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Offline xeroc

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BitShares 2.0 Technologies
Collateralized Bond Market



Lend or borrow anything on your terms
The BitShares bond market is an investment marketplace accessible to anyone with an internet connection. With the bond market you can earn interest on anything while allowing others to short any asset backed by any other asset.

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« Last Edit: June 08, 2015, 06:31:25 PM by xeroc ¯\_(ツ)_/¯ »
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Offline monsterer

Re: [BitShares 2.0 Technologies] Collateralized Bond Market (Discussion)
« Reply #1 on: June 08, 2015, 08:46:11 PM »
With no margin call, how is the contract protected from loss?
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Offline maqifrnswa

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Re: [BitShares 2.0 Technologies] Collateralized Bond Market (Discussion)
« Reply #2 on: June 08, 2015, 08:51:44 PM »
With no margin call, how is the contract protected from loss?

"The lender is responsible for ensuring that the interest rate and collateral is sufficient to cover the cost of providing the implied option contract."

The lender has to price this in and accept the risk of loss
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Offline xeroc

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Re: [BitShares 2.0 Technologies] Collateralized Bond Market (Discussion)
« Reply #3 on: June 08, 2015, 08:59:06 PM »
With no margin call, how is the contract protected from loss?

"The lender is responsible for ensuring that the interest rate and collateral is sufficient to cover the cost of providing the implied option contract."

The lender has to price this in and accept the risk of loss

Wouldn't this be identical to how traditional bonds/lending works?

We need to market this to P2PLending people .. they will LIKE this feature alot
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Offline monsterer

Re: [BitShares 2.0 Technologies] Collateralized Bond Market (Discussion)
« Reply #4 on: June 08, 2015, 09:02:13 PM »
The lender has to price this in and accept the risk of loss

Ouch.
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Offline mindphlux

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Re: [BitShares 2.0 Technologies] Collateralized Bond Market (Discussion)
« Reply #5 on: June 09, 2015, 10:49:14 AM »
Quote
In other words, every bond is the combination of a loan and an option to buy the collateral at the payoff price.

Can you please explain exactly what happens if the posted collateral is not sufficient to cover the loan - how does the option come to play?
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Offline bytemaster

Re: [BitShares 2.0 Technologies] Collateralized Bond Market (Discussion)
« Reply #7 on: June 09, 2015, 12:45:08 PM »
The lender is like a bank that is only willing to lend up to 80% the value of a house or 50% the value of a car.   

Where this has value:

1) you are a speculator and want to earn interest on your BTS or short BTS
2) you would like to borrow some USD without selling your BTS.   So you pledge your BTS as collateral, borrow some BitUSD and sell it for USD.   

This does not help those who want unsecured loans.
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Offline mindphlux

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Re: [BitShares 2.0 Technologies] Collateralized Bond Market (Discussion)
« Reply #8 on: June 09, 2015, 01:03:50 PM »
What happens when the value of the collateral is lower than the loan? Does the lender get access to the (not 100% complete) collateral?

How does this option come into play?
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Offline bytemaster

Re: [BitShares 2.0 Technologies] Collateralized Bond Market (Discussion)
« Reply #9 on: June 09, 2015, 01:09:50 PM »
What happens when the value of the collateral is lower than the loan? Does the lender get access to the (not 100% complete) collateral?

How does this option come into play?

The borrower wouldn't repay the loan by the due date and thus the lender can claim the collateral.
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Offline mindphlux

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Re: [BitShares 2.0 Technologies] Collateralized Bond Market (Discussion)
« Reply #10 on: June 09, 2015, 01:19:39 PM »
So a bitUSD loan with BTS as collateral would probably require 200-300% as BTS has been very volatile against the US Dollar.

A bitUSD loan with bitGOLD as collateral would require less collateral, is that correct?

The interest rate defined by the lender would also reflect on the perceived risk, right?

I still don't understand what you mean with the combination between loan and option. You said in another thread:
Quote
The lender may purchase an option separately (not implemented yet).    If a lender has an option and the interest covers the cost of the option then there is no risk to the lender.   For now the lender must provide the option themselves and thus is exposed to option risk.

How does the option make the process risk-free for the lender? Can you please elaborate?
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Offline svk

Re: [BitShares 2.0 Technologies] Collateralized Bond Market (Discussion)
« Reply #11 on: June 09, 2015, 02:02:48 PM »
So a bitUSD loan with BTS as collateral would probably require 200-300% as BTS has been very volatile against the US Dollar.

A bitUSD loan with bitGOLD as collateral would require less collateral, is that correct?

The interest rate defined by the lender would also reflect on the perceived risk, right?

I still don't understand what you mean with the combination between loan and option. You said in another thread:
Quote
The lender may purchase an option separately (not implemented yet).    If a lender has an option and the interest covers the cost of the option then there is no risk to the lender.   For now the lender must provide the option themselves and thus is exposed to option risk.

How does the option make the process risk-free for the lender? Can you please elaborate?

You raise an interesting point in saying that a loan backed by bitGOLD will have less risk in terms of collateral than another more volatile asset, this gives additional value to very stable bitAssets like GOLD :)

Most likely lenders will tend to prefer collateral in very stable assets, and as you say be more lenient in terms of collateral required.
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Offline tonyk

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Re: [BitShares 2.0 Technologies] Collateralized Bond Market (Discussion)
« Reply #12 on: June 09, 2015, 04:14:39 PM »
So a bitUSD loan with BTS as collateral would probably require 200-300% as BTS has been very volatile against the US Dollar.

A bitUSD loan with bitGOLD as collateral would require less collateral, is that correct?

The interest rate defined by the lender would also reflect on the perceived risk, right?

I still don't understand what you mean with the combination between loan and option. You said in another thread:
Quote
The lender may purchase an option separately (not implemented yet).    If a lender has an option and the interest covers the cost of the option then there is no risk to the lender.   For now the lender must provide the option themselves and thus is exposed to option risk.

How does the option make the process risk-free for the lender? Can you please elaborate?

Maybe example will be the easiest way to explain it.



Allice has 100 bitUSD and wants to lend 100 bitUSD and is ready to accept bitGold as a collateral. Price of bitGold is 50 bitUSD/bitGold .

If a call option for 100 bitUSD @ 50 [bitUSD/bitGold ] exist and is priced at  2 bitUSD/option - This means a contract giving you the right to buy 100 bitUSD at 50 bitUSD/bitGold, and it costs 2 bitUSD to buy this right to purchase 100 bitUSD.


Alice can lend 98 bitUSD with say 5% interest, accept 2 bitGold as a collateral; and buy 1 call option [as the one described above].

In the case that the borrower does not repay the loan she will receive the collateral orf2 bitGold. She can now exercise her call option - i.e. buy 100 bitUSD with the 2 bitGold at the 50 bitUSD/bitGold

Voilà - she finished with the 100 bitUSD she started aka no risk and this is the worst case scenario -the loan was repayed and the price of gold did not go up in bitUSD terms.

 
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline ElMato

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Re: [BitShares 2.0 Technologies] Collateralized Bond Market (Discussion)
« Reply #13 on: June 09, 2015, 04:21:54 PM »
We will have an options market also?   

Offline mindphlux

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Re: [BitShares 2.0 Technologies] Collateralized Bond Market (Discussion)
« Reply #14 on: June 09, 2015, 04:32:06 PM »
Thank you, tonyk, I understand now.

With this option market, it becomes pretty much risk-free for the lender again. Assuming it exists.
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