Author Topic: Failure to peg currencies to USD?  (Read 5881 times)

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Offline Brent.Allsop

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Nobody has answered my questions:  "Who holds the signing authority of "insurance funds", and "When are they paid out, who decides when and how much?"

No one has signing authority on them.  They are destroyed when a short runs out of collateral proportional to how much it "overran".

Thanks for this answer, and I apologize for my ignorance and not fully understanding yet.  It sounds like this insurance is collected as a percentage of transactions or something? Then paid out in extreme circumstances?  But, if nobody can spend these funds being collected, what is the difference between when they are collected, and when they are 'burned' to cover a very large flash crash or maybe some kind of attack, that wiped a lot of people's equity out causing a significant number of people to "overrun" in huge ways?




« Last Edit: September 03, 2014, 07:29:01 pm by Brent.Allsop »

Offline bytemaster

Nobody has answered my questions:  "Who holds the signing authority of "insurance funds", and "When are they paid out, who decides when and how much?"

No one has signing authority on them.  They are destroyed when a short runs out of collateral proportional to how much it "overran". 

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Offline GaltReport

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?

quick explanation of the peg is that if there was a lot of liquidity, and the overwhelming consensus was that one bitUSD was worth one USD, then anyone that trades at a value off of the peg will lose money to the party that is returning to the peg. This is because deviation creates instant arbitrage opportunities. Consensus is formed when there are reasons (e.g. merchants, traders, exchange markets) why one bitUSD should be worth one USD.

Right now the BitUSD:USD link is missing/not strong, so developers are injecting that link with the new shorting rules. However, these rules remove the "exchange" (price discovery) component from bitsharesx and leaves it more like a "bank" (stable supply of value). At this early stage, stable USD:BitUSD value is probably more important to the technology than a fully decentralized exchange. BTSX:USD, BTSX:BTC, and BTSX:CNY price discovery is left to external exchanges which are then reflected by the internal market.

I think the next innovations in bitsharesx will be in the areas of market making - either by building it into the blockchain some how or by some 3rd party finding a way to externally peg USD:BitUSD (and make money while doing it). At some point, we want price discovery to occur ON bitsharesx markets, and not on an external exchange that gets injected INTO bitsharesx.

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Offline Brent.Allsop

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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.

Who holds the signing authority of the "insurance funds", and when do they pay out, or who makes the decision?

Also, if BitUSD started to threaten to become a new world reserve, perhaps the US, possibly in concert with other fiat currency countries, could attack it by severely manipulating or readjusting the value of the USD?  If we had to make huge dramatic decisions, that were very controversial, could the be made in time, to defend against such?

If it's still being done the way I read a few weeks ago then my understanding is the insurance fund kicks in automatically if there's not enough collateral and if that runs out the system can even temporarily dilute BitAssets and then cover the dilution with fees over time. It's very impressive.

As for manipulating the value. The feeds are supplied by trusted intelligent delegates so it would be hard and in time the feeds may not even be needed. I think the real risk is that currencies are officially devalued overnight but that wouldn't hurt BTSX I don't think that much because we would have even more collateral backing it.

As for stopping it. You can probably stop BTSX in the next 3 months still but the capability is there to do this and Ethereum are doing their own kind of twist I think so ultimately you can't stop people storing value in this way.

Nobody has answered my questions:  "Who holds the signing authority of "insurance funds", and "When are they paid out, who decides when and how much?"



Offline maqifrnswa

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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?

quick explanation of the peg is that if there was a lot of liquidity, and the overwhelming consensus was that one bitUSD was worth one USD, then anyone that trades at a value off of the peg will lose money to the party that is returning to the peg. This is because deviation creates instant arbitrage opportunities. Consensus is formed when there are reasons (e.g. merchants, traders, exchange markets) why one bitUSD should be worth one USD.

