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Offline Brent.Allsop

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Failure to peg currencies to USD?
« on: September 03, 2014, 04:16:39 PM »

Other countries, such as China, have tried to peg currencies to the USD for some time.  The only way they do this, is by purchasing, and holding in reserve, huge amounts of USD.

This community seems to think they will be able to achieve a peg of BitUSD to the USD, with nothing other than a few hard defined mathematical formula to determine prices, fees, and so on.

Can someone explain to me how and why BitUSD will work, with no "government" controlling things, while it seems to me nothing like this has ever worked before, without huge expenses, and a very powerful government making centrally controlled decisions, in the past?


Offline emski

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Re: Failure to peg currencies to USD?
« Reply #1 on: September 03, 2014, 04:23:52 PM »
Any bitUSD is trapped inside the blockchain. It cannot leave (read transform into BTSX) unless 90% of USD value is paid (in BTSX).

In the examples you state "governments" tried to purchase huge amounts of USD. Here there is no such thing. bitUSD is traded (at least) at 90% of USD value (based on feeds).

In this form it will either work as intended or trade will stop. It is an experiment after all.

Offline Empirical1.1

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Re: Failure to peg currencies to USD?
« Reply #2 on: September 03, 2014, 04:24:43 PM »
At it's simplest level it's because it's backed by enough collateral of something else that has value.

As an extreme example if you wanted to store the value of a dollar and someone agreed to back it up with a big bar of gold then it's not rocket science to understand that the bar of gold can always be used to get you your dollar's worth of value out.

In our system people are backing up the value with a lot of BTSX as collateral by shorting.
The reason they are willing to do this is because it gives bulls more exposure to the success of BTSX.

So we have a market of people that want to store the value of things and people willing to provide a lot of collateral to ensure that value can be safely stored.

I still think the current system needs interest, but that's another story...

Offline Brent.Allsop

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Re: Failure to peg currencies to USD?
« Reply #3 on: September 03, 2014, 04:36:32 PM »
In this form it will either work as intended or trade will stop. It is an experiment after all.

But there is a middle ground, right?

We are attempting to get people to do what is required, by changing the prices and fees.  In other words, if things go bad, or demand for BitUSD goes way up, the cost of getting people to cover longs and shorts, and provide enough capital to cover their positions, could become so inefficient, that nobody will want to participate at the required levels?


Offline GaltReport

Re: Failure to peg currencies to USD?
« Reply #4 on: September 03, 2014, 04:37:07 PM »
Any bitUSD is trapped inside the blockchain. It cannot leave (read transform into BTSX) unless 90% of USD value is paid (in BTSX).

In the examples you state "governments" tried to purchase huge amounts of USD. Here there is no such thing. bitUSD is traded (at least) at 90% of USD value (based on feeds).

In this form it will either work as intended or trade will stop. It is an experiment after all.

In addition to a reasonable price, people who buy BitUSD need to know that they can sell it.  If the marketplace in BitShares is so bullish on BTSX, I am concerned that people who by BitUSD won't be able to sell it.  Are they planning on implementing any sort of market maker that will buy BitUSD from seller at it's current peg?

Offline emski

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Re: Failure to peg currencies to USD?
« Reply #5 on: September 03, 2014, 04:40:57 PM »
In addition to a reasonable price, people who buy BitUSD need to know that they can sell it.  If the marketplace in BitShares is so bullish on BTSX, I am concerned that people who by BitUSD won't be able to sell it.  Are they planning on implementing any sort of market maker that will buy BitUSD from seller at it's current peg?

It is being discussed extensively. However such market maker requires capital or dilution. Dilution is out of the question (my impression). Question for capital is - who will provide it. So currently (as I understand it) the answer is "no market maker".

Offline Empirical1.1

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Re: Failure to peg currencies to USD?
« Reply #6 on: September 03, 2014, 04:42:42 PM »
Any bitUSD is trapped inside the blockchain. It cannot leave (read transform into BTSX) unless 90% of USD value is paid (in BTSX).

