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Offline toknormal

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Surely here's the market for Bitshares !
« on: November 27, 2014, 09:35:47 AM »

Hi

I'm living in Spain right now.

The economic situation here is DIRE. The reason, in a single word more than anything is "liquidity". Lack of Euro liquidity due to:

 - disparate rates of credit contraction in the euro zone
 - inability for sovereigns to revalue their own currencies unilaterally in response to this

As an example, a software development business I'm familiar with takes six months to get paid by their clients and then they in turn are up to a year in arrears with a lot of their own salary payments. Instead they hand out IOU's.

The whole country is functioning to a large extent on debt - invoices and IOU's which are acting as a substitute for the liquidity shortfall in growing quantity.

Now lets think for a minute what fiat currency is - it's a *fungible* token of DEBT (because someone on the other side of your 50 Euro note has taken a short position on the Euro by signing a mortgage application or corporate loan application or bank overdraft form to bring more Euro liquidity into existence).

Likeways, collateralised assets like BitUSD are just such a liquidity machine.

Surely the current deflationary situation in the Euro zone is just exactly the problem that a decentralised liquidity tool like BitUSD (in this case it would be BitEUR) was designed to solve ? Is it not ?

The challenge is to find the spark that lights the tinder pile. The detonator. It only needs to work for one tiny anecdotal scenario in some obscure commercial sector for the uptake to gain a self sustaining momentum. Such decentralised liquidity sources could then start to take market share from the commercial bank credit supply.

It needs to be seen to work for just 1 case because the genius of this system is that it facilitates a business model that's already known to work (the commercial banking system) and decentralises it, basically giving anybody that wants one a banking licence. (Another way to look at it is that it ‘granularises’ the banking system). It also represents a natural and powerful capitalisation of the tension that exists between the so called "1% ers" and the "99% ers" - i.e. it would feed off the big wealth disparity and help to reconcile it. Just to spell it out in technical terms:

Q. - Who is going to take the short side of the BitUSD (BitEUR) trade ?

A. - liquidity starved commercial markets such as that of our spanish software house example above and the concrete and sand suppliers below

Q. - Who is going to take the long side of the BitUSD (BitEUR) trade ?

A. - those with excess disposable income that currently don't know what to do with it other than to invest in a ballooning stock market or buy artwork who's value is based on nothing but central bank monetary expansion

That's what I mean by "feeding off the wealth disparity". There's a common interest there. Before anyone asks the obvious question "why don't the banks just provide it", the answer's name is Mr Mario Draghi - governor of the European Central Bank (ECB). The ECB has hitherto resisted implementing a full blown QE program like the US and Japan. The principle resisting force behind this is German - they do not like anything that promotes the wheelbarrow market and they also have the lowest unemployment rate in Europe which means they have the most "real" economic activity going on which means they have the most liquid commercial credit sector. So the aggregated Eurozone deflationary profile does not even tell the full story of the credit disparity that exists between sovereigns because it's more acute in the Mediteranean countries and less acute in Germany (See the graph below).

As I say - the spark needs to be found. A tiny working case study where a crypto-based, collateralised currency asset works as a substitute for all the business IOU's that are currently floating around the Eurozone economy due to deflation.

The key to creating the "spark" is the abundant supply of commercial debt notes (invoices, wage liability slips etc). People don't need much of an incentive to convert these into something tradeable.


« Last Edit: November 27, 2014, 01:43:02 PM by toknormal »

Offline eagleeye

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Re: Surely here's the market for Bitshares !
« Reply #1 on: November 27, 2014, 09:57:51 AM »
so maybe bitEUR_IOU

bitEUR = bit euro currency
_IOU = debt to be traded.

Think also bitEUR_Debt

Give people a mechanism to trade the IOUs for money and they will.  There are already Collateralized debt obligation markets that exist and you can trade, but those markets are bundles generally of securities or they are government debt.  But it doesnt mean it couldnt work in this case.  You could even be more specific bitEUR_Santander_Debt

Just my 2 cents.

Offline matt608

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Re: Surely here's the market for Bitshares !
« Reply #2 on: November 27, 2014, 10:41:54 AM »
Thanks for the useful info.  I'm working on something that can be adapted to this market without too much cost.

Offline toknormal

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Re: Surely here's the market for Bitshares !
« Reply #3 on: November 27, 2014, 12:11:17 PM »
P.S. The reason I say it's a liquidity problem as much as an "economic growth" problem is that there are loads of businesses which are solvent in terms of commercial debt/credit but insolvent in terms of fungible currency.

