Author Topic: When will there be interest on BitAssets?  (Read 6733 times)

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Offline Empirical1.1

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Darn I meant to quote the part below but ended up modifying the original statement above :(


My new prediction

Despite claims that the peg is working BitAsset creation will be minimal. (The share price will languish below $80 million CAP) Over the next few weeks the voices will get louder asking for interest.

Within a week of interest/incentives being added to BTSX the CAP will surpass Litecoin.

If interest/incentives is not added for say a month from now you should also see BitAssets already in circulation starting to fetch prices >2% below the peg on average.

(No economics degree or prediction market understanding, novice trader, don't understand options, contracts etc.. So take it with a pinch of salt but that's my prediction...)

So much for that prediction...   :(

Perhaps too optimistic...  :P I see now wallet issues (to be expected at this stage and with such rapid development & innovation), complexity, uncertainty and centralisation of active voting stake are the likely drags. https://bitsharestalk.org/index.php?topic=8416.msg111523#msg111523
So even an optimal incentive system will take a while to attract longs.

I also see they are considering a collateral system now which I think is negative as it will decrease BitYield and while I lack much understanding about shorting and trading, I have to believe the basic logic of incentives will be what ultimately maximises demand around the peg.

Potential issues

In the short term I feel many are disengaging from the development process until there is a stable client, with a simple system and greater certainty.

I also think the developer & co voting stake is or could become more of an issue unless there is a roadmap to get more voting stake into play. (BTC38's BTSX could also be an issue.) as it currently makes DPOS largely irrelevant/superfluous. I also think it's possible the developers with their market skill and knowledge of development issues which currently drive BTSX price will allow them to increase their positions, and while incentivising them, will exacerbate that issue further.

Offline starspirit

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I mostly agree, and will add to it what I think are the most likely dynamics. I'm glad at least the existing BitAssets can trade freely, although the new creation market is limited through price restrictions. For so long as there are reasons for BitUSD's to naturally trade at a discount to the peg (which there currently are, due to liquidity, acceptability, collateral risk, leverage demand etc), new BitUSD creation will be heavily constrained to a small tail of buyers willing to buy at or above the peg price. In the short term this may keep the free trading of BitUSD close to the peg as initial buyers are reluctant to move too far from where they opened positions, but after buyers find it more difficult to sell at those levels, and BitUSD change hands at gradually lower prices, I tend to think it will just stair-step down to the natural discount again. As that occurs, new creation will come to a complete standstill.

On the other hand, a floating interest rate probably resolves both problems of the peg and liquidity.




Offline Empirical1.1

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I think lots of people will be willing to short BitUSD, not a lot willing to go long at the start.

Might make BitUSD price trade too far below peg. But this will hurt BTSX price causing the situation to correct itself...

Seems like it may need interest rates if you really want to keep it at 1-1. Because a short may be willing to short BitUSD and pay X% interest to entice a long to trade.

You lost me here...why this will hurt BTSX price? If a lot of people go short bitusd, wouldn't bitusd fall relatively to BTSX price. Therefore BTSX will rise and will be worth more bitsud..

I think a lot of people are hoping BitUSD may track USD fairly close to 1-1 most of the time.

However because people are so bullish on BTSX and shorting BTSX lets you take a leveraged position on BTSX. BTSX bulls may be willing to short still at $0.70, this trading range will be so far from the peg that it could damage the credibility of the peg. This could make people sell BTSX. This will mean less BTSX bulls willing to short below the peg and the situation will correct itself.

I don't mind a BitUSD like that but it might not appeal as much to retailers and savers.

It seems to make it stable you should introduce free market interest rates.
Then you still short 1-1 but when most people are bulls like now you will pay a higher interest rate to short BitUSD as opposed to shorting very far below the peg.

My new prediction

Despite claims that the peg is working BitAsset creation will be minimal. (The share price will languish below $80 million CAP) Over the next few weeks the voices will get louder asking for interest.

Within a week of interest/incentives being added to BTSX the CAP will surpass Litecoin.

If interest/incentives is not added for say a month from now you should also see BitAssets already in circulation starting to fetch prices >2% below the peg on average.

