Author Topic: Is it feasible to have at-call deposit accounts with checking facilities?  (Read 1652 times)

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Offline monsterer

No, it would barely change each day, and accrue gradually over a long period. Suppose the current interest accrual was 5% pa. The accrual to the balance on that day would be 5%/365 or an increase of just 0.013%. If the accrual happened to be negative at say -5% pa, the change to the balance on that day would be -0.013%. So there would be barely any volatility at all in the balance in the short term, and it would always accrue in only one direction or the other as long as the rate stayed positive or stayed negative for a prolonged period. And the balance can never even theoretically go negative - with a negative rate, the worst that could happen is that the balance would only reduce by a small percentage each day.  If this was not acceptable to holders, they would reduce their demand, which would shift the yield back toward positive territory.

The idea behind this OP is to use a facility on such a DEPOSIT that allows one to transfer notional units of cash, without having to use actual cash tokens. Much as we use transfer facilities on our cash accounts with regular banks.

I guess it all depends on what that interest rate was - have you done any simulations to determine reasonable candidate values for it? For example, at 5%, yes it's nice and gradual, but what if it was 10,000%?

The idea in the OP works fine, I think - since having a balance inside a token is essentially the same thing as it having a value (as in worth, rather than number), this is the same as any other currency.
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Offline starspirit

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As far as I can tell, this is 'just' an abstraction around having your balance of the underlying vary due to interest, isn't it?
Yes.
The only reason I find this to be slightly worrying (and a tough sell because of this), especially in illiquid markets, is that this could mean your balance has a massive variance due to supply and demand - if you graphed it over time, it would end up looking like the BTS/USD price graph, except it could go negative.
No, it would barely change each day, and accrue gradually over a long period. Suppose the current interest accrual was 5% pa. The accrual to the balance on that day would be 5%/365 or an increase of just 0.013%. If the accrual happened to be negative at say -5% pa, the change to the balance on that day would be -0.013%. So there would be barely any volatility at all in the balance in the short term, and it would always accrue in only one direction or the other as long as the rate stayed positive or stayed negative for a prolonged period. And the balance can never even theoretically go negative - with a negative rate, the worst that could happen is that the balance would only reduce by a small percentage each day.  If this was not acceptable to holders, they would reduce their demand, which would shift the yield back toward positive territory.

The idea behind this OP is to use a facility on such a DEPOSIT that allows one to transfer notional units of cash, without having to use actual cash tokens. Much as we use transfer facilities on our cash accounts with regular banks.

Offline monsterer

I'm interested again in the answer to this. But there might be an easier way. In short form:

Suppose there is a DEPOSIT token that represents a certain amount of USD, where that conversion amount varies over time with internal interest. I'm exploring how such a token could be used to facilitate transfers in the underlying USD, much like a checking facility or bank transfer does today.

As far as I can tell, this is 'just' an abstraction around having your balance of the underlying vary due to interest, isn't it?

The only reason I find this to be slightly worrying (and a tough sell because of this), especially in illiquid markets, is that this could mean your balance has a massive variance due to supply and demand - if you graphed it over time, it would end up looking like the BTS/USD price graph, except it could go negative.
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Offline sittingduck

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How about creating bitusd2 which is a bitasset pegged to the dollar and backed by bitusd.    The price feed would indicate the premium on bitusd.

Bitusd2 would have a much closer peg because shorts have much less risk and the feed is far more predictable. 


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Offline starspirit

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I'm interested again in the answer to this. But there might be an easier way. In short form:

Suppose there is a DEPOSIT token that represents a certain amount of USD, where that conversion amount varies over time with internal interest. I'm exploring how such a token could be used to facilitate transfers in the underlying USD, much like a checking facility or bank transfer does today.

Party A has DEPOSIT tokens, and now wants to send Party B a certain quantity of USD. To do this he needs to send a specific number of DEPOSIT tokens, but I assume he doesn't know precisely how many until the end of the block when the transfer is effectively received by Party B. If exact precision were not a concern, his client could automatically calculate the amount from the conversion rate at the last block, when sending the transfer. This might leave Party B ever so slightly long or short depending on whether interest is positive or negative (10 seconds worth of interest, assuming a 1 block confirmation). So would anybody ever care for higher precision than this?

If we did care for perfect precision, how could this most simply be done? I was imagining something like a simplified version of a check specified in USD, with the block-chain then determining the quantity of DEPOSIT tokens to transfer. Not sure if this is possible though.

« Last Edit: June 03, 2015, 09:10:16 pm by starspirit »

Offline starspirit

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Why do I ask?

This approach could be one possible solution to the zero bound on interest rates for cash/currency holdings. It would allow longs to pay interest to shorts if and when the market calls for it.

There are possibly other ways of allowing for negative rates that might also be explored. For example, maybe it's possible that when people pay USD from their wallets, a variable "transaction cost" is applied to represent accrued interest owing at that point.

Also note this is no issue at all in bill/bond markets based around zero-coupon bond structures, because negative rates are simply reflected in exchange prices above par.

How might this work?

Suppose we had a token called DEPOSIT. People can buy, sell and short DEPOSIT tokens. At any time, a DEPOSIT represents a certain number of USD effectively held in a block-chain deposit account. So a feed price can easily be calculated for the fair value of a DEPOSIT.

However, the number of USD that a DEPOSIT represents is variable. When the interest rate is positive, it goes up, and when it is negative it goes down. On settlement, shorts are only obliged to pay back the same number of DEPOSIT tokens as they shorted, and they do not pay any additional interest, as the interest rate is built into the value of a DEPOSIT in the price feed.

In theory it would be possible for people to exchange DEPOSIT tokens for goods and services. But as they represent a variable basket of USD, this is not the most convenient for pricing such goods. That's where a checking system could be useful. Party A wants to pay for a service from Party B for X USD. So they create X check tokens, sign them and issue them to Party B. Party B sends the check, now signed by both parties, to the block-chain. The block-chain checks that Party A has the USD available, and if not, "bounces" the check. If it does, it calculates the settlement as a certain number of DEPOSIT tokens transferring from Party A to Party B.

[Edit: Maybe the system could prevent Party A from issuing checks in excess of their USD, so avoid bouncing altogether.]

Any thoughts?

 
« Last Edit: April 29, 2015, 03:20:44 am by starspirit »