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Offline oldman

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BTSX Lending - Revenue w/o Counterparty Risk
« on: August 21, 2014, 11:00:16 AM »

There is an opportunity to create a massive revenue stream for BTSX by acting as a market maker/escrow for 100% collateralized loans:

- Add a lending tab to the client

- Lenders designate BTSX holdings as available for lending; set interest rate, loan duration, etc. Funds are locked/escrow and go on the market.

- Borrowers bid on loans. The debtor's borrowing power is limited to the amount of collateral they have available, ie. must designate 1 BTSX as collateral for every 1 BTSX borrowed. Could also subtract interest from borrowing power. Collateral is locked/escrowed when the loan is made.

- When the loan is due the client automatically transfers collateral + interest directly from the debtor to lender. No muss, no fuss.


There are many advantages to this:

- Lenders can generate additional revenue from BTSX holdings

- Borrowers can double purchasing power without a credit rating, loan application etc.

- Speculators can leverage BTSX holdings

- A huge amount of revenue would be generated for shareholders

- No default risk, no credit scoring, no chasing down bad debt


There will eventually be a P2P lending DAC that will deal with riskier loans and all the associated headaches, ie. BTCJam.

However, Bitshares X could deal exclusively in risk free loans and do quite well.

Initially things could be kept simple with one interest rate (... 5%?) and limited loan durations (1d, 1w, 1m, 3m, 6m, 1y).

Bitshares X offers the ability to store wealth and trade assets. Why not add the ability to lend and borrow?



Offline luckybit

Re: BTSX Lending - Revenue w/o Counterparty Risk
« Reply #1 on: August 21, 2014, 01:47:40 PM »
There is an opportunity to create a massive revenue stream for BTSX by acting as a market maker/escrow for 100% collateralized loans:

- Add a lending tab to the client

- Lenders designate BTSX holdings as available for lending; set interest rate, loan duration, etc. Funds are locked/escrow and go on the market.

- Borrowers bid on loans. The debtor's borrowing power is limited to the amount of collateral they have available, ie. must designate 1 BTSX as collateral for every 1 BTSX borrowed. Could also subtract interest from borrowing power. Collateral is locked/escrowed when the loan is made.

- When the loan is due the client automatically transfers collateral + interest directly from the debtor to lender. No muss, no fuss.


There are many advantages to this:

- Lenders can generate additional revenue from BTSX holdings

- Borrowers can double purchasing power without a credit rating, loan application etc.

- Speculators can leverage BTSX holdings

- A huge amount of revenue would be generated for shareholders

- No default risk, no credit scoring, no chasing down bad debt


There will eventually be a P2P lending DAC that will deal with riskier loans and all the associated headaches, ie. BTCJam.

However, Bitshares X could deal exclusively in risk free loans and do quite well.

Initially things could be kept simple with one interest rate (... 5%?) and limited loan durations (1d, 1w, 1m, 3m, 6m, 1y).

Bitshares X offers the ability to store wealth and trade assets. Why not add the ability to lend and borrow?

I agree, this is a great idea.
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Offline pendragon3

Re: BTSX Lending - Revenue w/o Counterparty Risk
« Reply #2 on: August 21, 2014, 02:29:48 PM »
The regulatory risk would be too great, in my opinion, and not worth jeopardizing BitsharesX.

If this idea is pursued, it should be separately in its own DAC to segregate the regulatory risks.

Offline liondani

Re: BTSX Lending - Revenue w/o Counterparty Risk
« Reply #3 on: August 21, 2014, 02:35:33 PM »
 +5% +5% +5% +5% +5%

for the idea!!!

BM consider it !
  https://bitshares.OPENLEDGER.info/?r=GREECE  | You are in Control | BUY | SELL | SHORT | SWAP | LOAN | TRADE |  

Offline yellowecho

Re: BTSX Lending - Revenue w/o Counterparty Risk
« Reply #4 on: August 21, 2014, 02:52:17 PM »
The regulatory risk would be too great, in my opinion, and not worth jeopardizing BitsharesX.