(No economics degree or prediction market understanding, novice trader, don't understand options, contracts etc.. So take it with a pinch of salt but that's my prediction...)


« Last Edit: September 18, 2014, 12:18:26 pm by Empirical1.1 »

Offline Empirical1.1

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With regard to BM's idea on BitAsset holders getting participation in BTSX growth, I tend to think that a wider community of potential BitUSD users (merchants and customers) would not want their USD surrogate holdings conflated with an equity stake, forcing them to a view on BTSX, as positive as the current BTSX community might be on this. A straight interest rate is simpler and has wider appeal.

With regard to using a prediction market to set an interest rate, does the successful operation of this depend on the consensus in the prediction market being that BitUSD will be close to pegged? Presumably if participants can't rely on that, this will change their interest rate predictions, and it really becomes a game theory of predicting what everyone else is thinking rather than the true equilibrium rate? And if that were true, then isn't the problem of the market forming a consensus that the peg will hold just transferred from the BitUSD market to the prediction market, still with no guaranteed that such a consensus will form? As per a previous comment in this thread, I admittedly still don't understand the mechanics of how the prediction market would operate, so my logic may be way off base. Sorry if it is.

To your first part, yes I agree to merchant and customers a straight interest rate has wider appeal. (However I don't know if it is simpler to implement.)

As for the second part, I think the prediction market setting the incentive rate will work well. People taking either side of the prediction market have the same risk. They are also not cross-referencing a value like a BitAsset is. (In which case you need to take account of cost + risk relative to the thing you're referencing.) Their goal will be to maintain a long term average mean for BitAssets using an incentive rate to compensate for demand imbalances and risk. They will simply be moving the incentive up/down depending on where BitAssets are currently averaging in relation to the peg.
(I'm sure it's not really that simple but in my head it is :) )

The reason the main BitAsset doesn't peg is because of a medium term demand imbalance (more general BitAsset short demand than those wanting to go long.) This would drive it below the peg without the 1-1 short limit or an incentive rate that matched supply and demand closer to the peg.

Then while they think the peg works now, there's actually risk that has to be accounted for as well as utility + conversion cost. Basically a lot of things that make BitAssets worth less than 1-1 so no consensus/liquidity etc. is going to make something worth more than it is.

As I just said in another thread...

For me, the most obvious example is BitBTC

Why would anyone buy BitBTC @1-1 in BTSX without an incentive?

They would then have BTSX failure/bug risk. They may not be able to re-sell BitBTC @ 1-1. They have to pay trading fees as well as the same conversion fee to real BTC as if they just sent BTSX to an exchange.

So it's obvious to me incentives will have to be added. The good news is shorts are willing to do that atm & BitBTC with incentives is a game changer   8)

(The other good news is over time a stable BTSX, utility and other BitAsset advantages will make BitAssets worth more than 1-1 long term.)


Edit: As Xeroc pointed out BitBTC can be transferred in 10 seconds which is an advantage and it's easier/simpler to maintain privacy so there are already some BitBTC advantages
« Last Edit: September 05, 2014, 03:52:02 pm by Empirical1.1 »

Offline starspirit

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With regard to BM's idea on BitAsset holders getting participation in BTSX growth, I tend to think that a wider community of potential BitUSD users (merchants and customers) would not want their USD surrogate holdings conflated with an equity stake, forcing them to a view on BTSX, as positive as the current BTSX community might be on this. A straight interest rate is simpler and has wider appeal.

With regard to using a prediction market to set an interest rate, does the successful operation of this depend on the consensus in the prediction market being that BitUSD will be close to pegged? Presumably if participants can't rely on that, this will change their interest rate predictions, and it really becomes a game theory of predicting what everyone else is thinking rather than the true equilibrium rate? And if that were true, then isn't the problem of the market forming a consensus that the peg will hold just transferred from the BitUSD market to the prediction market, still with no guaranteed that such a consensus will form? As per a previous comment in this thread, I admittedly still don't understand the mechanics of how the prediction market would operate, so my logic may be way off base. Sorry if it is.

Offline Empirical1.1

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My current train of thought says BitAssets are a 'store of value' market.

