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Offline VoR0220

Interesting Thought Occurred to Me on The Asset Front
« on: March 03, 2015, 11:35:22 PM »

What happens if the amount of Assets a the Bitshares network collectively owns (say bitBTC) exceeds the actual supply of the currency IRL? In other words, what happens if I own more bitBTC than there are actual BTC to go around? Does that not hurt the purpose of the asset exchange? Is such an attack possible?
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Offline Ander

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Re: Interesting Thought Occurred to Me on The Asset Front
« Reply #1 on: March 03, 2015, 11:56:28 PM »
1) The value of BTS would need to be several times larger than BTC for this to even be possible.

2) Things get weird if there is more value in derivatives of item X than there is in all of the actual X. 
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Offline fluxer555

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Re: Interesting Thought Occurred to Me on The Asset Front
« Reply #2 on: March 03, 2015, 11:59:15 PM »
BitAssets are a lot like 'paper gold'. They are owned by people who don't really need the underlying thing it's tracking, they just want exposure to its price.

I was just thinking about this today, and came to some interesting conclusions. Consider this:

For any asset that exists, its value has two aspects:
- utility as a store of value
- utility that is not as a store of value

For example, gold has utility as a store of value (gold coins, bars, etc.), and utility as not a store of value (jewelry, machinery, electronics, etc.). There is often overlap (jewelery can be considered having both aspects).

When BitAssets are created, they inflate only the store-of-value aspect of that asset, while the not-store-of-value aspect of the asset remains unchanged. In other words, you can't use BitBTC as if it were actual BTC, but BitBTC has the same store-of-value. Likewise, you can't make a gold necklace out of BitGOLD, but its value will track the weight value of the gold you would need to make that necklace.

It gets hairy in the kind of situation you described. What it comes down to is this: how much of the value of Bitcoin is in its store-of-value aspect, and how much of its value is in its non-store-of-value aspect? If most of bitcoin's value comes from its store-of-value properties, then creating tons of BitBTC will drive BTC's price down (and thus BitBTC's also).

My main realization today was that we should really be working on BitOIL. Since oil does not have very much store-of-value in itself (it is not easily fungible, storeable or obtainable by the general public), creating BitOIL should not drive its price down, or should do so negligibly.

Why do people want Gold and Bitcoin? To store their money, possibly speculating on its value going up. Why do people want oil? For energy / industrial purposes; it is consumed. You can't consume BitOIL and get energy.
« Last Edit: March 04, 2015, 12:09:36 AM by fluxer555 »
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Offline Ander

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Re: Interesting Thought Occurred to Me on The Asset Front
« Reply #3 on: March 04, 2015, 12:17:33 AM »
I dont expect that there will ever be so much of any one bitasset generated that it would impact the value of the underlying commodity. 

After all, the sum of the value of ALL bitAssets together cannot exceed 1/3 of the market cap of BTS, and realistically it will be much less than this, because not every holder of BTS is going to use it to create bitAssets.

Any one individual bitAsset is only getting part of that value.  So far the biggest ones are bitUSD and bitCNY, of which there is such a large money supply that bitAssets could increase by orders of magnitudes and still have no effect.


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Offline fluxer555

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Re: Interesting Thought Occurred to Me on The Asset Front
« Reply #4 on: March 04, 2015, 12:32:25 AM »
I dont expect that there will ever be so much of any one bitasset generated that it would impact the value of the underlying commodity. 

After all, the sum of the value of ALL bitAssets together cannot exceed 1/3 of the market cap of BTS, and realistically it will be much less than this, because not every holder of BTS is going to use it to create bitAssets.

Any one individual bitAsset is only getting part of that value.  So far the biggest ones are bitUSD and bitCNY, of which there is such a large money supply that bitAssets could increase by orders of magnitudes and still have no effect.


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Offline VoR0220

Re: Interesting Thought Occurred to Me on The Asset Front
« Reply #5 on: March 04, 2015, 12:45:41 AM »
Interesting discussion. Thanks for the thoughts guys. If anyone else would like to pitch in, I would love to hear what you have to say.
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Offline merivercap

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Re: Interesting Thought Occurred to Me on The Asset Front
« Reply #6 on: March 04, 2015, 12:52:30 AM »
I dont expect that there will ever be so much of any one bitasset generated that it would impact the value of the underlying commodity. 

