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Offline toast


If you know there is someone who will *never* sell (lost USD keys), there is a minimum BTS valuation below which both bitasset and BTS valuation instantly drop to almost 0. Right? At some point buying BTS is buying debt, or something. I can't get my own version of bitshares into a state where BTS is worth $50 and there are $1m bitUSD and then ask you to accept that bitUSD.

That might be an low probability edge case, but doesn't the same assumption require us to assume that "most" of the bitUSD holders would sell their bitUSD if they had the chance to sell it for 2 USD in a different form? What about 1.1 USD?

edit: How this relates to the title is, if we assume that a bitasset holder knows his risk of catastrophic loss is higher the higher his "free" return is, I intuitively find it much easier to believe the system is in an "equilibrium" state.

I also think this means the short price restriction has to be above $1, or maybe have a > $1 instead of an >= $1 somewhere...
« Last Edit: December 05, 2014, 02:02:37 AM by toast »
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Offline arhag

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there is a minimum BTS valuation below which both bitasset and BTS valuation instantly drop to almost 0.

Why would BTS drop to 0? And while BitAssets could drop to zero since the market peg would have to break, wouldn't it make more sense to hit a floor determined by the value of BTS they can get out of it by selling their BitAssets to the outstanding margin call orders by the blockchain?

As for the rest of your post, you completely lost me...

Offline toast

It drops to 0 because it indicates all agents agree that BTS growth cannot exceed any other highly liquid investment.

You can't have an "inside-out" bitasset market. It will have negative value to almost everyone, which means its positive price will represent demand from people who don't know it is stealing from them. If everybody thinks bitasset yield will outperform BTS gains that means BTS consumes value.

If I have the total outstanding supply of BTS and somebody is only willing to buy the whole thing for a dollar, and there are millions of bitUSD with collateral locked up, and I accept that deal, it means BTS is not solving any coordination problem between me and you. It is not "active" in our economic interaction, I do not have a value-add alliance with you that says "we can out-produce an equivalent USD/GLD investment by choosing to do this interaction" (in the abstract "actors whose incentives align proportionally to shared staked in all their activities. In real life that just means "sudden chaotic collapse because why did anyone think BTS was valuable to begin with").

(by the way I have a pet theory that this implies the only possible endgames for our network are that BTS accumulates in the hands of individuals who do not sell out out any price and use BTS for its utility in knowledge coordination (smart contract network) or BTS accumulates in the hands of professional thieves and becomes a net value consumer (either instantly dies or merges with the state). this is how I entertain myself these days).

I can tell I am obviously what I mean very well. It comes down to the fact that if BTS use is not forced there is no way to trick the market into thinking it is income-producing if it is not.
« Last Edit: December 05, 2014, 04:53:18 AM by toast »
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zerosum

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I do not claim to know if this theory is right or wrong...


I am only willing to bet who came up with it!

Offline arhag

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It drops to 0 because it indicates all agents agree that BTS growth cannot exceed any other highly liquid investment.

You can't have an "inside-out" bitasset market. It will have negative value to almost everyone, which means its positive price will represent demand from people who don't know it is stealing from them. If everybody thinks bitasset yield will outperform BTS gains that means BTS consumes value.

If I have the total outstanding supply of BTS and somebody is only willing to buy the whole thing for a dollar, and there are millions of bitUSD with collateral locked up, and I accept that deal, it means BTS is not solving any coordination problem between me and you. It is not "active" in our economic interaction, I do not have a value-add alliance with you that says "we can out-produce an equivalent USD/GLD investment by choosing to do this interaction" (in the abstract "actors whose incentives align proportionally to shared staked in all their activities. In real life that just means "sudden chaotic collapse because why did anyone think BTS was valuable to begin with").

I am having a really difficult time understanding what you are saying. But is your claim that if BitAssets ever become undercollateralized this will lead to an unstable feedback loop that drives the price of BTS down to 0?

It comes down to the fact that if BTS use is not forced there is no way to trick the market into thinking it is income-producing if it is not.

I think this income-producing thing is a red herring. I don't think BTS needs to have DAC profits to provide BTS holders with dividends in order to give BTS value. I view BTS as a currency (a bad one for now because it is volatile) that will behave more and more like a currency as it grows. And just like BTC doesn't need to be profitable to grow as a currency, neither does BTS. BitUSD and other BitCurrencies are the bridge that make it convenient for users to adopt the system and move value from fiat into the blockchain in the present day while BTS volatility is still high. BitCurrencies can still exist in the saturation stage to protect against any small volatility that remains in BTS, but the collateral requirements would have to significantly decrease to provide speculators with larger leverage.
 