We have a market of people that want to store value in BitAssets and people that want to increase their exposure to BTSX by shorting.

Their interests are aligned in that both want to trade at as close to 1-1 as possible. (BitAsset holders want a stable safe store of value @ 1-1 & shorts want them to have it.)

However the amount of people looking to hold value in BitAssets are not necessarily in long term alignment with the amount of people wanting to short - This is why price feeds were introduced - short to medium term shorting demand was clearly too great to maintain the peg however interest/incentives would solve this.

Risk and utility also come into play as to whether a BitAsset will be worth less than 1-1 to the market (like now it's risky) in which case BitAsset holders need a form of interest to maximise demand.

So a separate prediction market is needed to determine the incentive/interest rate that maximises trading at an average of 1-1. (Should also work without price feeds)

Now when BitAsset demand is low & or shorting demand is high, the PM would let the incentive rate rise in favour of people holding BitAssets (by also giving them a % share of BTSX upside) until the average price moves to 1-1. You will know the incentive rate has overshot if there are not enough people willing to short at that incentive rate and if buying and selling is being done above 1-1 on average.

The 1-1 level will still fluctuate in short term stress and in times of low liquidity but now the price will be heavily supported because traders can buy at 0.97 with confidence knowing the price will move back to the long term average of 1-1 and if not the prediction market will adjust the incentive rate till it does.

Currently we are just switching off a lot of the market. An incentive rate giving BitAsset holders BTSX upside potential would maximise BitAsset creation around 1-1 (With or even without price feed) and make the market huge - slightly analagous to Bitcoin adjusting mining difficulty to be able to absorb any level of hashing power and still maintain average block times.

So I'd like to see BM's option of a share of BTSX upside as determined by a prediction market introduced to BitAssets. I think the demand would be huge and we'd be rich :)
« Last Edit: September 04, 2014, 08:42:53 pm by Empirical1.1 »

Offline maqifrnswa

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I guess the "bond" model with a termination date could be good. Let's say for example in the future someone wants to be more exposed to the BTSX market for a period of 6 months. They "sell" bitusd (the same as shorting, creating bitusd and owing BTSX in to the bitusd owner). It could be viewed as bonds, with a termination date and an interest rate determined by the market at the time of the bond creation. The person receiving BTSX would have to put the equivalent of the interests on the duration of the bond + the usual collateral. Then, upon termination, the person holding the BTSX (the bond emitter) would have to pay back the value he borrowed in BTSX + the interest. In order to make sure the collateral is able to reimburse the bond holder in case of a price crash, I would suggest a 10% premium collateral and the bond would be reimbursed if the price drops more than 10% (example)

The bond could be traded as an asset, the price varying in time depending on the interest rate of the market.

Does it make sense?

You described a zero-coupon bond. You also can do a futures market:
http://www.investopedia.com/university/futures/futures2.asp
there are already markets like this for BTC:USD, so you can essentially loan someone BTC for interest over a period of time.

Futures markets do daily settlements in order to ensure collateralization, and can do daily margin calls.

I think the tricky thing is how can we create an options and futures market which enforces the peg? Everything relies on 1 BitUSD=1 USD, can we create some kind of futures market that guarantees 1 BitUSD-futures-contract-on-date = 1 USD-worth-of-BTSX-on-date

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Offline Chuckone

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But I think for the average customer we don't want many BitUSD's with different termination dates.
(Though they can be done on the side in a separate section/market if it is better like you say.)

We just want one main 'BitUSD', one main 'BitGold' but with more incentives for the longs to maximise BitAsset creation.

This seems like a solution (with the prediction market) to add incentives to owning a BitAsset like BitGold without the average person having to choose between 10 BitGold options.

I want that magical one product too. Unfortunately experience shows that when the Math does not work, all the will, hard work and talent in the world are not enough to change this fact and make a working product.




