Locking up Ripple's XRP with Crypto Conditions

[tulo]

2 hours ago, Annevanzwol said:

In the 'countering the Damocles effect' thread I proposed the idea of linking the supply of XRP  to price development. If the price rises to fast, the supply increases and vice versa. Of course in an automated Escrow construction. Linking to the price also factors in the demand development. A pure time driven Escrow does not. Thinking about it I like the analogy of the steam regulator on a steam machine which increases/decreased steam dependent on RPM. It somewhat even resembles the Ripple logo with the balls.

What you are proposing is a dynamical system with negative feedback. It would be bad because it is known to have a fixed steady state value (in most of the case), that would mean a constant price for XRP 

[Xi195]

2 minutes ago, tulo said:

What you are proposing is a dynamical system with negative feedback.

What he said. Any documentation/papers on this @tulo?

6 minutes ago, Apollo said:

If the system paid them a fixed monthly amount, and they held another 2 B on their books, they have a range of actions they could use to effect the market.

This sounds good to me. The fixed allotment creates an upper limit on how much "control" can be exhibited. Obviously the distribution amount is critical. Any thoughts on this @tulo?

[will4star]

17 minutes ago, tulo said:

What you are proposing is a dynamical system with negative feedback. It would be bad because it is known to have a fixed steady state value (in most of the case), that would mean a constant price for XRP 

Not necessarily. If price increase is X and volume is Y, you can calculate how much XRP would be needed to be sold to completely neutralise that price increase (XRP needed to 100% neutralise = Z) - so it would revert back to the 'resting' state. However if you program it so that only, say 80% of that vol of XRP needed, Z, is sold as the price increases, the price will continue to rise, only slower. Setting the % rate of Z would let you choose what you price dampening effect would be - or, the rate at which you want to distribute XRP. It's a balance mathematicians much smarter than me would have to decide. But it doesn't guarantee a fixed XRP price at all.

Edited March 25, 2017 by will4star
smelling error

[tulo]

6 minutes ago, Xi195 said:

What he said. Any documentation/papers on this @tulo?

This sounds good to me. The fixed allotment creates an upper limit on how much "control" can be exhibited. Obviously the distribution amount is critical. Any thoughts on this @tulo?

A paper? There is a world...control system is based on that...probably there are 2000 books, 100k papers, 300 conferences, 10k scientist working on that  (I'm one of those)

[will4star]

7 minutes ago, Xi195 said:

What he said. Any documentation/papers on this @tulo?

This sounds good to me. The fixed allotment creates an upper limit on how much "control" can be exhibited. Obviously the distribution amount is critical. Any thoughts on this @tulo?

What if ever month they decided not to spend the X million XRP that were released to them. What's to stop them from stockpiling it again and selling it in bulk in one given moment? Still enough to make markets uncertain imo (albeit less so, as you described)

[Xi195]

2 minutes ago, will4star said:

(albeit less so, as you described)

This is the key. The net effect is still limited. The upper bound does not change. 

[will4star]

11 minutes ago, Xi195 said:

This is the key. The net effect is still limited. The upper bound does not change. 

It is an option. But it depends on what RL's goal is. If it is to distribute XRP, then the dynamic negative feedback mechanism is best since it also guarantees minimal effect on the markets/reduced volatility. Markets would also be able to predict what any effect of a price increase will have on the no. of free-roaming XRP, as per the disclosed escrow plan RL made. This also applies more control, since a sizeable portion of XRP will be locked up and can ONLY be used for selling/distribution. 

However if RL wants to use some XRP to fund development, incentivise market makers etc, or whatever, they would have the flexibility to do so in the other system. IMO I think they could to both, to serve both purposes.  There really isn't much need to have a huge pile of XRP just sitting there anyway and a monthly control mechanism could help strategy (and PR)

Edited March 25, 2017 by will4star

[Apollo]

58 minutes ago, will4star said:

What if ever month they decided not to spend the X million XRP that were released to them. What's to stop them from stockpiling it again and selling it in bulk in one given moment? Still enough to make markets uncertain imo (albeit less so, as you described)

 

 

 

 

Presumably, Ripple would continue to act rationally after they implement this system. IMO, that would be the worst possible thing they could do to themselves. if they raise or lower their reserves the market could take this into account. So if they held a ton of XRP then the market would get wary and stop buying, lowering the value of what they are about to sell. So Ripple would have an incentive to keep their reserves relatively small inorder to signal their intentions not to dump.

The funny thing is, Ripple always had this incentive, they just didn't believe it mattered. I think Ripple has been operating under an assumption that if they acted reasonably, professionally and with integrity for long enough, they would build a track record the market could rely on. The problem is, XRP is basically a currency and building that kind of trust with money takes a long time. Even with a positive track record lasting decades, some people are just not going to believe Ripple won't change their toon. Not to belabor the point, but I don't see any reason not to bypass the need for much of this trust by implementing an automated system.

Edited March 25, 2017 by Apollo

[will4star]

4 hours ago, Apollo said:

The problem is, XRP is basically a currency and building that kind of trust with money takes a long time. Even with a positive track record lasting decades, some people are just not going to believe Ripple won't change their toon.

Aye, especially with newcomers.

Don't get me wrong, I see the merits of what you're saying! I just don't think it has to be mutually exclusive. For example, RL could divide their stockpile into 3 Funds - A reserve fund, time-locked to release a certain ammount at regular intervals - for the xrp they're not using; a current account fund, for the day-to-day running, remuneration of employees and development (the flexible part); a pre-programmed distribution fund for XRP earmarked to increase circulating supply/liquidity. Think having those 3 things in place would give wary people much more faith in RL, and i see few downsides for RL.

