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Offline fluxer555

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Where does the interest come from, really?
« on: November 08, 2014, 04:28:45 PM »

I understand the mechanics behind everything. Shorts compete by bidding on interest rates. But in terms of economic exchange of value, from where does the value of interest originate?

I'm sorry if this is a seemingly stupid question. I ask because I think it would be extremely valuable to concisely describe this to people who think this is a scam.

zerosum

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Re: Where does the interest come from, really?
« Reply #1 on: November 08, 2014, 04:43:42 PM »
From the shorts taking a loan (to borrow the bitUSD from the system in order to sell them).It is 30 days loan. The shorts logically pay interest on that loan. The system  all of that interest to the bitUSD holders.

Offline Rune

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Re: Where does the interest come from, really?
« Reply #2 on: November 08, 2014, 08:01:25 PM »
I understand the mechanics behind everything. Shorts compete by bidding on interest rates. But in terms of economic exchange of value, from where does the value of interest originate?

I'm sorry if this is a seemingly stupid question. I ask because I think it would be extremely valuable to concisely describe this to people who think this is a scam.

As long as new features are continously added to the blockchain and it is maintained and improved at a steady pace, the expected value should always increase in the long term. Investors will be willing to pay an interest rate to leverage their exposure to the increase in value. It is an oversimplification, but you could say that if a bitUSD shorter is willing to pay a 10% interest rate over 30 days that means he is expecting the price of BTS to increase by at least that amount in terms of USD.

Offline Ander

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Re: Where does the interest come from, really?
« Reply #3 on: November 08, 2014, 09:59:55 PM »
bitUSD shorts are willing to pay interest in order to get a loan, which essentially allows them to margin long in BTS.

If you look at exchanges, margin interest can be relatively high.  This allows for a healthy bitUSD yield.
https://metaexchange.info | Bitcoin<->Altcoin exchange | Instant | Safe | Low spreads

 

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