In the examples you state "governments" tried to purchase huge amounts of USD. Here there is no such thing. bitUSD is traded (at least) at 90% of USD value (based on feeds).

In this form it will either work as intended or trade will stop. It is an experiment after all.

In addition to a reasonable price, people who buy BitUSD need to know that they can sell it.  If the marketplace in BitShares is so bullish on BTSX, I am concerned that people who by BitUSD won't be able to sell it.  Are they planning on implementing any sort of market maker that will buy BitUSD from seller at it's current peg?

There's an option to introduce a market maker with relatively little risk that guarantees a price within 10% of the peg. Agent86 and others feel that is not needed and independent market makers will step in to provide this service at a much tighter range is my understanding.

Offline GaltReport

Re: Failure to peg currencies to USD?
« Reply #7 on: September 03, 2014, 04:43:51 PM »
In addition to a reasonable price, people who buy BitUSD need to know that they can sell it.  If the marketplace in BitShares is so bullish on BTSX, I am concerned that people who by BitUSD won't be able to sell it.  Are they planning on implementing any sort of market maker that will buy BitUSD from seller at it's current peg?

It is being discussed extensively. However such market maker requires capital or dilution. Dilution is out of the question (my impression). Question for capital is - who will provide it. So currently (as I understand it) the answer is "no market maker".

I'm glad it's being discussed because as a potential buyer of BitUSD, it would be a big concern.  It will be interesting to see how it plays out.

Offline Empirical1.1

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Re: Failure to peg currencies to USD?
« Reply #8 on: September 03, 2014, 04:46:19 PM »
In addition to a reasonable price, people who buy BitUSD need to know that they can sell it.  If the marketplace in BitShares is so bullish on BTSX, I am concerned that people who by BitUSD won't be able to sell it.  Are they planning on implementing any sort of market maker that will buy BitUSD from seller at it's current peg?

It is being discussed extensively. However such market maker requires capital or dilution. Dilution is out of the question (my impression). Question for capital is - who will provide it. So currently (as I understand it) the answer is "no market maker".

I'm glad it's being discussed because as a potential buyer of BitUSD, it would be a big concern.  It will be interesting to see how it plays out.

As a potential buyer of BitUSD would you be more likely to buy if you were earning interest daily on holding your BitAsset?

That is what I'd like to see introduced.

Offline Riverhead

Re: Failure to peg currencies to USD?
« Reply #9 on: September 03, 2014, 04:47:10 PM »
Any bitUSD is trapped inside the blockchain. It cannot leave (read transform into BTSX) unless 90% of USD value is paid (in BTSX).

In the examples you state "governments" tried to purchase huge amounts of USD. Here there is no such thing. bitUSD is traded (at least) at 90% of USD value (based on feeds).

In this form it will either work as intended or trade will stop. It is an experiment after all.

In addition to a reasonable price, people who buy BitUSD need to know that they can sell it.  If the marketplace in BitShares is so bullish on BTSX, I am concerned that people who by BitUSD won't be able to sell it.  Are they planning on implementing any sort of market maker that will buy BitUSD from seller at it's current peg?


BTSX isn't the only game in town for bitUSD.

Offline Method-X

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Re: Failure to peg currencies to USD?
« Reply #10 on: September 03, 2014, 04:49:26 PM »
Any bitUSD is trapped inside the blockchain. It cannot leave (read transform into BTSX) unless 90% of USD value is paid (in BTSX).

In the examples you state "governments" tried to purchase huge amounts of USD. Here there is no such thing. bitUSD is traded (at least) at 90% of USD value (based on feeds).

In this form it will either work as intended or trade will stop. It is an experiment after all.

In addition to a reasonable price, people who buy BitUSD need to know that they can sell it.  If the marketplace in BitShares is so bullish on BTSX, I am concerned that people who by BitUSD won't be able to sell it.  Are they planning on implementing any sort of market maker that will buy BitUSD from seller at it's current peg?

A stable peg will eventually create demand for BitUSD. It won't happen overnight but it will happen.

