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Offline Brekyrself

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Understanding of a Gateway
« on: February 28, 2015, 09:15:40 PM »

http://bytemaster.bitshares.org/update/2014/12/18/Benefits-of-Being-a-BitShares-Gateway/

I have been reading this article multiple times and still have some issues wrapping my head around this concept.  Let's run through an example to clarify the process.

Example 1: Physical Gateway that accepts fiat.

1.  Buyer Joe deposits $100 worth of fiat into the physical gateway.
2.  Gateway issues an IOU as a BitShares User Issued Asset (UIA).  Gateway only has to keep a record that Buyer(Joe) deposited $100 via transaction ID of UIA

From the article "If the issuer is trustworthy then those IOUs will trade at face value and therefore be useful in trade."  What is backing the UIA that will maintain the $100 worth of fiat?  Just the free market of buyers and sellers of the UIA?

From the article "Once an asset has been issued it can be freely traded against all of the other asset types on the network including the fully collateralized market pegged assets known as BitAssets such as (BitUSD, BitBTC, etc.)."  I don't understand how all of these markets could be traded vs the UIA.  Wouldn't the only market available be UIA vs BitUSD if USD was the fiat deposited with the gateway?

3. Joe now trades UIA for BitUSD > Bitshares.  Just like any other market there has to be enough liquidity for the UIA vs BitUSD and obviously also the BitUSD vs Bitshares market.

4.  BitShares doubles in price vs USD and now Joe wants to get back into Fiat USD.  Joe trades back for the UIA and sends the UIA back to the gateway to redeem the 2x amount in person.  The gateway and Joe now know he has a tax burden on the financial gain correct?


I know the KYC and AML laws vary around the world so I am not questioning what the gateway has to keep as a record but specifically how does the UIA maintain value? 

Offline speedy

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Re: Understanding of a Gateway
« Reply #1 on: March 01, 2015, 06:42:13 AM »
What is backing the UIA that will maintain the $100 worth of fiat?  Just the free market of buyers and sellers of the UIA?

The thing that backs it is the issuer of the UIA, because at any time it can be redeemed for $100 from the issuer. Its just like a deposit on MtGox, except that you are free to trade that deposit on a global orderbook and not just MtGox's orderbook.

Offline Shentist

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Re: Understanding of a Gateway
« Reply #2 on: March 01, 2015, 06:54:19 AM »
http://bytemaster.bitshares.org/update/2014/12/18/Benefits-of-Being-a-BitShares-Gateway/

I have been reading this article multiple times and still have some issues wrapping my head around this concept.  Let's run through an example to clarify the process.

Example 1: Physical Gateway that accepts fiat.

1.  Buyer Joe deposits $100 worth of fiat into the physical gateway.
2.  Gateway issues an IOU as a BitShares User Issued Asset (UIA).  Gateway only has to keep a record that Buyer(Joe) deposited $100 via transaction ID of UIA

From the article "If the issuer is trustworthy then those IOUs will trade at face value and therefore be useful in trade."  What is backing the UIA that will maintain the $100 worth of fiat?  Just the free market of buyers and sellers of the UIA?

From the article "Once an asset has been issued it can be freely traded against all of the other asset types on the network including the fully collateralized market pegged assets known as BitAssets such as (BitUSD, BitBTC, etc.)."  I don't understand how all of these markets could be traded vs the UIA.  Wouldn't the only market available be UIA vs BitUSD if USD was the fiat deposited with the gateway?

3. Joe now trades UIA for BitUSD > Bitshares.  Just like any other market there has to be enough liquidity for the UIA vs BitUSD and obviously also the BitUSD vs Bitshares market.

4.  BitShares doubles in price vs USD and now Joe wants to get back into Fiat USD.  Joe trades back for the UIA and sends the UIA back to the gateway to redeem the 2x amount in person.  The gateway and Joe now know he has a tax burden on the financial gain correct?


I know the KYC and AML laws vary around the world so I am not questioning what the gateway has to keep as a record but specifically how does the UIA maintain value

In theory the issuer would keep the FIAT on his balancesheed, so you could exchange anytime from his UIA into FIAT. So if you bought UIA with your FIAT money, would you sell it for less? Maybe for 1 %, to get it exchanged into BTS ord bitAsset, but if not, you would just send it back and get your FIAT.

So this is the theory and in reality many, many things can happen to the Gateway.

- FIAT account get frozen
- Gateway owner runs with the FIAT
etc.