'Oh ye seekers after perpetual motion, how many vain chimeras have you pursued? Go and take your place with the alchemists.'
— Leonardo da Vinci


I guess the "bond" model with a termination date could be good. Let's say for example in the future someone wants to be more exposed to the BTSX market for a period of 6 months. They "sell" bitusd (the same as shorting, creating bitusd and owing BTSX in to the bitusd owner). It could be viewed as bonds, with a termination date and an interest rate determined by the market at the time of the bond creation. The person receiving BTSX would have to put the equivalent of the interests on the duration of the bond + the usual collateral. Then, upon termination, the person holding the BTSX (the bond emitter) would have to pay back the value he borrowed in BTSX + the interest. In order to make sure the collateral is able to reimburse the bond holder in case of a price crash, I would suggest a 10% premium collateral and the bond would be reimbursed if the price drops more than 10% (example)

The bond could be traded as an asset, the price varying in time depending on the interest rate of the market.

Does it make sense?

Offline tonyk

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But I think for the average customer we don't want many BitUSD's with different termination dates.
(Though they can be done on the side in a separate section/market if it is better like you say.)

We just want one main 'BitUSD', one main 'BitGold' but with more incentives for the longs to maximise BitAsset creation.

This seems like a solution (with the prediction market) to add incentives to owning a BitAsset like BitGold without the average person having to choose between 10 BitGold options.

I want that magical one product too. Unfortunately experience shows that when the Math does not work, all the will, hard work and talent in the world are not enough to change this fact and make a working product.




'Oh ye seekers after perpetual motion, how many vain chimeras have you pursued? Go and take your place with the alchemists.'
— Leonardo da Vinci
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline Empirical1.1

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Interest is extremely hard to implement in an explicit manner because accounts are heavily divided and payment periods are continuous. 

A BitAsset can be defined any way that is easily calculated.  The challenge is "what interest rate should we set"?   

If you set a "fixed interest rate" then it is possible for the interest to be "too high". 

Imagine a BitAsset that paid interest equal to 25% of the growth of BTSX but had a floor pegged to the dollar.  It can "lock in" the gains on a daily basis.

Both of those at the money options; with the  volatility of BTSX.
In layman's terms - very expensive.   

So you buy $100,000 USD + 25% of BTSX growth...
BTSX doubles....   your USD investment is now worth $125,000 
BTSX halves... your USD investment is still worth $100,000

By sharing the "upside potential" with the USD holders you create huge demand.

Now once again this is price fixing ratio of profit sharing... so could have other side effects. 

Would you buy an asset that was "pegged" to daily BTSX upside growth with the shorts taking all of the downside risk?

I said it once I will repeat it again - those things must have termination date.

On the bold question - more than that, I will sell you one of those contracts. The price is generally the same as  the price of a put option (over the whole amount) + price of a call option over 25% of the whole amount.

I do not understand contracts/options like you obviously.

But I think for the average customer we don't want many BitUSD's with different termination dates.
(Though they can be done on the side in a separate section/market if it is better like you say.)

We just want one main 'BitUSD', one main 'BitGold' but with more incentives for the longs to maximise BitAsset creation.

This seems like a solution (with the prediction market) to add incentives to owning a BitAsset like BitGold without the average person having to choose between 10 BitGold options.

Offline tonyk

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Interest is extremely hard to implement in an explicit manner because accounts are heavily divided and payment periods are continuous. 

A BitAsset can be defined any way that is easily calculated.  The challenge is "what interest rate should we set"?   

If you set a "fixed interest rate" then it is possible for the interest to be "too high". 

Imagine a BitAsset that paid interest equal to 25% of the growth of BTSX but had a floor pegged to the dollar.  It can "lock in" the gains on a daily basis.

Both of those at the money options; with the  volatility of BTSX.
In layman's terms - very expensive.   

So you buy $100,000 USD + 25% of BTSX growth...
BTSX doubles....   your USD investment is now worth $125,000 
BTSX halves... your USD investment is still worth $100,000

By sharing the "upside potential" with the USD holders you create huge demand.

Now once again this is price fixing ratio of profit sharing... so could have other side effects. 

Would you buy an asset that was "pegged" to daily BTSX upside growth with the shorts taking all of the downside risk?

I said it once I will repeat it again - those things must have termination date.

On the bold question - more than that, I will sell you one of those contracts. The price is generally the same as  the price of a put option (over the whole amount) + price of a call option over 25% of the whole amount.

