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Offline bytemaster

Can you really earn 5% on Anything? That sounds like a Ponzi!
« on: January 29, 2014, 05:13:02 AM »

Some of the media reports that have come out of our 5% campaign have suggested that the claim that you can earn 5% on ANYTHING is "too good to be true" and "must be a ponzi".    I would like to take an opportunity to address this very issue.

1) You can earn 5% on anything if you are able to find someone who will borrow from you at 5%.   This should be self evident and is clearly not a ponzi scheme.   

2) Our software will hardcode a 5% borrowing cost and and pay the interest charged to the lender.  This is a clear, net-zero transfer of value from borrower to lender.

3) What remains is whether or not anyone will borrow or lend at this interest rate.   If the interest rate is too high then no one will borrow (go short), if it is too low then no one will lend (go long).  That is all true unless trades occur at a price other than parity to create either a discount or premium to the intended peg. 

The fact remains that assuming the real interest rate is relatively stable, the premium/discount to parity should also remain relatively stable.  This means that BitUSD will be highly correlated to USD rather than being pegged to the USD perfectly.  Changing the interest rate merely moves the relative premium or discount.

In effect, you can still put $5 worth of BTS into BitUSD even if it is at a premium(or discount)... wait 1 year... assuming the interest rate didn't change the premium(or discount) will not change and thus you can pull out $5 +5% at the end of the year. 

In future versions we can decrease the volatility of the premium/discount built into the market peg by implementing a variable interest rate that is unique to each asset.  For now the market will merely adjust the premium to achieve the same effect. 

In conclusion the fact remains that BitShares X will allow you to earn 5% on anything someone is willing to short by borrowing at 5%.


For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline bytemaster

Re: Can you really earn 5% on Anything? That sounds like a Ponzi!
« Reply #1 on: January 29, 2014, 05:18:31 AM »
The side effect of moving to a variable interest rate is that your 'return' becomes variable rather than the premium. 

The cool thing about economics and markets is that all roads tend to lead to the same transfer of value between users the only difference is how the value moves from one user to another.
For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline toast

Re: Can you really earn 5% on Anything? That sounds like a Ponzi!
« Reply #2 on: January 29, 2014, 05:24:32 AM »
Shhh no explanations until genesis block snapshot
Do not use this post as information for making any important decisions. The only agreements I ever make are informal and non-binding. Take the same precautions as when dealing with a compromised account, scammer, sockpuppet, etc.

Offline mint chocolate chip

Re: Can you really earn 5% on Anything? That sounds like a Ponzi!
« Reply #3 on: January 29, 2014, 06:08:05 AM »
Some of the media reports that have come out of our 5% campaign have suggested that the claim that you can earn 5% on ANYTHING is "too good to be true" and "must be a ponzi".
Probably just easier for some in the media to belittle the idea instead of making the extra effort to understand the logic. The demand for those wanting to get +1 on anything is going to take bitshares to the moon.

Offline pgbit

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Re: Can you really earn 5% on Anything? That sounds like a Ponzi!
« Reply #4 on: January 29, 2014, 09:34:24 AM »
Why 5%? In differing financial climates, would there be a need to alter this rate? For example, if the prevailing growth rate is 10% year on year as in some countries, then 5% might seem low.
« Last Edit: January 29, 2014, 09:38:32 AM by pgbit »

Offline stuartcharles

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Re: Can you really earn 5% on Anything? That sounds like a Ponzi!
« Reply #5 on: January 29, 2014, 10:52:40 AM »
Why 5%? In differing financial climates, would there be a need to alter this rate? For example, if the prevailing growth rate is 10% year on year as in some countries, then 5% might seem low.

Its true we live in a low interest world at the moment but for most of my life you have been able to earn moor than 5% in the bank.

I guess you couldn't peg it to a central bank base rate plus 5% because that would require some centralisation?

If you do fix it at 5% can this be changed at a later date without a hard fork?

Offline bytemaster

Re: Can you really earn 5% on Anything? That sounds like a Ponzi!
« Reply #6 on: January 29, 2014, 03:08:22 PM »
Why 5%? In differing financial climates, would there be a need to alter this rate? For example, if the prevailing growth rate is 10% year on year as in some countries, then 5% might seem low.

The market will automatically adjust the premium/discount on the BitAsset based upon whether or not the interest rate is currently too high or too low.   In reality it will already function as a "base rate +5%" because if we set the interest rate to 0% then the BitAsset would literally be like holding cash and would then be discounted relative to BankUSD which paid interest.

BitUSD should trade like a 30 year treasury earning a fixed 5%. It will go up and down in value as the current interest rate changes.  While the current interest rate is 'stable' its value will also be stable.   Which means as long as the interest rate doesn't change while you hold your BitUSD position you will earn 5%.   
For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline Markus

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Re: Can you really earn 5% on Anything? That sounds like a Ponzi!
« Reply #7 on: January 29, 2014, 10:14:23 PM »
I was just wondering: How did the BitTRY do the last days? Was that good tracking the real TRY?

Would it have been tracking better with 0 % interest of BitTRY? I'm not too sure myself anymore. I think the best is really a variable interest, tracking the market interest rate for that Asset.

Offline stuartcharles

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Re: Can you really earn 5% on Anything? That sounds like a Ponzi!
« Reply #8 on: January 30, 2014, 02:52:48 PM »
Why 5%? In differing financial climates, would there be a need to alter this rate? For example, if the prevailing growth rate is 10% year on year as in some countries, then 5% might seem low.

The market will automatically adjust the premium/discount on the BitAsset based upon whether or not the interest rate is currently too high or too low.   In reality it will already function as a "base rate +5%" because if we set the interest rate to 0% then the BitAsset would literally be like holding cash and would then be discounted relative to BankUSD which paid interest.