Offline dannotestein

Re: Understanding of a Gateway
« Reply #3 on: March 01, 2015, 10:24:03 PM »
http://bytemaster.bitshares.org/update/2014/12/18/Benefits-of-Being-a-BitShares-Gateway/

From the article "If the issuer is trustworthy then those IOUs will trade at face value and therefore be useful in trade."  What is backing the UIA that will maintain the $100 worth of fiat?  Just the free market of buyers and sellers of the UIA?
The key difference between an IOU asset like TRADE.USD and a market-pegged asset like BitUSD is that the issuer is guaranteeing to buy it back at a fixed rate at any time. So an IOU asset can be traded like a market-pegged asset, but there's an additional "exit" mechanism for it in times of market uncertainty or low liquidity.

Quote
From the article "Once an asset has been issued it can be freely traded against all of the other asset types on the network including the fully collateralized market pegged assets known as BitAssets such as (BitUSD, BitBTC, etc.)."  I don't understand how all of these markets could be traded vs the UIA.  Wouldn't the only market available be UIA vs BitUSD if USD was the fiat deposited with the gateway?
No, any number of markets can exist on trading network for buying/selling an IOU UIA. The backing asset type just defines the type that the backer is guaranteeing to redeem it in.

Quote
3. Joe now trades UIA for BitUSD > Bitshares.  Just like any other market there has to be enough liquidity for the UIA vs BitUSD and obviously also the BitUSD vs Bitshares market.
So, based on my answer above, you can have a market directly from the IOU UIA to BitShares. There's no need for a BitUSD or similar intermediary market.

Quote
4.  BitShares doubles in price vs USD and now Joe wants to get back into Fiat USD.  Joe trades back for the UIA and sends the UIA back to the gateway to redeem the 2x amount in person.  The gateway and Joe now know he has a tax burden on the financial gain correct?
Since the user is doing all his trading on the BitShares network after he gets the IOU, the gateway has no idea what his trading gains or losses are.
http://blocktrades.us Fast/Safe/High-Liquidity Crypto Coin Converter

Offline Brekyrself

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Re: Understanding of a Gateway
« Reply #4 on: March 10, 2015, 01:36:59 PM »
Thanks for the replies, I now understand part one of trading at face value.

My next thoughts and questions revolve around the market itself:

-Why not have the market deal with BitAssets instead of BitShares?  In the example if it is primarily a USD gateway why not for the simplicity of numbers do a 1 for 1 with BitUSD?  1 IOU = 1 BitUSD?  Only downside I is if dealing with international customer's with different currency, thus requiring an exchange rate.

-In the beginning with low liquidity wouldn't the gateway need to play both sides of the market?  Buyer Joe sends the gateway fiat and the gateway issues the IOU.  Joe now wants to trade the IOU for BitUSD however there are no buyers, thus wouldn't the gateway need to buy their own IOU back in this case?  Perhaps the gateway would require a market bot to automate this process?

Offline dannotestein

Re: Understanding of a Gateway
« Reply #5 on: March 10, 2015, 02:21:43 PM »
Thanks for the replies, I now understand part one of trading at face value.

My next thoughts and questions revolve around the market itself:

-Why not have the market deal with BitAssets instead of BitShares?  In the example if it is primarily a USD gateway why not for the simplicity of numbers do a 1 for 1 with BitUSD?  1 IOU = 1 BitUSD?  Only downside I is if dealing with international customer's with different currency, thus requiring an exchange rate. As far as operating with BTS in the markets, there's no absolute need for it to be visible to the users, it's just a convenient "base currency" for quoting other assets in, similar to the way BTC works on many exchanges.

Dealing in an IOU asset lets an exchange avoid the speculation of holding a market position, especially if they plan to do market matching of their own. These blockchain-visible IOUs can substitute for the "internal quantities" that exchanges use today for order-matching purposes. As far as BTS visibility goes in the trading process, right now it tends to serve as a convenient base currency for quoting other assets in, similar to what BTC provides on many exchanges.

Quote
-In the beginning with low liquidity wouldn't the gateway need to play both sides of the market?  Buyer Joe sends the gateway fiat and the gateway issues the IOU.  Joe now wants to trade the IOU for BitUSD however there are no buyers, thus wouldn't the gateway need to buy their own IOU back in this case?  Perhaps the gateway would require a market bot to automate this process?
What happens in the beginning depends a lot on what state of "startup" the gateway itself is at. If it's an existing exchange, it can convert it's existing accounting system to using user issued assets (IOUs) and liquidity should already exist. For a true startup, like http://blocktrades.us, we need to offer initial liquidity for our IOUs, so we're working to get market maker bots running for that now.
http://blocktrades.us Fast/Safe/High-Liquidity Crypto Coin Converter

 

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