Key Ratios
Explore what are the key ratios of CuBit™ and why they are important.
CuBit™ Kay Ratios are the percentages of the CuBitDAO™ Treasury, as manifested in the CuBitDAO™ Asset Ledger (Ledger), invested in real estate or in cash and cash equivalents.
When investing CuBit™ into real estate, the CuBitDAO™ Administrator (Administrator) targets certain key asset ratios for the asset mix backing the value of CuBit™. The targets are 65% real estate and 35% cash. There is an allowable variance of 15% up or down for each. This means a “balanced” Ledger has real estate and cash ranging from 50/50 to 80/20, respectively.
- Real Estate (RE) Target Ratio is 50% to 80% of the Treasury
- Liquid Asset (LA) Target Ratio is 20% to 50% of the Treasury
The Liquidity Crunch
Real estate is a notoriously illiquid asset. When you store your wealth in real estate, it may not come out again for months, years, or even decades. This is the natural flow of real estate deals.
If you try to quickly pull your money out of real estate, it can take weeks or months and will often require you to take a loss. When you are desperate for cash, weeks or months may feel like years, and every dollar of loss feels like you’re getting robbed.
Haste Makes Waste (of your wealth)
Liquidation of any real estate investment requires you to find a buyer who is willing to buy and able to pay you. Typical real estate sales typically take weeks or months to close. There is a lot of due diligence as well as the creation and review of legal documents. Often, the buyer must get a loan approved to be able to buy.
If you want to rush the sale, the buyer can only offer you as much cash as they have on hand, without waiting for the approval of any loan. This is great for the buyer. It is very bad for your wealth. Because you need to move fast, the buyer usually gets the asset at a substantial discount from its real value. That may not seem fair, but it is the way investing in real estate works. The adage is true, “haste makes waste.” Rapidly withdrawing from real estate assets wastes capital. It wastes your wealth.
The Liquid Asset Ratio ensures that a significant portion of your CuBit™ can be quickly redeemed for cash, without forcing a loss.
Opportunity Costs
Opportunity costs are another problem you have when all your wealth is in real estate. This means that, when a great opportunity comes along you have limited choices.
- Give up and let the opportunity go
- Beg, borrow, or steal the money for the opportunity
- Sell something fast as use the cash for the opportunity
Without liquid reserves, you are unable to act quickly to take advantage of new, emerging opportunities. The Liquid Asset Ratio ensures that a significant portion of your CuBit™ can be quickly redeemed for cash, so you can take advantage of opportunities.
Redeeming CuBit™
The Administrator has a special obligation to CuBitDAO™ Members that most real estate investors do not. Because CuBit™ is a receipt currency, Members can present it to the Administrator at any time (after the end of the Pre-Launch) with the request to redeem it.
Because your CuBit™ is not directly linked, either wholly or fractionally, to a specific real estate investment, the CuBitDAO™ promises to redeem CuBit™ for cash at the publicly posted CuBit™ USD Redemption Rate (Redemption Rate). The Redemption Rate is typically a slightly lower than the USD Deposit Exchange Rate. The difference between the Deposit Rate and the Redemption Rate is to defray Administrator costs incurred to redeem your CuBit™.
CuBitDAO™ will buy it back from you at the current prevailing Redemption Rate, regardless of the value of your deposit. Here is a short example to illustrate what this could mean to you.
Of course, this example is modeled on the assumptions that the value of CuBit™, based on real estate appreciation, has gone up, AND the value of ETH, which is volatile, has gone down.
Deposit and Redemption Agreement Constraints
The Key Ratios are used to determine what portion of your CuBit™ can be immediately redeemed and what portion will be delayed so that the Administrator can liquidate real estate to meet your redemption request.
If you prefer not to wait, you can take your CuBit™ to any participating digital exchange and they may be able to exchange your CuBit™ for any currency offered by that exchange. However, their rate of exchange does not necessarily reflect the actual value of your CuBit™.
CuBit™ Buy Backs
Every redemption is a CuBit™ buy back.
If the Administrator invested 100% of your wealth in real estate, they would be unable to quickly and easily redeem your CuBit™ for its full market value. With all your wealth locked up in real estate the Administrator would be forced to sell real estate to redeem your CuBit™. That would lower the values in the Asset Ledger and would directly reduce the value of your CuBit™.
The Key Ratios ensure that the Administrator keeps a significant portion of your CuBit™ wealth in cash to prevent forced sales and to take advantage of real estate opportunities which may be advantageous to the Members.
Conclusions
CuBitDAO™ established target asset ratios set variance boundaries set for these ratios. These Key Ratios are enforced on the Administrator through the smart contract between the CuBitDAO™ and the Administrator.
If Key Ratios are violated, CuBitDAO™ takes predefined actions intended to protect the CuBit™ of Members. Key Ratios are considered key performance indicators (KPI) for the health of CuBit™, the CuBitDAO™, and measure the performance of the Administrator.
Key Ratios are designed to make it easy and fast for you to meet routine cash needs from the wealth you store in CuBit™. In ordinary circumstances you will be able to get full value for every CuBit™. CuBitDAO™ has designed this to make it nearly as easy as depositing your wealth in a bank. You expect to make routine withdrawals without delays or penalties with your bank and with the CuBitDAO™.
Although the design of CuBit™ incorporates inherent protections against volatility and Universal Real Estate Wealth Protection Solutions, LLCTM (UREWPSTM, the Company) is committed to support the asset-based valuation of CuBit™, as with any currency there is nothing to prevent speculators from taking unforeseen actions which might cause the price of CuBit™ to vary without reference to the underlying value proposition. The Company cannot prevent and is not responsible for the actions or results of such speculative behaviors.