« Last Edit: September 04, 2014, 01:36:39 am by tonyk »
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline GaltReport

Interest is extremely hard to implement in an explicit manner because accounts are heavily divided and payment periods are continuous. 

A BitAsset can be defined any way that is easily calculated.  The challenge is "what interest rate should we set"?   

If you set a "fixed interest rate" then it is possible for the interest to be "too high". 

Imagine a BitAsset that paid interest equal to 25% of the growth of BTSX but had a floor pegged to the dollar.  It can "lock in" the gains on a daily basis.     

So you buy $100,000 USD + 25% of BTSX growth...
BTSX doubles....   your USD investment is now worth $125,000 
BTSX halves... your USD investment is still worth $100,000

By sharing the "upside potential" with the USD holders you create huge demand.

Now once again this is price fixing ratio of profit sharing... so could have other side effects. 

Would you buy an asset that was "pegged" to daily BTSX upside growth with the shorts taking all of the downside risk?

Yes, as long as I can sell it.  ;)

Offline James212

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Interest is extremely hard to implement in an explicit manner because accounts are heavily divided and payment periods are continuous. 

A BitAsset can be defined any way that is easily calculated.  The challenge is "what interest rate should we set"?   

If you set a "fixed interest rate" then it is possible for the interest to be "too high". 

Imagine a BitAsset that paid interest equal to 25% of the growth of BTSX but had a floor pegged to the dollar.  It can "lock in" the gains on a daily basis.     

So you buy $100,000 USD + 25% of BTSX growth...
BTSX doubles....   your USD investment is now worth $125,000 
BTSX halves... your USD investment is still worth $100,000

By sharing the "upside potential" with the USD holders you create huge demand.

Now once again this is price fixing ratio of profit sharing... so could have other side effects. 

Would you buy an asset that was "pegged" to daily BTSX upside growth with the shorts taking all of the downside risk?

 +5% +5% Would create absolutely huge demand!!
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Offline Empirical1.1

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"guaging average supply and demand" What is guaging?  :o

'estimate or determine the amount' - Gauge (oops gauging not guaging)

Sorry I'm new to trading (well shorting) and am not familiar with prediction markets.

So for example I would gauge at the present time the interest rate should be at least 10% as I can already see shorts are willing to pay at least that. I would make the interest 10% then view the results/effects and raise it or lower it accordingly. My understanding is a prediction market would be doing that but much better than any one man or small group of people could.

Edit: And I guess it could take the form of sharing the upside potential of BTSX as described by BM above which I really like.
Quote
I would make the interest 10% then view the results/effects and raise it or lower it accordingly.
you mean that the interest on bitUSD gets adjusted live according to the prediction on the interest PM?

No I mean, for an extreme example, say the last prediction market gave us a '20% of BTSX growth' rate and the BitUSD market was buzzing. If the prediction market in process was predicting 0% for the next result the BitUSD market would respond in anticipation, via BitAsset demand dropping and that feedback loop even with tighter levels obviously would help the prediction market gauge the best level for the next result. If any of that makes sense.



@ Delulo excluding the actual interest rate, what do you think of the the actual way interest could be applied?

Imagine a BitAsset that paid interest equal to 25% of the growth of BTSX but had a floor pegged to the dollar.  It can "lock in" the gains on a daily basis.     

So you buy $100,000 USD + 25% of BTSX growth...
BTSX doubles....   your USD investment is now worth $125,000 
BTSX halves... your USD investment is still worth $100,000

By sharing the "upside potential" with the USD holders you create huge demand.

Would you buy an asset that was "pegged" to daily BTSX upside growth with the shorts taking all of the downside risk?


I think it's great personally.

Edit: I guess you wouldn't call it an 'interest rate' you would call the above a % of BTSX growth/upside.

'BitAssets + % of BTSX growth' & PM determines the %
« Last Edit: September 04, 2014, 01:21:19 am by Empirical1.1 »

Offline santaclause102

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"guaging average supply and demand" What is guaging?  :o

'estimate or determine the amount' - Gauge (oops gauging not guaging)

Sorry I'm new to trading (well shorting) and am not familiar with prediction markets.

