grant. The Custodian will take reasonable precautions to avoid these conditions, such as:

  • Operating the Grant from an off-shore location, with a distributed infrastructure built to provide redundancy;

  • Practicing proper data handling and security practices;

  • Periodically testing backup strategies;

To best assure the Grant's security, additional details of the practices to be used to protect it will not be released.




Custodian Information

Contact

  • Contact Email: kiaratamm@vistomail.com

  • BitMessage Address: BM-2cUT4y5fsmvYQRjsPLJ6LhVobotv8qRsx6

  • Nu Community ID: KTm

Past Performance

This is the first Nu custodial grant proposal submitted by Kiara Tamm.

Ms. Tamm's status and standing in the community, has to this point, been intentionally kept to a minimum. The details presented in this document should be used to gauge the perceived ability to meet the terms presented in this proposal, and voting-eligible members of the Nu community is encouraged to raise any questions, concerns, or recommendations for improvement prior to reaching their own personal decision.




Supplementary Materials

Period Performance Forecast
Period Start Value (NBT) Sales Goal (NBT) Div. Yield (%) Div. Dist. ($) Div / 10k NSR ($)
001 1,800,000 720,000 10.0 72,000 0.720000
002 1,728,000 691,200 10.0 69,120 0.691200
003 1658,880 663,552 10.0 66,355 0.663552
004 1592,525 637,010 10.0 63,701 0.637010
005 1528,824 611,530 10.0 61,153 0.611530
006 1467,671 587,068 10.0 58,707 0.587068
007 1408,964 563,586 10.0 56,359 0.563586
008 1352,605 541,042 10.0 54,104 0.541042
009 1298,501 519,400 10.0 51,940 0.519400
010 1246,561 498,624 10.0 49,862 0.498624
011 1196,699 478,679 10.0 47,868 0.478679
012 1148,831 459,532 10.0 45,953 0.459532
013 1102,878 441,151 10.0 44,115 0.441151
014 1058,762 423,505 10.0 42,350 0.423505
015 1016,412 406,565 10.0 40,656 0.406565
016 975,755 390,302 10.0 39,030 0.390302
017 936,725 374,690 10.0 37,469 0.374690
018 899,256 359,703 10.0 35,970 0.359703
019 863,286 345,314 10.0 34,531 0.345314
020 828,755 331,502 10.0 33,150 0.331502
021 795,604 318,242 10.0 31,824 0.318242
022 763,780 305,512 10.0 30,551 0.305512
023 733,229 293,292 10.0 29,329 0.293292
024 703,900 281,560 10.0 28,156 0.281560
025 675,744 270,298 10.0 27,030 0.270298
026 648,714 259,486 10.0 25,949 0.259486
027 622,766 249,106 10.0 24,911 0.249106
028 597,855 239,142 10.0 23,914 0.239142
029 573,941 229,576 10.0 22,958 0.229576
030 550,983 220,393 10.0 22,039 0.220393
031 528,944 211,578 10.0 21,158 0.211578
032 507,786 203,114 10.0 20,311 0.203114
033 487,475 194,990 10.0 19,499 0.194990
034 467,976 187,190 10.0 18,719 0.187190
035 449,257 179,703 10.0 17,970 0.179703
036 431,286 172,515 10.0 17,251 0.172515
037 414,035 165,614 10.0 16,561 0.165614
038 397,473 158,989 10.0 15,899 0.158989
039 381,575 152,630 10.0 15,263 0.152630
040 366,312 146,525 10.0 14,652 0.146525
041 351,659 140,664 10.0 14,066 0.140664
042 337,593 135,037 10.0 13,504 0.135037
043 324,089 129,636 10.0 12,964 0.129636
044 311,125 124,450 10.0 12,445 0.124450
045 298,680 119,472 10.0 11,947 0.119472
046 286,733 114,693 10.0 11,469 0.114693
047 275,264 110,106 10.0 11,011 0.110106
048 264,253 105,701 10.0 10,570 0.105701
049 253,683 101,473 10.0 10,147 0.101473
050 243,536 97,414 11.0 10,716 0.107156
051 232,820 93,128 11.5 10,710 0.107097
052 222,111 88,844 12.0 10,661 0.106613
053 211,449 84,580 12.0 10,150 0.101496
054 201,300 80,520 13.0 10,468 0.104676
055 190,832 76,333 14.0 10,687 0.106866
056 180,146 72,058 15.0 10,809 0.108087
057 169,337 67,735 16.0 10,838 0.108376
058 158,499 63,400 17.0 10,778 0.107779
059 147,721 59,089 18.0 10,636 0.106359
060 137,085 54,834 19.0 10,418 0.104185
061 126,667 50,667 20.0 10,133 0.101333
062 116,534 46,613 22.0 10,255 0.102549
063 106,279 42,511 24.0 10,203 0.102027
064 96,076 38,430 27.0 10,376 0.103762
065 85,700 34,280 30.0 10,284 0.102840
066 75,416 30,166 34.0 10,257 0.102565
067 65,159 26,064 39.0 10,165 0.101648
068 54,994 21,998 46.0 10,119 0.101190
069 44,875 17,950 56.0 10,052 0.100521
070 34,823 13,929 72.0 10,029 0.100291
071 24,794 12,000 85.0 10,200 0.102000
072 14,594 14,594 100.0 14,594 0.145940
END FORECAST: GRANT AMOUNT EXHAUSTED AFTER PERIOD 072
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