Once considered a zombie project, is NuBits now rising from the ashes?
The NuBits project seeks to provide a stablecoin (USNBT) that is pegged to the US dollar. It has a bit of a rocky history. NuBits was established in August 2014 and traded at its target peg of $1.00 for nearly two years. Then in early June 2016, the USNBT price collapsed to under 20 cents. The peg was eventually re-established in September 2016, but the number of NuBits in circulation was reduced from over 700K to 150K as a result of the crisis[1].
All of this caused a great deal of tumult within the NuBits community. NuBits acheives stability by granting coins to custodians, who are entrusted with ensuring price stability be issuing buy and sell orders on the open market. A side effect of this approach is that community members often questioned the performance, motives and intelligence of custodians who make decisions with which they disagree.
The NuBits currency is managed by a Decentralizes Autonomous Organization (DAO). Stakeholders put forward motions which are voted on by shareholders. Shareholders are people who hold a second token called a NuShare. For example, shareholders decide how many NuBit coins to create, when to create them, who to entrust with custodial funds, and when to issue additional NuShares.
The community is rife with concerns over conflicts of interest. For example, some are concerned that current NuShare holders may be reluctant to issue additional shares for fear of dilution, even if that’s the best course of action for the currency as a whole. So it should come as no surprise that suspicion and discord pervade community discussions. Many of the people involved participate pseudonymously, obscuring their true interests and exacerbating mistrust.
Origins of Price Crash
This was never more apparent than during the devaluation crisis that began in June of 2016. NuBits uses a complex system for managing the exchange rate of the USNBT. The system is organized into a set of “Liquidity Tiers” which represent different ways to affect the demand and supply of NuBits. One of these tiers calls for “Liquidity Providers” (LPs) to place buy and sell orders on the open market. Sell orders are placed at slightly higher than $1.00 and buy orders at slightly lower than $1.00. The difference between the buy and sell price is the spread.
The size of the spread was in issue of great contention during the crisis. NuBits founder, who goes by the pseudonym “Jordan Lee,” felt the spread should remain small to signal a commitment to support the price. But not all Liquidity Providers agreed. One such LP, who went by the name MasterOfDisaster, used custodial funds to place buy orders at $0.10. To some this was outrageous. One community member argued that if the price fell that far the project would be dead anyways. Others felt spending reserve funds to support the currency while in free-fall was ill advised. They argued that this would simply deplete the reserves and leave NuBits with no way to recover.
This rift came to head when Jordan Lee submitted a motion that called for the “firing and replacing incompetent Liquidity Providers.” The motion was ultimately withdrawn, but soon thereafter a user named Phoenix was elected Chief of Liquidity Operations in a move to centralize efforts at stabilizing NuBits price. Many members of the community believe that Phoenix is, in fact, Jordan Lee.
Road to Recovery
The tumult within the community has not died down since the days of the price crash. Nevertheless, NuBits has managed to maintain its peg over the last year, with some fluctuation. For much of that time the project was effectively on life support. While the peg remained in effect, the market cap remained depressed and the trading volume was far lower than in the past. In the second half of 2017, however, trade volume has increased markedly and the market cap has grown to levels not seen since before the price crash, according to Coin Market Cap.
Analysis
What does this mean for the future of NuBits? It is remarkable that it has been able to recover after having its peg broken. But where does it go from here? The level of division in its community does not seem to be going away any time soon. In July, a motion was submitted to officially remove Phoenix from the role of Chief of Liquidity Operations after it was revealed that funds placed in Phoenix’s care had been stolen by a hacker.
The dysfunction of the NuBits community may well hamstring NuBits in the face of more organized competitors like Tether. Tether’s market cap is orders of magnitude larger than NuBits and a quick glance at it Coin Market Cap chart reveals that its peg has been far more stable.[2] The NuBits DAO may be less centralized than it once was. Some believe that Phoenix controls enough shares to ensure passage or defeat of any motion. NuBits is also hoping to hire a centrally located team of developers. Overall, it is moving in the direction of centralizing operations to compete with alternatives like Tether.
However, the market cap is still relatively small meaning one actor alone may be capable of disrupting the price. NuBits is not dead yet, but it must overcome many challenges and undergo significant growth, if it is to rise from the ashes and become a major player.
Footnotes
[1] According to a user named Phoenix, who was elected Chief of Liquidity Operations in the wake of the currency devaluation, the peg was eventually re-established but at the cost of reducing total NuBits in circulation by nearly 80%
[2] Update: Phoenix has responded to this post on the NuBits discussion forum, arguing that the price of USNBT is more stable than the CoinMarketCap chart suggests
Author — Raul Reynoso
I am fascinated by this nascent blockchain revolution and the incredible innovation it’s generating. I write to shed a light on new developments and better understand where this is all going. My views are my own. They are informed by my background in policy analysis, software engineering, and entrepreneurship.
Follow me on Twitter @rulioX
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