BitUSD should trade like a 30 year treasury earning a fixed 5%. It will go up and down in value as the current interest rate changes.  While the current interest rate is 'stable' its value will also be stable.   Which means as long as the interest rate doesn't change while you hold your BitUSD position you will earn 5%.

Hmmm.. My brain is struggling with this a little, but, if 1 bitusd was worth 90 cent because the market valued it at that for whatever reason. I then invest in 1 btusd at a cost of 90 cents which happens to be the equivalent of 100 bitshares. Then my dividend would be 5 bitshares which is still 5% and is not affected by the fact that 1 bitusd is worth less than 1 usd.

What am i missing?

Offline Riverhead

Re: Can you really earn 5% on Anything? That sounds like a Ponzi!
« Reply #9 on: January 30, 2014, 03:16:38 PM »
Why 5%? In differing financial climates, would there be a need to alter this rate? For example, if the prevailing growth rate is 10% year on year as in some countries, then 5% might seem low.

The market will automatically adjust the premium/discount on the BitAsset based upon whether or not the interest rate is currently too high or too low.   In reality it will already function as a "base rate +5% " because if we set the interest rate to 0% then the BitAsset would literally be like holding cash and would then be discounted relative to BankUSD which paid interest.

BitUSD should trade like a 30 year treasury earning a fixed 5%. It will go up and down in value as the current interest rate changes.  While the current interest rate is 'stable' its value will also be stable.   Which means as long as the interest rate doesn't change while you hold your BitUSD position you will earn 5%.

Hmmm.. My brain is struggling with this a little, but, if 1 bitusd was worth 90 cent because the market valued it at that for whatever reason. I then invest in 1 btusd at a cost of 90 cents which happens to be the equivalent of 100 bitshares. Then my dividend would be 5 bitshares which is still 5% and is not affected by the fact that 1 bitusd is worth less than 1 usd.

What am i missing?


If I'm following this correctly at all your effective interest rate would be 10.6%.  If 1 bitUSD pays 5% at the end of the year you'd have 1.05bitUSD.  Since you only paid 90 cents for it your return of 0.05 on 0.90 is 10.6%......am I totally out to lunch here?




Offline bytemaster

Re: Can you really earn 5% on Anything? That sounds like a Ponzi!
« Reply #10 on: January 30, 2014, 03:41:51 PM »
Why 5%? In differing financial climates, would there be a need to alter this rate? For example, if the prevailing growth rate is 10% year on year as in some countries, then 5% might seem low.

The market will automatically adjust the premium/discount on the BitAsset based upon whether or not the interest rate is currently too high or too low.   In reality it will already function as a "base rate +5% " because if we set the interest rate to 0% then the BitAsset would literally be like holding cash and would then be discounted relative to BankUSD which paid interest.

BitUSD should trade like a 30 year treasury earning a fixed 5%. It will go up and down in value as the current interest rate changes.  While the current interest rate is 'stable' its value will also be stable.   Which means as long as the interest rate doesn't change while you hold your BitUSD position you will earn 5%.

Hmmm.. My brain is struggling with this a little, but, if 1 bitusd was worth 90 cent because the market valued it at that for whatever reason. I then invest in 1 btusd at a cost of 90 cents which happens to be the equivalent of 100 bitshares. Then my dividend would be 5 bitshares which is still 5% and is not affected by the fact that 1 bitusd is worth less than 1 usd.

What am i missing?


If I'm following this correctly at all your effective interest rate would be 10.6%.  If 1 bitUSD pays 5% at the end of the year you'd have 1.05bitUSD.  Since you only paid 90 cents for it your return of 0.05 on 0.90 is 10.6%......am I totally out to lunch here?

If you only paid 90 cents for it and the interest rate didn't change then you would only be able to sell your 1.05 BitUSD for $0.945 and thus your return would still be 5%
For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline Riverhead

Re: Can you really earn 5% on Anything? That sounds like a Ponzi!
« Reply #11 on: January 30, 2014, 03:43:51 PM »

If you only paid 90 cents for it and the interest rate didn't change then you would only be able to sell your 1.05 BitUSD for $0.945 and thus your return would still be 5%


But $0.045 on $0.90 is 10.5%.....

Offline bytemaster

Re: Can you really earn 5% on Anything? That sounds like a Ponzi!
« Reply #12 on: January 30, 2014, 04:36:27 PM »

If you only paid 90 cents for it and the interest rate didn't change then you would only be able to sell your 1.05 BitUSD for $0.945 and thus your return would still be 5%


But $0.045 on $0.90 is 10.5%.....

.045 / .9 => 5%
For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline Riverhead

Re: Can you really earn 5% on Anything? That sounds like a Ponzi!
« Reply #13 on: January 30, 2014, 04:40:20 PM »

.045 / .9 => 5%


You are of course correct...I had a decimal in the wrong place 10.5->1.05 or 5%.  Thanks for setting me straight.

Offline JakeThePanda

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Re: Can you really earn 5% on Anything? That sounds like a Ponzi!
« Reply #14 on: January 30, 2014, 09:00:08 PM »

If you only paid 90 cents for it and the interest rate didn't change then you would only be able to sell your 1.05 BitUSD for $0.945 and thus your return would still be 5%


But $0.045 on $0.90 is 10.5%.....

I think I'm missing something.  If I buy it at 90 cents and wait a year and I have to sell it at 85 cents +5%, now I have a loss of .83%.  I may have made 5% in interest but price depreciated by 5.56%.  If it acts like a bond then I don't care about the coupon, I care about the total return. In this case my total return was negative.  What's missing?

 

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