If this idea is pursued, it should be separately in its own DAC to segregate the regulatory risks.

Is this why the Lending DAC was proposed and forum subsection created to address these potential regulatory risks?  Otherwise it's a little unclear to me what a Lending DAC would do that OPs suggestion couldn't.
696c6f766562726f776e696573

Offline bytemaster

Re: BTSX Lending - Revenue w/o Counterparty Risk
« Reply #5 on: August 21, 2014, 03:07:31 PM »
I don't see how this world work... if the borrower posts 1 XTS of collateral for ever 1 XTS loaned... what is being loaned?  Why do they need a loan if they already have XTS.

No such thing as a "risk free loan".... BitAssets are as close as you can get.
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bitbro

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BTSX Lending - Revenue w/o Counterparty Risk
« Reply #6 on: August 21, 2014, 03:15:39 PM »



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« Last Edit: August 21, 2014, 03:17:43 PM by bitbro »

Offline bytemaster

Re: BTSX Lending - Revenue w/o Counterparty Risk
« Reply #7 on: August 21, 2014, 03:21:32 PM »
So they can buy twice as much... The loan could be recalled automatically by BitShares X if certain things happen.

Charles Schwab and the other major plays do this.


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I have 100 XTS... I want to lend it..
U have 100 XTS... U want to borrow... what do you want to borrow? 

How much XTS goes into collateral
How much XTS is spent...
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.

bitbro

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Re: BTSX Lending - Revenue w/o Counterparty Risk
« Reply #8 on: August 21, 2014, 03:24:04 PM »

So they can buy twice as much... The loan could be recalled automatically by BitShares X if certain things happen.

Charles Schwab and the other major plays do this.


Sent from my iPhone using Tapatalk

I have 100 XTS... I want to lend it..
U have 100 XTS... U want to borrow... what do you want to borrow? 

How much XTS goes into collateral
How much XTS is spent...

Shoot, I deleted my post when I realized what you were getting at


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Offline nethyb

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Re: BTSX Lending - Revenue w/o Counterparty Risk
« Reply #9 on: August 21, 2014, 03:27:15 PM »
I thought through this... 

It won't work in the suggested form as confirmed by BM but here is a more in-depth explanation...

To get the loan of 1BTSX, you've have to put 1BTSX of collateral up.

You can't use the 1BTSX you've put up as collateral, it's locked away so there is no rick in not paying back the loan.
If it wasn't locked away you could spend/short/ whatever the 2BTSX and there would be no guarantee that the loan would be repaid.

Therefore you only have the loaned 1BTSX to use - i.e, your no better off.


Offline oldman

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Re: BTSX Lending - Revenue w/o Counterparty Risk
« Reply #10 on: August 21, 2014, 04:31:43 PM »
I don't see how this world work... if the borrower posts 1 XTS of collateral for ever 1 XTS loaned... what is being loaned?  Why do they need a loan if they already have XTS.

No such thing as a "risk free loan".... BitAssets are as close as you can get.

This lending service should be viewed more like a home equity loan (collateral > loan) than a margin or consumer credit loan (collateral < loan).

Fully collateralized lending enables borrowers to participate in asset appreciation (dividend/capital appreciation) while putting the value of the asset to work, presumably to earn a greater ROI than just hodling.

It's like taking a home equity loan at 4% and investing in a stock market returning 8%. You keep your house and still participate in capital appreciation but also increase your ROI on the value vested in the house.

When the loan term expires you pay back the capital plus interest and keep the spread.

XTS = house.

The really interesting aspect of loaning XTS is the burn; theoretically XTS is always appreciating in value. Lenders do not loose opportunity cost because they are repaid the same number of XTS lent... plus interest, also payable in XTS. So over the term of the loan the lender participates in XTS capital appreciation, dividend burn... and earns loan interest to boot.