For example, take the guy that delivered sand to the new kids playpark that's being built outside my house (see below for a picture of it just to ram the point home that we're not talking about ivory tower stuff). This is real money that's being spent out of a council budget but that doesn't end up in the hands of contractors for months due to the liquidity crisis.

I was chatting to the driver of the sand truck this morning (by co-incidence because I happened to know him). He is short the Euro (has a mortgage) and long commercial debt (i.e. he's invoiced out enough to cover his mortgage payments but he told me he's not going to see that money till March at the earliest). This is consistent with just about every other business I've come across around here, also public sector bodies such as Universities. Obviously that's a crap situation to be in because:

A. he's basically solvent
B. one side of his balance sheet is expressed in a fungible asset (EUR) and the other isn't (or put another way, the asset-side of his balance sheet is increasingly being used as a non-fungible currency)



If we zoom out from this anecdotal example and aggregate this situation nationally you basically end up with a certain percentage of the economy which is functioning on a non-fungible currency (commercial invoices and debit notes). This is where the market is for BitUSD and BitEUR IMO.

BitUSD / BitEUR needs to find a way to feed liquidity into this economy.

« Last Edit: November 27, 2014, 12:50:52 PM by toknormal »

Offline luckybit

Re: Surely here's the market for Bitshares !
« Reply #4 on: November 27, 2014, 08:28:39 PM »
53% of young people in Spain are unemployed. I would say the marketing team should translate videos and marketing material into Spanish and target Spanish youth.

Reference
http://ycharts.com/indicators/spain_youth_unemployment_rate_lfs
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Offline monsterer

Re: Surely here's the market for Bitshares !
« Reply #5 on: November 27, 2014, 10:32:44 PM »
53% of young people in Spain are unemployed. I would say the marketing team should translate videos and marketing material into Spanish and target Spanish youth.

Reference
http://ycharts.com/indicators/spain_youth_unemployment_rate_lfs

Spanish and Brazilian Portuguese would be great choices for translation IMO as those countries are most in need of something like Bitshares.
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Offline Empirical1.1

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Re: Surely here's the market for Bitshares !
« Reply #6 on: November 27, 2014, 10:55:19 PM »
I don't understand everything you wrote but I don't think BitEuro solves your liquidity problem.

In order to create a BitEuro, you need a buyer with a Euro's worth of BTS & someone taking a short position who locks up two Euro's worth of BTS. So BitEuros take a lot more liquidity out of the system is my understanding.

Offline xeroc

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Re: Surely here's the market for Bitshares !
« Reply #7 on: November 28, 2014, 08:29:51 AM »
I don't understand everything you wrote but I don't think BitEuro solves your liquidity problem.

In order to create a BitEuro, you need a buyer with a Euro's worth of BTS & someone taking a short position who locks up two Euro's worth of BTS. So BitEuros take a lot more liquidity out of the system is my understanding.
I agree ... it's the same issue with the bitRUB .. it won't help you if the government screws up the currency .. the pegged asset will be "screwed" too ...

People need to realize that money value and buying power are two different things
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Offline monsterer

Re: Surely here's the market for Bitshares !
« Reply #8 on: November 28, 2014, 09:21:07 AM »
I agree ... it's the same issue with the bitRUB .. it won't help you if the government screws up the currency .. the pegged asset will be "screwed" too ...

The spirit of the OP still stands, though - he just needs to pick a different pegged currency from his national one.
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Offline toknormal

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Re: Surely here's the market for Bitshares !
« Reply #9 on: November 28, 2014, 09:48:24 AM »
In order to create a BitEuro, you need a buyer with a Euro's worth of BTS & someone taking a short position who locks up two Euro's worth of BTS. So BitEuros take a lot more liquidity out of the system is my understanding.

Why do you say they take liquidity out of the system ?

BitEUR (BitUSD) is collateralised with BTS, not Euros. BTS in turn is capitalised (not collateralised) worldwide. And anyway, even if BTS was only capitalised within the Eurozone the euros used to purchase BTS don't go out of circulation, they just pass from one holder to another.

If we do the algebra behind this there's a net liquidity addition which corresponds to the quantity of BitEUR borrowed.

Here's an example: I am going to start a business which buys up all the commercial debt in Spain that I can get my hands on at a 4% premium. The default rate is 2% so therefore my business plan is going to revolve around making a 2% margin from carrying all the transient commercial debt in Spain.