After all, the sum of the value of ALL bitAssets together cannot exceed 1/3 of the market cap of BTS, and realistically it will be much less than this, because not every holder of BTS is going to use it to create bitAssets.

Any one individual bitAsset is only getting part of that value.  So far the biggest ones are bitUSD and bitCNY, of which there is such a large money supply that bitAssets could increase by orders of magnitudes and still have no effect.

Yeah that's what I was going to bring up.  Really can't create more than 1/3 of the market value of the BTS collateral. 

Note today's financial companies has over 1 quadrillion of derivatives in notional amounts, but I'm not sure of the actual net exposure because oftentimes there is hedging between multiple parties that typically cancel out exposure.  There are a lot of the interest rate & currency derivatives floating around...There is also significant counterparty risk with derivatives and a lot of it is not that transparent so I'd expect modern financial institutions to be more vulnerable to shocks. 

BTS on the other hand is transparent and you can evaluate more easily the value of the collateral that backs the market pegged asset contracts.   The market cap of BTS needs to increase for the volume of market-pegged assets to increase and there should be a virtuous cycle between the use of market-pegged assets and the market cap of BTS.  It's all a matter of adoption. 
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Offline bitmarket

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Re: Interesting Thought Occurred to Me on The Asset Front
« Reply #7 on: March 04, 2015, 01:24:57 AM »
I think the reason it i unlikely is the lack of leverage in the bts system.

Consider with $1million dollars you can control half a billion dollars worth of gold on the COMEX.   That is why in those markets the tail wags the dog. ie:The paper price of gold dictates the physical price of gold.

On BTS 1 million dollars would only allow you to control $500k of gold at best.   There is no chance of the tail wagging the dog on bts. But even if it did, then the COMEX and other markets demonstrate that when paper products out number physical supply the markets still function.... until they don't.
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Offline fuzzy

Re: Interesting Thought Occurred to Me on The Asset Front
« Reply #8 on: March 04, 2015, 02:18:06 AM »
I think the reason it i unlikely is the lack of leverage in the bts system.

Consider with $1million dollars you can control half a billion dollars worth of gold on the COMEX.   That is why in those markets the tail wags the dog. ie:The paper price of gold dictates the physical price of gold.

On BTS 1 million dollars would only allow you to control $500k of gold at best.   There is no chance of the tail wagging the dog on bts. But even if it did, then the COMEX and other markets demonstrate that when paper products out number physical supply the markets still function.... until they don't.

And this is how BitShares represents a fundamental new technology for the creation of honest markets,  insentivizing a higher level of honesty in all markets.

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Offline starspirit

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Re: Interesting Thought Occurred to Me on The Asset Front
« Reply #9 on: March 05, 2015, 06:16:43 AM »
I think the supply could be naturally self-regulating...

As the bitAsset supply grows extremely high relative to the IRL (in-real-life) supply, I think both the IRL asset and the bitAsset become less attractive:

1) arbitragers lock away more of the IRL supply to hedge their bitAsset positions, which reduces the floating IRL supply, eventually leading to more volatility and higher trading spreads.
2) in turn, arbitrage becomes more costly, so they offer less liquidity to the bitAsset market, allowing higher spreads and deviations from the peg.
3) bitAsset demand is inhibited by the reduced attractiveness of the IRL, lower veracity of feed prices, and lower bitAsset liquidity and higher spreads.

This might not be the right order of events, but taken together, I suspect there would be factors making bitAssets less attractive if they became too large relative to IRL supply.

Offline xeroc

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Re: Interesting Thought Occurred to Me on The Asset Front
« Reply #10 on: March 05, 2015, 07:08:45 AM »
I think the reason it i unlikely is the lack of leverage in the bts system.

Consider with $1million dollars you can control half a billion dollars worth of gold on the COMEX.   That is why in those markets the tail wags the dog. ie:The paper price of gold dictates the physical price of gold.

On BTS 1 million dollars would only allow you to control $500k of gold at best.   There is no chance of the tail wagging the dog on bts. But even if it did, then the COMEX and other markets demonstrate that when paper products out number physical supply the markets still function.... until they don't.

And this is how BitShares represents a fundamental new technology for the creation of honest markets,  insentivizing a higher level of honesty in all markets.

I love BitShares.
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Nice discussion ... I am learning alot from you guys .. thanks
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