Edited March 25, 2017 by will4star

[Guest]

7 hours ago, tulo said:

What you are proposing is a dynamical system with negative feedback. It would be bad because it is known to have a fixed steady state value (in most of the case), that would mean a constant price for XRP 

Don't think I agree. Just like @will4star explained is it how you setup the negative feedback loop. You don't base it on a fixed price but on price growth. This is where the analogy with the steam machine regulator breaks down as it is based on a fixed RPM not an increasing RPM.

Edited March 25, 2017 by Guest

[tulo]

5 hours ago, Annevanzwol said:

Don't think I agree. Just like @will4star explained is it how you setup the negative feedback loop. You don't base it on a fixed price but on price growth. This is where the analogy with the steam machine regulator breaks down as it is based on a fixed RPM not an increasing RPM.

Yes of course....you can do almost "whatever" you want with dynamical systems. You can give a ramp as reference for the price and track that reference. But this only in you have unlimited input power (that is tons of XRP and FIAT).

[Apollo]

18 hours ago, will4star said:

Aye, especially with newcomers.

Don't get me wrong, I see the merits of what you're saying! I just don't think it has to be mutually exclusive. For example, RL could divide their stockpile into 3 Funds - A reserve fund, time-locked to release a certain ammount at regular intervals - for the xrp they're not using; a current account fund, for the day-to-day running, remuneration of employees and development (the flexible part); a pre-programmed distribution fund for XRP earmarked to increase circulating supply/liquidity. Think having those 3 things in place would give wary people much more faith in RL, and i see few downsides for RL.

 

 

I would like to be able to accurately describe their plan in at most two sentences. Ripple is already extremely difficult to explain and I think it would greatly benefit marketing to have this plan be as simple as possible. So I would prefer a fixed payout, possibly decreasing over time. If Ripple was then clear about how they distribute, it would provide the market with adequate certainty. A fixed payout would not stop Ripple from using more complicated strategies to incentivize markets or lower volatility, it would just place a known and understandable limit on how much downward pressure they could exert.

Edited March 25, 2017 by Apollo

[Mercury]

The funny thing is, Ripple always had this incentive, they just didn't believe it mattered. I think Ripple has been operating under an assumption that if they acted reasonably, professionally and with integrity for long enough, they would build a track record the market could rely on. The problem is, XRP is basically a currency and building that kind of trust with money takes a long time. Even with a positive track record lasting decades, some people are just not going to believe Ripple won't change their toon.

Also a lot of this type of trust is built around a trust in a institute or person. Ripple doesn't have a 'mandat' or a appointed authority like a central bank, they are a for profit company. The company can pivot and change as needs be putting what was a community accepted strategy one day in jeopardy the next. Ripple also has undergone changes at the top and will do so again as it grows, the person we are ok holding the keys can change and they might have a different take on what is needed.

 

A lock up means the security and TRUST of supply and control is guaranteed no matter what.

 

[JoelKatz]

My position on this has evolved lately, largely due to conversations with Miguel. My position used to be that it didn't really matter but that locking up some XRP wouldn't hurt us and might help, so there was no reason not to do it. I was concerned that we might limit our future flexibility and so didn't advocate locking up on a tight schedule.

However, if we're going to lock up XRP on the ledger, we're doing it to provide more predictability. Locking up too little or for too short means we get less predictability. Too little gives effectively no predictability at all. Essentially, I was super-concerned about us needing XRP for something and not having it and ignoring the harm from overhang that we could have mitigated by locking up.

Now I think we probably should lock up as much as we think we can for as long as we think we can. If we don't, people will fear that if things aren't going so well, we'll be tempted to sell lots of XRP, precisely the fear we want to eliminate. In exchange, if we're doing well and need more XRP for some reason, we should just be able to buy it if we have to.

The only real downside to locking up too much XRP is if the price is getting too high and we want to use the opportunity to increase the supply but can't. First, that's a good problem to have. Second, in that case, we can still increase the supply at a predictable rate, and I don't see it being a problem if the price gets "too high". We're not looking to make money by selling XRP at temporary peaks -- that's never been our strategy.

[MundoXRP]

1 hour ago, JoelKatz said:

My position on this has evolved lately, largely due to conversations with Miguel. My position used to be that it didn't really matter but that locking up some XRP wouldn't hurt us and might help, so there was no reason not to do it. I was concerned that we might limit our future flexibility and so didn't advocate locking up on a tight schedule.

However, if we're going to lock up XRP on the ledger, we're doing it to provide more predictability. Locking up too little or for too short means we get less predictability. Too little gives effectively no predictability at all. Essentially, I was super-concerned about us needing XRP for something and not having it and ignoring the harm from overhang that we could have mitigated by locking up.

Now I think we probably should lock up as much as we think we can for as long as we think we can. If we don't, people will fear that if things aren't going so well, we'll be tempted to sell lots of XRP, precisely the fear we want to eliminate. In exchange, if we're doing well and need more XRP for some reason, we should just be able to buy it if we have to.

The only real downside to locking up too much XRP is if the price is getting too high and we want to use the opportunity to increase the supply but can't. First, that's a good problem to have. Second, in that case, we can still increase the supply at a predictable rate, and I don't see it being a problem if the price gets "too high". We're not looking to make money by selling XRP at temporary peaks -- that's never been our strategy.

Thanks @JoelKatz and @miguel!  ..... hodl guys!!

Edited March 26, 2017 by MundoXRP