Right now the BitUSD:USD link is missing/not strong, so developers are injecting that link with the new shorting rules. However, these rules remove the "exchange" (price discovery) component from bitsharesx and leaves it more like a "bank" (stable supply of value). At this early stage, stable USD:BitUSD value is probably more important to the technology than a fully decentralized exchange. BTSX:USD, BTSX:BTC, and BTSX:CNY price discovery is left to external exchanges which are then reflected by the internal market.

I think the next innovations in bitsharesx will be in the areas of market making - either by building it into the blockchain some how or by some 3rd party finding a way to externally peg USD:BitUSD (and make money while doing it). At some point, we want price discovery to occur ON bitsharesx markets, and not on an external exchange that gets injected INTO bitsharesx.
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Offline GaltReport

So...


1) People are too in debt to spend money because for the last 20 years banks have given our credit like candy
2) To encourage people to spend more they're going to increase interest rates making that debt much more expensive.
3) Wait...what is number three?

3) Global economic collapse, massive new wars/enemies and further implementation of homeland "security" to "protect us" as well as forced medication/vaccination also to "protect us" from new pandemics, disagreeing with the government/authorities and any other inadvertent lapses into critical thinking. They are going to go all out. Expect it

Nah, just kidding.  It will be great.
« Last Edit: September 03, 2014, 06:49:35 pm by GaltReport »

Offline Riverhead

So...


1) People are too in debt to spend money because for the last 20 years banks have given our credit like candy
2) To encourage people to spend more they're going to increase interest rates making that debt much more expensive.
3) Wait...what is number three?

Offline GaltReport

American's "Hoarding" money: http://www.cnbc.com/id/101963821

This seems like a clueless report to me.  Certainly there are a lot more people (and most importantly, governments like China and large international companies) hoarding USD more than just Americans.

China and friends are doing the opposite of hoarding.
They are all rapidly signing agreements that bypass the dollar and buying gold too.

http://m.youtube.com/watch?v=OgNb83Y0CoY

Yep, and of course there is the BRICS Bank.

http://in.reuters.com/article/2014/07/15/brics-summit-bank-idINKBN0FK08620140715

Offline Brent.Allsop

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American's "Hoarding" money: http://www.cnbc.com/id/101963821

This seems like a clueless report to me.  Certainly there are a lot more people (and most importantly, governments like China and large international companies) hoarding USD more than just Americans.

China and friends are doing the opposite of hoarding.
They are all rapidly signing agreements that bypass the dollar and buying gold too.

http://m.youtube.com/watch?v=OgNb83Y0CoY

Oh, Youtube,  now there is a trustworthy source.

Evin if china changes directions significantly in their hoarding, the value of their currency will go through the roof without the hoarding intervention, devastating their manufacturing economy, right?

And even if they were changing directions, to some degree, I bet the hoarding in other countries would still be immense.  Do you know how many people in South Africa and in other 3rd world countries "hoard" $100 bills?





Offline GaltReport

American's "Hoarding" money: http://www.cnbc.com/id/101963821

This seems like a clueless report to me.  Certainly there are a lot more people (and most importantly, governments like China and large international companies) hoarding USD more than just Americans.

I actually like this part of the article better:

"The findings, of course, beg the question of what happens once the Fed takes its foot off the throat of bond yields, people start spending again, and the velocity of money, at least theoretically speaking, runs wild.

Economist Michael Pento, a frequent and harsh Fed critic, believes the St. Louis group has some of its assumptions wrong, particularly its understanding of why people aren't spending money. He sees it more as a function of high levels of debt that are constraining spending.

While Pento believes rates should rise, he thinks the initial reaction is going to be painful for the economy and unlikely to unleash a torrent of new spending."

Offline Empirical1.1

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American's "Hoarding" money: http://www.cnbc.com/id/101963821

This seems like a clueless report to me.  Certainly there are a lot more people (and most importantly, governments like China and large international companies) hoarding USD more than just Americans.