[1] - I have 1 million Euros. I use that 1 million euros to purchase 1 million Euros worth of BTS (my million Euros stays in circulation because the guy that sold me the BTS has now got it)

[2] - I use that 1 milllion EUR worth of BTS to collateralise 500,000 BitEUR. My old million is still in circulation and I've now - additionally - brought 500,000 BitEUR into existence by borrowing it

[3] - I now use the 500,000 BitEUR to purchase 520,000 EUR worth of Spanish commercial debt. (includes my 4% premium). The incentive for people to sell their debt to me is twofold:

a) - they are exchanging an unfungible "currency" for a fungible one
b) - they are getting paid 4 months earlier than they otherwise would be

[4] - the world is now a better place: The Spanish economy is now 50% more liquid (as it's gone from a 1 million EUR cap to 1 million EUR plus 500,000 BitEUR), I've made a 2% profit on my debts (assuming the other 2% defaulted) and my customers got paid early and are well on their way to spending their new-found liquid assets. The Spanish government bond risk premiums have reduced because their growth figures are up due to higher monetary velocity. Mr Draghi is also pleased because he can delay firing up the printing presses and keep Mrs Merkel happy

[5] - with my new profits I decide to consolidate the security of my business by purchasing some default swaps to further hedge the risk associated with my commercial debt carry trade
« Last Edit: November 28, 2014, 09:54:58 AM by toknormal »

Offline oldman

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Re: Surely here's the market for Bitshares !
« Reply #10 on: November 28, 2014, 05:20:23 PM »
Your business model is sound so far as I can tell - I think BTS is going to find all sorts of use cases in the coming months and years.

Drop a few zeros, have a chat with your truck driver and see if it works.

Offline Empirical1.1

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Re: Surely here's the market for Bitshares !
« Reply #11 on: November 29, 2014, 06:48:14 PM »
In order to create a BitEuro, you need a buyer with a Euro's worth of BTS & someone taking a short position who locks up two Euro's worth of BTS. So BitEuros take a lot more liquidity out of the system is my understanding.

Why do you say they take liquidity out of the system ?

BitEUR (BitUSD) is collateralised with BTS, not Euros. BTS in turn is capitalised (not collateralised) worldwide. And anyway, even if BTS was only capitalised within the Eurozone the euros used to purchase BTS don't go out of circulation, they just pass from one holder to another.

If we do the algebra behind this there's a net liquidity addition which corresponds to the quantity of BitEUR borrowed.

Here's an example: I am going to start a business which buys up all the commercial debt in Spain that I can get my hands on at a 4% premium. The default rate is 2% so therefore my business plan is going to revolve around making a 2% margin from carrying all the transient commercial debt in Spain.

[1] - I have 1 million Euros. I use that 1 million euros to purchase 1 million Euros worth of BTS (my million Euros stays in circulation because the guy that sold me the BTS has now got it)

[2] - I use that 1 milllion EUR worth of BTS to collateralise 500,000 BitEUR. My old million is still in circulation and I've now - additionally - brought 500,000 BitEUR into existence by borrowing it

[3] - I now use the 500,000 BitEUR to purchase 520,000 EUR worth of Spanish commercial debt. (includes my 4% premium). The incentive for people to sell their debt to me is twofold:

a) - they are exchanging an unfungible "currency" for a fungible one
b) - they are getting paid 4 months earlier than they otherwise would be

[4] - the world is now a better place: The Spanish economy is now 50% more liquid (as it's gone from a 1 million EUR cap to 1 million EUR plus 500,000 BitEUR), I've made a 2% profit on my debts (assuming the other 2% defaulted) and my customers got paid early and are well on their way to spending their new-found liquid assets. The Spanish government bond risk premiums have reduced because their growth figures are up due to higher monetary velocity. Mr Draghi is also pleased because he can delay firing up the printing presses and keep Mrs Merkel happy

[5] - with my new profits I decide to consolidate the security of my business by purchasing some default swaps to further hedge the risk associated with my commercial debt carry trade

I didn't answer this as I got confused. I realise now the Euro stays in circulation but I think you need €500k to buy 500k BitEuro and €1 000 000 to short it into existence. So I think there is a liquidity gain, but less. (500k extra liquidity for 1.5 million vs. 500k extra for 1 million.)

In practice though you could probably add a lot of liquidity as there are many worldwide that would short it to take a leveraged position on BitShares so you only need €500k to purchase 500k BitEuro and people worldwide would provide the collateral to short, sourced from a range of currencies.

Not sure though, this stuff confuses me.
« Last Edit: November 29, 2014, 06:50:04 PM by Empirical1.1 »

 

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