How to break free of NMR price risk

Numeraire
22

That is 0.25, but an active model is typically exposed to 4 rounds simultaneously, which means the maximum burn is 100% of the stake

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23

I meant only for one round. Having 25% of your stake burned because you bail out early should be harsh enoughā€¦ For 4 rounds compound burning that would be around 68% burned not 100%, by the way.
Edit: I always forget that the payouts are applied 4 weeks afterwardsā€¦ I was not even aware of the theoretical possibility that you can lose your entire stake if you have 4 unlucky rounds.

24

We really just need a consistent market maker that will be or find the counter parties to 4-week long NMR forward contracts for each round. Perhaps speculators who are willing to buy and hold for 4 weeks would be interested to long the contract. But the nicheness of NMR is maybe not interesting enough for someone to set up this mechanism in large volume with decent liquidity. I think I saw APR of over 100% on some of the NMR swaps on the Sushi/Kashi page. I also donā€™t understand all this enough to feel comfortable engaging in such a platform where I need to use my head a bit. Would always feel I am missing something.

25

I think its more dangerous than holding nmr. The price of NMR is so damn spiky. You can get liquidated in no time. What is worse you can get liquidated on both sides in one day. IMO it is not worth the risk.

In order to make it work, one must have some money as backup for liquidation calls, that means less money staked, which is less earned, and you can always lose everything.

And the liquidity of the gains is another issue, plus gass fees.

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26

Going short yeah, but I think a forward contract managed by a market maker wouldnā€™t need that liquidation provision for counter-party risk (I am not sure though?). I was thinking like upon the delivery of the NMR, the agreed upon price could easily be paid by the receiver of the NMR no matter the prevailing market price.

There is a bit of risk if the NMR round performance doesnā€™t line up with the expected NMR amount in the contract however. Perhaps can allow the quantity to be variable +/- 10% of some stated amount.

So like buy 100 NMR at $10/coin for $1000 at available spot price. Use that 100 NMR to stake 1 model for 4 weeks (liquidate the model after the round). At the same time, enter into a forward contract with some counterparty at the available forward price, letā€™s say $9.8/coin. Wait 4 weeks to get NMR distribution of 120 NMR letā€™s say (20% return). Sell 110 NMR at the contract forward price of $9.8 and the other 10 NMR at the prevailing spot price at the time. Do this with a different model slot for each of the 4 weeks.

27

sorry, I forgot to reference the post I was writing about. My reaction is on the idea of staking on borrowed nmr, and or shorting nmr.

1 Like
28

Could there be a slow transition to a NMRUSD Stable coin if it went something like thisā€¦

  • At the time payouts need to be made, Numerai converts The payout NMR into a newly minted USDNMR at whatever the current market rate is. Ideally, all NMR currently at stake would get converted to this USDNMR in a single event, but this may be too costly for Numerai to pull off.
  • participants are allowed to stake both NMR and USDNMR in the tournament. Payouts always in USDNMR and burns first apply to NMR
  • When a participant wishes to withdraw funds, the USDNMR could either be transfered directly and sold on the open market, or unwrapped and, at the time of withdrawal the user walks away with USDC.

This should maintain price and liquidity for NMR on open exchanges because anyone willing to get into the tournament or increase their stake would need to buy NMR in order to stake.

The potential loss to Numerai is that they would have to swap NMR from the treasury into USDNMR, but realistically, if they are distributing NMR from the treasury then they have already lost the potential value of that NMR if they wanted to just sell it.

Over a very long period of time, eventually the NMR cache would slowly change over to USDNMR.

Also, by using a chain such as Solana, or Fantom to fascilitate the special USDNMR token, the transactions could happen much faster and and at less gas price to the current NMR Eth contract.

Iā€™m no expert in this area, but it does seem that a slow transition to stable coin would add some much needed confidence in the program overall. The trick is really doing this without the bottom falling out of NMR, becuase Numerai needs this value regarding their large stash of NMR. Not to mention we the participants not wanting our investment going to zero.

Iā€™m sure Iā€™m missing something, but Iā€™d like to hear from those in the know regarding blockchain tech if something like this is possible.

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