So for example I would gauge at the present time the interest rate should be at least 10% as I can already see shorts are willing to pay at least that. I would make the interest 10% then view the results/effects and raise it or lower it accordingly. My understanding is a prediction market would be doing that but much better than any one man or small group of people could.

Edit: And I guess it could take the form of sharing the upside potential of BTSX as described by BM above which I really like.
Quote
I would make the interest 10% then view the results/effects and raise it or lower it accordingly.
you mean that the interest on bitUSD gets adjusted live according to the prediction on the interest PM?

A price feed for bitUSD plus a PM that determines the the interest rate looks good to me intuitively (if that PM works).
« Last Edit: September 04, 2014, 12:48:40 am by delulo »

Offline maqifrnswa

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On the face of it, this sounds interesting, though I don't quite understand it. Could somebody please explain in a simple way the mechanics of how a prediction market could be used to form a market-consensus around R in such a way as to effectively peg the price?

here's an example:
https://icbit.se/

Instrument   Last Price
BTC/USD-9.14           478
BTC/USD-12.14     497
BTC/USD-11.14     504
BTC/USD-10.14     495

and if you know the current price, you can calculate what the interest you are being offered to buy a BTC/USD-9.14.

All day I've been trying to figure out some way of making an internal market that can do this while also defining the peg at the same time. Some type of BTSX or USD futures market that is denominated in BitUSD but the market is settled based on USD:BTSX exchange rate.
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Offline Empirical1.1

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"guaging average supply and demand" What is guaging?  :o

'estimate or determine the amount' - Gauge (oops gauging not guaging)

Sorry I'm new to trading (well shorting) and am not familiar with prediction markets.

So for example I would gauge at the present time the interest rate should be at least 10% as I can already see shorts are willing to pay at least that. I would make the interest 10% then view the results/effects and raise it or lower it accordingly. My understanding is a prediction market would be doing that but much better than any one man or small group of people could.

Edit: And I guess it could take the form of sharing the upside potential of BTSX as described by BM above which I really like.
« Last Edit: September 04, 2014, 12:40:30 am by Empirical1.1 »

Offline santaclause102

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"guaging average supply and demand" What is guaging?  :o

Offline Empirical1.1

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On the face of it, this sounds interesting, though I don't quite understand it. Could somebody please explain in a simple way the mechanics of how a prediction market could be used to form a market-consensus around R in such a way as to effectively peg the price?
you set up Bit_interest-rate-with-demand-supply-equilibrium-for-the-month-form-now and let people trade it like bitUSD is traded. I guess it can be calculated by the premium/discount bitUSD is traded. How would it be calculated/quantified if we have a price feed and not premium/discount. I dont know: Not looking at the price / not at actual trades but at supply/demand?

I would say the prediction market would be guaging average supply and demand.

We know by looking at the limited BitAsset long side & the big short demand that the optimal interest is >0% (current)

I guess the first prediction market would yield an 'educated guess' but get better and better quickly over time by viewing how the market responded to it's previous consensuses and even viewing the markets reaction to their next consensus in real time.
« Last Edit: September 03, 2014, 11:49:10 pm by Empirical1.1 »

Offline santaclause102

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On the face of it, this sounds interesting, though I don't quite understand it. Could somebody please explain in a simple way the mechanics of how a prediction market could be used to form a market-consensus around R in such a way as to effectively peg the price?
you set up Bit_interest-rate-with-demand-supply-equilibrium-for-the-next-month-form-now and let people trade it like bitUSD is traded. I guess it can be calculated by the premium/discount bitUSD is traded. How would it be calculated/quantified if we have a price feed and not premium/discount. I dont know: Not looking at the price / not at actual trades but at supply/demand? Doubt the latter would work as anybody can put up orders with little danger that they are actually executed and calculating the interest it would not for an equilibrium supply is not possible, is it?
« Last Edit: September 03, 2014, 11:38:05 pm by delulo »

Offline starspirit

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On the face of it, this sounds interesting, though I don't quite understand it. Could somebody please explain in a simple way the mechanics of how a prediction market could be used to form a market-consensus around R in such a way as to effectively peg the price? 

Offline Empirical1.1

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We just need a way to establish the perfect interest rate by consensus.

