QUESTION:
First, where does the newly created NDAU come from to pay out EAI and lock bonus? Second, it seems to me EAI+lock bonus may effect supply and market price. Was it excluded from the price / supply model on purpose? Is it a consideration or negligible? Are the reward amounts / time frames adjustable by Council, even though the FAQ states, “not released from the Endowment”?
ANSWER:
Reserve ndau consists of the 30m ndau issued according to the Target Price curve. Once purchased and in circulation, there are sources (EAI) and sinks (SIB, Floor Price, etc.) that will cause the total ndau outstanding plus remaining reserve ndau to rise above or fall below the 30m reserve number. The max hard limit set by the BPC for that total is 40m. EAI ndau comes from the same place new bitcoin come from – they are generated according to the rules of the ndau protocol by nodes and as set in policy by the BPC. There are many places in which ndau is permanently burned of course, too. The intention is to have over time, the sources and sinks roughly balance in equilibrium. This may require the BPC to lower the EAI rates (or possible even raise them!) at some point in the future, but it is anticipated that choices previously made to lock one’s EAI under one rate should be grandfathered in under such EAI modification decisions. The BPC will have much greater information on average rates of ndau sources and sinks once ndau has had a reasonable amount of time to freely evolve and at that point there will be greater clarity on where monetary policy will likely head. EAI as a source is dynamic and does correlate to velocity and thus according to the quantitative theory of money, is naturally correlated to price. Intuitively, you can think of the two ends of the total EAI spectrum: if all ndau holders are active short-term holders, ready to respond to price fluctuations at any moment, or to spend ndau as currency in a “living paycheck to paycheck” manner with no long-term savings, then the total EAI being generated is zero. However, if all ndau holders locked up their ndau for 3 years and retained their EAI inside the locked accounts, then the maximum amount of EAI is being generated, but the velocity of outstanding ndau is zero, and thus any new purchases are forced to be made from reserve ndau and will drive up the Target Price. From this, you can see that EAI correlates with velocity, and velocity correlates with market price.