China and friends are doing the opposite of hoarding.
They are all rapidly signing agreements that bypass the dollar and buying gold too.

http://m.youtube.com/watch?v=OgNb83Y0CoY

Offline Brent.Allsop

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American's "Hoarding" money: http://www.cnbc.com/id/101963821

This seems like a clueless report to me.  Certainly there are a lot more people (and most importantly, governments like China and large international companies) hoarding USD more than just Americans.


Offline Empirical1.1

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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.

Who holds the signing authority of the "insurance funds", and when do they pay out, or who makes the decision?

Also, if BitUSD started to threaten to become a new world reserve, perhaps the US, possibly in concert with other fiat currency countries, could attack it by severely manipulating or readjusting the value of the USD?  If we had to make huge dramatic decisions, that were very controversial, could the be made in time, to defend against such?

If it's still being done the way I read a few weeks ago then my understanding is the insurance fund kicks in automatically if there's not enough collateral and if that runs out the system can even temporarily dilute BitAssets and then cover the dilution with fees over time. It's very impressive.

As for manipulating the value. The feeds are supplied by trusted intelligent delegates so it would be hard and in time the feeds may not even be needed. I think the real risk is that currencies are officially devalued overnight but that wouldn't hurt BTSX I don't think that much because we would have even more collateral backing it.

As for stopping it. You can probably stop BTSX in the next 3 months still but the capability is there to do this and Ethereum are doing their own kind of twist I think so ultimately you can't stop people storing value in this way.

Offline GaltReport

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.

So is "relatively little risk" intended to inspire confidence?  Certainly nothing near the confidence people have in the Federal Reserve.

Yes enough confidence to create demand especially with interest.

If you pay attention to world events you know there's deposit and asset confiscations in the pipeline, Cyprus 2.0 on a much bigger scale. ...
There are also countries where foreign currency is limited and they're forced to use heavily depreciating currencies and would love to use BitUSD. ...

I agree.  Cyprus and others events (emergency managers in Detroit) were test/practice cases.  Drills if you will.

American's "Hoarding" money: http://www.cnbc.com/id/101963821

Offline Brent.Allsop

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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.

Who holds the signing authority of the "insurance funds", and when do they pay out, or who makes the decision?

Also, if BitUSD started to threaten to become a new world reserve, perhaps the US, possibly in concert with other fiat currency countries, could attack it by severely manipulating or readjusting the value of the USD?  If we had to make huge dramatic decisions, that were very controversial, could a difficult decision like this be made in time, to defend against such?





« Last Edit: September 03, 2014, 05:17:16 pm by Brent.Allsop »

Offline Method-X

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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.

This type of prediction market could not exist without the invention of blockchain technology.

Offline Empirical1.1

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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.

So is "relatively little risk" intended to inspire confidence?  Certainly nothing near the confidence people have in the Federal Reserve.

Yes enough confidence to create demand especially with interest.

If you pay attention to world events you know there's deposit and asset confiscations in the pipeline, Cyprus 2.0 on a much bigger scale. So there are many people that on balance even now will find the level of risk on all levels for storing value in BitAssets comparatively favourable.

There are also countries where foreign currency is limited and they're forced to use heavily depreciating currencies and would love to use BitUSD.

So the market is already there & as liquidity, utility and the BTSX system itself becomes more robust, it will become more and more appealing.

If you add in interest then definitely big demand even in the short term. The shorts are willing to pay it.

Offline Brent.Allsop

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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.

So is "relatively little risk" intended to inspire confidence?  Certainly nothing near the confidence people have in the Federal Reserve.



Offline CLains

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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.

Offline Empirical1.1

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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 thisisausername

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 GaltReport

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 Method-X

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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 Riverhead

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 Empirical1.1

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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 GaltReport

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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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 emski

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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 GaltReport

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 Brent.Allsop

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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 Empirical1.1

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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 emski

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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 Brent.Allsop

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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?