The best way to achieve this is: "Daniel - THINK."

A prediction market.

 +5% +5%

We just need a way to establish the perfect interest rate by consensus.

The best way to achieve this is: "Daniel - THINK."

A prediction market.
Dont see why we need an interest rate for bitusd since it is already trading either at a discount or a premium (without the price feed). There is a prediction market already built into bitusd? This is not (only/mostly) a long term prediction market though which in turn could justify bitUSD interest rates. Such a prediction market might be hard to establish as it is very hard to predict the interest rate especially in those volatile times! With bitUSD short/long positions you just have to guess the direction (anytime in the future)...

My feeling is without the price feed in the short term there is too much shorting demand this drives the 'average' below the peg. So the peg doesn't form at 1-1. When you buy at 0.86 you're not actually getting the interest you think you are if the medium term 'average' is 0.9.

The price feed and limiting BitAsset creation at or above the peg helps it, but there is very little demand @ 1-1 from people wanting to hold value in BitAssets. The same way a new bank or exchange may have to pay you interest to attract your deposit the same for BTSX virtual vault.

There are a lot of people willing to pay a premium to short in the form of interest at 1-1.
The question is what rate of interest will maximise BitAsset creation. A separate prediction market should be able to answer that.

Also an actual interest rate is so much more marketable imo.
« Last Edit: September 03, 2014, 11:14:13 pm by Empirical1.1 »

Offline santaclause102

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We just need a way to establish the perfect interest rate by consensus.

The best way to achieve this is: "Daniel - THINK."

A prediction market.
Dont see why we need an interest rate for bitusd since it is already trading either at a discount or a premium (without the price feed). There is a prediction market already built into bitusd? This is not (only/mostly) a long term prediction market though which in turn could justify bitUSD interest rates. Such a prediction market might be hard to establish as it is very hard to predict the interest rate especially in those volatile times! With bitUSD short/long positions you just have to guess the direction (anytime in the future)...
« Last Edit: September 03, 2014, 10:40:32 pm by delulo »

Offline bytemaster

We just need a way to establish the perfect interest rate by consensus.

The best way to achieve this is: "Daniel - THINK."

A prediction market.

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 CLains

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We just need a way to establish the perfect interest rate by consensus.

The best way to achieve this is: "Daniel - THINK."

Offline Empirical1

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Is Empirical1.1 squatting Empirical name?   ???

Empirical1.1 is my new account. It's silly but 888 is my lucky number so I'm ending this account on 888 posts for good luck :)

Quote
In Christian numerology, the number 888 represents Jesus, or sometimes more specifically Christ the Redeemer. This representation may be justified either through gematria, by counting the letter values of the Greek transliteration of Jesus' name,[11] or as an opposing value to 666, the number of the beast.[12]

In Chinese numerology, 888 has a different meaning, triple fortune, a strengthening of the meaning of the digit 8.[13] For this reason, addresses and phone numbers containing the digit sequence 888 are considered particularly lucky, and may command a premium because of it.[14]

http://en.wikipedia.org/wiki/888_(number)

Offline Empirical1.1

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Imagine a BitAsset that paid interest equal to 25% of the growth of BTSX but had a floor pegged to the dollar.  It can "lock in" the gains on a daily basis.     

So you buy $100,000 USD + 25% of BTSX growth...
BTSX doubles....   your USD investment is now worth $125,000 
BTSX halves... your USD investment is still worth $100,000

By sharing the "upside potential" with the USD holders you create huge demand.

Would you buy an asset that was "pegged" to daily BTSX upside growth with the shorts taking all of the downside risk?

Thanks for the reply. WOW! Sounds amazing to me! I agree that this would create huge demand and yes I would buy it! I will be interested what others think.

A BitAsset can be defined any way that is easily calculated.  The challenge is "what interest rate should we set"?   

Yes this is a challenge that is too hard for me. What I do know is the optimal interest rate will trend lower over time as demand increases for BitAssets. I don't know how the system would/could deal with that transition?

Initial ideas...