Offline toast

Quote
I think this income-producing thing is a red herring. I don't think BTS needs to have DAC profits to provide BTS holders with dividends in order to give BTS value. I view BTS as a currency (a bad one for now because it is volatile) that will behave more and more like a currency as it grows. And just like BTC doesn't need to be profitable to grow as a currency, neither does BTS. BitUSD and other BitCurrencies are the bridge that make it convenient for users to adopt the system and move value from fiat into the blockchain in the present day while BTS volatility is still high. BitCurrencies can still exist in the saturation stage to protect against any small volatility that remains in BTS, but the collateral requirements would have to significantly decrease to provide speculators with larger leverage.

Here I use income loosely... I think "income-producing" and "can sustain a market value" are effectively equivalent for all assets that you cannot be forced to buy

Quote
But is your claim that if BitAssets ever become undercollateralized this will lead to an unstable feedback loop that drives the price of BTS down to 0?

I'm saying maybe it *should* in the same way there are never supposed to be mispriced stocks, but that it won't drift towards that if bitUSD holders will "almost all definitely" sell their bitUSD when it becomes overvauled
« Last Edit: December 05, 2014, 06:06:18 AM by toast »
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Offline starspirit

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I think this income-producing thing is a red herring. I don't think BTS needs to have DAC profits to provide BTS holders with dividends in order to give BTS value. I view BTS as a currency (a bad one for now because it is volatile) that will behave more and more like a currency as it grows. And just like BTC doesn't need to be profitable to grow as a currency, neither does BTS.


Whether this is feasible or not, isn't this a different paradigm from that on which the concept of a DAC was originally established, which was to make profit? I thought that was really the point of difference for bitShares. Are we reneging on that credo by saying it's enough to just not make losses?
« Last Edit: December 05, 2014, 06:34:01 AM by starspirit »

Offline toast


I think this income-producing thing is a red herring. I don't think BTS needs to have DAC profits to provide BTS holders with dividends in order to give BTS value. I view BTS as a currency (a bad one for now because it is volatile) that will behave more and more like a currency as it grows. And just like BTC doesn't need to be profitable to grow as a currency, neither does BTS.


Whether this is feasible or not, isn't this a different paradigm from that on which the concept of a DAC was originally established, which was to make profit? I thought that was really the point of difference for bitShares. Are we reneging on that credo by saying it's enough to just not make losses?

"Just not make losses" is "produce USD income"! We are talking about very large scale
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Offline arhag

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Here I use income loosely... I think "income-producing" and "can sustain a market value" are effectively equivalent for all assets that you cannot be forced to buy

Fine. But then in that case, going back to your previous statement:
It comes down to the fact that if BTS use is not forced there is no way to trick the market into thinking it is income-producing if it is not.
I would respond by asking you about gold. No one is forced to use gold and yet the vast majority of its value has nothing to do with its intrinsic uses for productive purposes (electrical, medicinal, etc.). The market has effectively tricked itself into thinking it deserves its high value. And that has to do with the fact that is scarce, difficult to counterfeit, and used as a instrument to facilitate trade (everything BTS can do). Its historical usage as a store of value gives it an inertia that makes it difficult for everyone to suddenly come to a consensus that the vast majority of its value is undeserved (I'm lacking a better term at the moment) and thus cause a sudden crash in its price. I think the same can hold true for BTS after the system gains some steam, meaning it could have value even if it doesn't fully support the nominal value of all outstanding BitAssets.

I'm saying maybe it *should* in the same way there are never supposed to be mispriced stocks, but that it won't drift towards that if bitUSD holders will "almost all definitely" sell their bitUSD when it becomes overvauled

I think what will happen is that arbitrage around the peg price will pretty much stop after people realize it is too risky to rely on the market peg anymore. Without arbitrage, the sell off of BitAssets for fiat or other real world assets that derive their value outside of the blockchain will not necessarily result in sell pressure of BTS (thus hopefully preventing the feedback loop that would have otherwise driven the price of BTS to zero). Instead the sell off of BitAssets will cause the price of the BitAssets to drop (breaking the market peg) until they reach a floor determined by the value of BTS they can get using those BitAssets from the decentralized exchange (after all the shorts are still forced to cover either because of margin calls or the 30 day expiration).
« Last Edit: December 05, 2014, 07:02:03 AM by arhag »

Offline arhag

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I think this income-producing thing is a red herring. I don't think BTS needs to have DAC profits to provide BTS holders with dividends in order to give BTS value. I view BTS as a currency (a bad one for now because it is volatile) that will behave more and more like a currency as it grows. And just like BTC doesn't need to be profitable to grow as a currency, neither does BTS.


Whether this is feasible or not, isn't this a different paradigm from that on which the concept of a DAC was originally established, which was to make profit? I thought that was really the point of difference for bitShares. Are we reneging on that credo by saying it's enough to just not make losses?