Offline GaltReport

Re: Failure to peg currencies to USD?
« Reply #11 on: September 03, 2014, 04:49:30 PM »
In addition to a reasonable price, people who buy BitUSD need to know that they can sell it.  If the marketplace in BitShares is so bullish on BTSX, I am concerned that people who by BitUSD won't be able to sell it.  Are they planning on implementing any sort of market maker that will buy BitUSD from seller at it's current peg?

It is being discussed extensively. However such market maker requires capital or dilution. Dilution is out of the question (my impression). Question for capital is - who will provide it. So currently (as I understand it) the answer is "no market maker".

I'm glad it's being discussed because as a potential buyer of BitUSD, it would be a big concern.  It will be interesting to see how it plays out.

As a potential buyer of BitUSD would you be more likely to buy if you were earning interest daily on holding your BitAsset?

That is what I'd like to see introduced.

That's a good question.  I would be more inclined to buy but the biggest concern would be that I could sell it when necessary.  Interest is good but interest that you can never realize (by selling it) is not that good. :)

Ideally, interest plus confidence that you can sell it, would be great.
« Last Edit: September 03, 2014, 04:51:22 PM by GaltReport »

Offline thisisausername

Re: Failure to peg currencies to USD?
« Reply #12 on: September 03, 2014, 04:51:53 PM »
China buys large amounts of USD to keep the yuan undervalued relative to the dollar to prop up their manufacturing and export sectors.  Without this intervention the yuan would be closer to parity with the USD.  The situation with BitUSD/USD isn't quite the same.

The BitUSD market is set up such that the natural valuation tends toward parity with the US dollar if any of the following are true:
  • BTSX has a stable valuation that the market believes will remain stable for the near future.  This allow liquidity into BitUSD as a stable store of value.
  • BitUSD markets are deep enough to absorb expected BTSX shocks.  (This is really just a different way of looking at 1.)
  • Exogenous demand for BitUSD is high.  This, of course, will directly drive liquidity into BitUSD markets.
Currently none of these are true.

1 does not hold because the market is split on the future of BTSX.  Bulls think it is severely undervalued and so have no interest in BitUSD.  Bears think BitAssets cannot work and, thus, BTSX is primed for complete collapse.
2 does not hold because the market is incredibly immature and shallow.
3 does not hold because BitUSD is, currently, mostly useless.

With a larger community (or, perhaps, even just time as bulls and bears revert their BTSX expectations to the mean) the ambivalence of the market could be mitigated enough that 1 could become true.  Same for 2.

3 could become true as services and other uses for BitUSD come online.  For example, shops that accept BitUSD (unlikely to happen first) or interest bearing BitUSD.
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Offline Empirical1.1

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Re: Failure to peg currencies to USD?
« Reply #13 on: September 03, 2014, 04:53:45 PM »
In this form it will either work as intended or trade will stop. It is an experiment after all.

But there is a middle ground, right?

We are attempting to get people to do what is required, by changing the prices and fees.  In other words, if things go bad, or demand for BitUSD goes way up, the cost of getting people to cover longs and shorts, and provide enough capital to cover their positions, could become so inefficient, that nobody will want to participate at the required levels?

No everything works pretty well. There's risk of flash crash in BTSX but there's an insurance fund in place.

- There's also a risk of a sudden upwards revaluation of say gold that could be difficult to deal with.
- There's the risk without a market maker in times of low liquidity or demand you may be forced to sell for less than BitAsset is worth.
- There's a risk of bug or other problem with BTSX.

All of these are risks, risks can be offset by offering interest to BitAsset holders to compensate, hence why 99% of my posts will be about interest from now till it's introduced.

Offline CLains

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Re: Failure to peg currencies to USD?
« Reply #14 on: September 03, 2014, 04:54:59 PM »
It is always fruitful to ask, when one claims to discover or invent something new, why was it not discovered or invented sooner? I'm sure BM could give a compact list of reasons - technological, intellectual, ideological - for why this did not occur sooner.

Perhaps the stifling of innovation in prediction markets by regulation is one reason.

 

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