Maybe a formula that looks at buying vs. shorting demand. If the average increases so that there are more buyers than shorters over X period the interest rate drops 2%.  So you buy the BitAsset at a certain interest rate paid daily but with the knowledge that interest rate is variable and will adjust occasionally to reflect supply and demand. Is something like that possible?
« Last Edit: September 03, 2014, 07:40:02 pm by Empirical1.1 »

Offline tonyk

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Interest is extremely hard to implement in an explicit manner because accounts are heavily divided and payment periods are continuous. 

A BitAsset can be defined any way that is easily calculated.  The challenge is "what interest rate should we set"?   

If you set a "fixed interest rate" then it is possible for the interest to be "too high". 

Imagine a BitAsset that paid interest equal to 25% of the growth of BTSX but had a floor pegged to the dollar.  It can "lock in" the gains on a daily basis.     

So you buy $100,000 USD + 25% of BTSX growth...
BTSX doubles....   your USD investment is now worth $125,000 
BTSX halves... your USD investment is still worth $100,000

By sharing the "upside potential" with the USD holders you create huge demand.

Now once again this is price fixing ratio of profit sharing... so could have other side effects. 

Would you buy an asset that was "pegged" to daily BTSX upside growth with the shorts taking all of the downside risk?

My general though on the interest rate assets is that it seem easier if they have an expiration date.

Say each month only bonds expiring after 3,6 mo, 1, 5 and10 years from now can be newly issued.

Having a some fixed face interest rate (say 5% for the one year one) is not a problem - the bonds will be traded (an initially issued) with a discount/premium).

At the end of the said period for each bond it is converted into the underlying currency (bitUSD for example)
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline liondani

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Is Empirical1.1 squatting Empirical name?   ???

Offline bytemaster

Interest is extremely hard to implement in an explicit manner because accounts are heavily divided and payment periods are continuous. 

A BitAsset can be defined any way that is easily calculated.  The challenge is "what interest rate should we set"?   

If you set a "fixed interest rate" then it is possible for the interest to be "too high". 

Imagine a BitAsset that paid interest equal to 25% of the growth of BTSX but had a floor pegged to the dollar.  It can "lock in" the gains on a daily basis.     

So you buy $100,000 USD + 25% of BTSX growth...
BTSX doubles....   your USD investment is now worth $125,000 
BTSX halves... your USD investment is still worth $100,000

By sharing the "upside potential" with the USD holders you create huge demand.

Now once again this is price fixing ratio of profit sharing... so could have other side effects. 

Would you buy an asset that was "pegged" to daily BTSX upside growth with the shorts taking all of the downside risk?

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 Empirical1.1

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BTSX is a virtual vault for storing value via BitAssets

The virtual vault is currently risky, people need to be compensated for that risk.

How? Interest on their BitAssets

(BTSX holders don't need to be compensated for the risk because they get the reward from BTSX doing well)

We have an attempt from Shentist here https://bitsharestalk.org/index.php?topic=8047.msg107361#msg107361
Gulu here https://bitsharestalk.org/index.php?topic=7865.msg104117#msg104117

I am very excited about 4.11 because


2) Shorts can sell at up to 10% below the peg *if* there are offers to buy above the peg.  The difference is captured as fees, gives priority to shorts willing to pay the highest fee.

That difference captured as fees gives you the pot that can be distributed to all BitAsset holders as interest and in so doing create the market. (I presume because of TITAN this is not easy to do.)

My question is does anyone know what the current plans are with regards to introducing interest into the system?

To BM, if you have the time - Do you currently feel that interest may not be necessary/not easy to implement and want to give the system a chance without it or do you guys recognise that interest is required and you are thinking how best to approach it?

Thanks.

Edit: Assuming 2 identical systems except system A didn't redistribute the captured fees from (2) above as interest to BitAsset holders and system B did.

Would someone looking to store their value in BitAssets choose system A or system B?

BitAsset holders would choose system B so there would be no demand for BitAssets in System A, assuming they are otherwise identical, ergo that interest should go to BitAsset holders if possible imo.

(I also don't feel it will effect the peg as banks & exchanges such as bter all offer interest and the level of interest attracts capital. The interest we can afford to pay seems to be defined by (2).)
« Last Edit: September 03, 2014, 03:20:23 pm by Empirical1.1 »