There is a difference between hoping and planning to provide stakeholders dividends through DAC profits (which is still the BitShares philosophy) and claiming that it is necessary to make the entire BitAsset system work or that the DAC profits determine an upper bound on value of the total BitAsset supply the system can support.

Offline Empirical1.1

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I didnt understand all of that, so below might not even be what you are talking about, but...


BTS has a base value due to income derived from trading fees.

Using the example of a gold vault accessed via goldmoney.com. Normally someone looking to store value in gold buys the gold and pays a storage fee to the vault and a fee to Goldmoney.com for facilitating it. GoldMoney.com's valuation is derived from those fees.

In the case of BTS. BTS is Goldmoney.com and shorts are the vault. At the moment shorts are usually paying interest to longs and it may well stay that way till peak BitAsset demand stage. However even after that stage, if BitGold is as useful & valuable to some people as gold stored in a vault, (which it is) they will be willing to pay a fee to incentivise shorts and a goldmoney.com comparable fee to BTS. (This will be reflected by BitGold being worth more than 1-1 in future and us making longs compete on how much interest they are willing to pay shorts, which will be the equivalent of a fee paid to a vault.)

So there should be a long term market where one side is incentivising the other and BTS is receiving fees from trades happening on it's blockchain.

If we get to a point where general BitAsset demand is declining then BTS's price may fall, but only to the point where it reflects fair value for income received from current BitAsset trading fees. (In which case we might be valued similar to BitReserve/Goldmoney that had a similar amount of assets and trading fees derived from it.)

The trading fees model is essentially the BitReserve model. We are worth much more if we get it right because a decentralised way to safely store value trumps centralised. In addition to getting transaction fees the way goldmoney or Bitreserve will. The 'gold' people are temporarily buying in their case is actually BTS in our case.  So we benefit from BTS demand created by rising BitAsset demand during the growth phase and future valuation of that in addition to fees.
« Last Edit: December 05, 2014, 02:19:41 PM by Empirical1.1 »

Offline toast

All you said is correct, and we're investigating the possible cases where a conventional value analysis based on share of income from transaction fees could not possibly be sufficient to justify the demand you need to collateralize the assets being transacted.
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Offline Rune

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All you said is correct, and we're investigating the possible cases where a conventional value analysis based on share of income from transaction fees could not possibly be sufficient to justify the demand you need to collateralize the assets being transacted.

Maybe in the distant future shareholders will want the most trusted delegates to stockpile real world resources as collateral to back BTS. If a jurisdiction like switzerland or norway allowed the blockchain (or rather an elected delegate) to hold legal rights to property, then as long as you trust that the government won't seize your the stockpiles, and you trust the security systems in place to prevent theft are adequate, then your money is actually relatively securely backed by real value, unlike any other currency on the planet. If a stockpile delegate doesn't manage the stockpiles well, or is not transparent, the responsibility and the reward of the delegate is passed on to another human that the stakeholders trust more. This will make delegates compete to see who can design the best system of transparent auditing and security. If the stockpiles security system is funded directly through the delegate (maybe with smart contracts?), then it will be impossible for the delegate manager to insert themselves as a gateway with any extra power beyond what the stakeholders delegate to them.

It's a pipe dream though, would require blockchains to become a lot more serious business before governments would even imagine doing "deals" with them, such as introducing legislation specifically for the sake of becoming a trusted stockpile country. But I think that if a blockchain gained legally recognized rights in a free country that isn't hostile towards digital currencies, then the assets it owns should be as safe as those of any other public company.

Offline Empirical1.1

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All you said is correct, and we're investigating the possible cases where a conventional value analysis based on share of income from transaction fees could not possibly be sufficient to justify the demand you need to collateralize the assets being transacted.

I guess the goal would be to back BitAssets with a BTS that isn't exclusively relying on BitAsset transaction fee income for its valuation and perhaps to have a tighter limit on the % BitAssets can compromise in total.

In BTS's case it will also be earning fees from DNS/UIA/Marketplace etc. and though it won't be viewed as a crypto-money like BTSX was, it will still have a kind of seperate crypto-currency value based mainly on it's utility, which a normal AAPL share doesn't have, so hopefully it will be able to maintain a much higher value than is required to sustain a reasonable pool of BitAssets.

If BitAssets aren't generating enough fees & are no longer growing in circulation, they may still be a 'loss leader' that is required to bring value into the BTS system that ends up generating fees on all the other products and services which makes BTS profitable overall.
« Last Edit: December 05, 2014, 08:53:24 PM by Empirical1.1 »

Offline Agent86

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I'm with you on this one Arhag.

 

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