Unless I'm missing something very obvious, everyone planning to just hodl XTS should be lining up to lend. Even 1% increase in ROI would be worthwhile vs. not lending/hodling.

Interest rates would trend to low end of the range as there is little risk and effort required. A large pool of low-rate XTS loan funds would become available for trading, hedging, revolving credit and other schemes.

This would also create a highly capitalized ecosystem that encourages responsible borrowing.

With regard to risk, if the loans are fully secured and the market making fully automated the only risk factor is the BitShares X DAC going rogue. This not happening is the whole point of a DAC, so if you subscribe to the concept of DAC you should not expect a risk premium.

« Last Edit: August 21, 2014, 04:41:10 PM by OldMan »

Offline Empirical1

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Re: BTSX Lending - Revenue w/o Counterparty Risk
« Reply #11 on: August 21, 2014, 05:28:04 PM »
Slight diversion but kind of related to lending. Not sure how much value/demand there will be for something like this, but it lets bulls take leveraged positions in BTSX and it lets big BTSX holders lock in a monthly income & decrease their volatility from a small part of their portfolio.

Will it be possible to do a kind of options trading in BTSX?

Like say I have $100 000 and I think BTSX will double in the next month because of the release of BitAssets.

Instead of just buying a $100 000 worth of BTSX and making a $100 000 that month, I'd like to get as much of the profits from the next month that $100 000 will buy me. 

Someone else, Mr. B with $4 000 000 worth of BTSX might only think the price will go up 20% that month and make him $800 000.

So he would be happy to sell me the profit $400 000 of his portfolio would make for the month in advance for $100 000.

So if BTSX doubles I make $400 000 with my $100 000. (& if it increases more than 25% I'm still in profit.)

All it requires is me to send funds to Mr. B and for Mr. B's $400 000 to be sent to escrow and be divided at the end of the month by the system based on the current price.

Offline tonyk

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Re: BTSX Lending - Revenue w/o Counterparty Risk
« Reply #12 on: August 21, 2014, 05:41:44 PM »
This is total nonsense.

Either this makes no sense to the lender as the borrower can sell the collateral any second at will.

Or for the borrower if the collateral is locked. 'Provide $100 in cash to get $100 loan' kind of loans are not in high demand.  :)
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline donkeypong

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Re: BTSX Lending - Revenue w/o Counterparty Risk
« Reply #13 on: August 21, 2014, 06:00:22 PM »
I sure as heck would not integrate this into BitShares X. But if someone wanted to take the lending risk of betting on a lower chunk of collateral, using some kind of escrow or offline collateral, I guess that side businesses could pop up and try this. BitShares Bailbonds? Definitely not a DAC.
« Last Edit: August 21, 2014, 06:02:13 PM by donkeypong »

Offline Shentist

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Re: BTSX Lending - Revenue w/o Counterparty Risk
« Reply #14 on: August 21, 2014, 06:19:00 PM »
what about something like this

A: holds 1.000 BTSX, but has no intention to buy or sell bitAssets
B: holds 1.000 BTSX too, but he want to buy or sell bitAssets

now A "lends" B 1.000 BTSX with the promise to give him 10 BTSX a month (>12% interest a year)
B now "controls" 2.000 BTSX but can't sell the borrowed BTSX but can invest in bitAssets

so B buy now bitUSD for 2.000 BTSX and hopes to make a profit.

1. if B makes a profit both parties wins with this deal
2. if B makes a loss he will loose much more, because he invested "leveraged" . the BTSX client should prefend a loss for A. Say if the invest of B gets the wrong way his own BTSX are converted to the "borrowed" BTSX account. If he holds only 25% of the borrowed BTSX as own BTSX his contract with A will get automatically terminated.

with this kind of system more parties could be interested in BTSX - lenders and traders

 

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