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Offline bytemaster

Interest on BitUSD - A Proposal for Review
« on: September 05, 2014, 03:40:08 PM »

BitUSD is incredibly useful as a trading instrument but the "sales pitch" for the average Joe is something like this:

1) Buy BitUSD today and you will be able to sell it back for 98% of what you paid for it (due to the spread)
2) Once you have BitUSD you get all of the benefits of Bitcoin, instant transfers, privacy, security.
3) As a merchant the "cost" of accepting BitUSD (at parity) is currently equal to the cost of a credit card (a few percent)

Initially demand from traders will to hedge against BTSX volatility will help the market grow, but what we *REALLY WANT* is for people to store their wealth in the system, not just their trading account.  To do this BitUSD needs to offer a return that is explicit.  IE: it shouldn't be done via the value deviating from the peg.

Right now the network earns USD via the market and via transaction fees (yes transaction fees can be paid in USD).  This income is saved for a "rainy day" which we don't actually expect to happen, but could.  The value as an insurance system could be better used to pay interest to USD holders.   If BitUSD were an interest bearing asset, then the interest would compensate for the risk of black swans in the same way that the insurance fund does today.

So far BitUSD has earned $1800 on $485,000 issuance in just 2 weeks of light trading.  This is about .4% yield every 2 weeks or about 10% per year.   I have no idea how this will play out over time, but I suspect that it will result in a significant yield for BitUSD holders.   The more people hold BitUSD the more BTSX is worth.   So it is in the best interest (No pun intended) of BTSX holders to pay interest on BitUSD from the fees collected.

I would like to implement it as follows:
1) If you hold a balance for less than 1 month, you earn nothing.
2) If you hold a balance for one year or more then you earn (YOURUSD / TOTAL_USD) * COLLECTED_FEES_BALANCE
3) If you hold a balance for less than one year then you earn a pro-rated amount.     (YOURUSD / TOTAL_USD) * COLLECTED_FEES_BALANCE * FRACTION_OF_YEAR_HELD^2

The result is that long-term holders of BitUSD earn much higher yields than short-term holders.  The yield should more than cover the cost of the spread and thus your pitch to the average Joe is much stronger:

1) Buy BitUSD and earn more (much more) on your dollars than you do at your bank.
2) Enjoy all the other benefits of crypto.

This feature would have a greater impact on adoption than just about anything else being discussed. 

Discuss.


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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 tonyk

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Re: Interest on BitUSD - A Proposal for Review
« Reply #1 on: September 05, 2014, 03:47:17 PM »
GREAT Idea in general!
 +5% +5% +5%

Let's smooth out '3)If you hold a balance for less than one year',  and do it!

[edit]
Is my math correct:
For 2 mo.

(1+(2/12)^2)^6 > 1 ???
« Last Edit: September 05, 2014, 03:54:03 PM by tonyk »
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline Chuckone

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Re: Interest on BitUSD - A Proposal for Review
« Reply #2 on: September 05, 2014, 03:49:14 PM »
So basically holding bitUSD in the system would pretty much be the same as holding money in a high interest bank account, but with higher interest rate and all the advantages and flexibility of crypto. Also the longer you hold, the higher the interest rate, pretty much the same as for term deposits where the interest rate increases the longer you sign up for. And the best is that you still have access to your funds at any time.

Wow!

I like this very much!!!

Offline xeroc

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Re: Interest on BitUSD - A Proposal for Review
« Reply #3 on: September 05, 2014, 03:50:22 PM »
2) Once you have BitUSD you get all of the benefits of Bitcoin, instant transfers, privacy, security.
This made me laugh :)

Quote
I would like to implement it as follows:
1) If you hold a balance for less than 1 month, you earn nothing.
2) If you hold a balance for one year or more then you earn (YOURUSD / TOTAL_USD) * COLLECTED_FEES_BALANCE
3) If you hold a balance for less than one year then you earn a pro-rated amount.     (YOURUSD / TOTAL_USD) * COLLECTED_FEES_BALANCE * FRACTION_OF_YEAR_HELD^2
I don't have a degree in economics but this sounds like classical interest .. that depends on the volume traded on the exchange ..
I like it ..
It also sounds like a POS scheme within an asset that is secured by DPOS ..

Quote
1) Buy BitUSD and earn more (much more) on your dollars than you do at your bank.
2) Enjoy all the other benefits of crypto.
No we can go print shirts :)
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Ggozzo

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Re: Interest on BitUSD - A Proposal for Review
« Reply #4 on: September 05, 2014, 03:51:35 PM »
I think short term holders should benefit too. Since this is an "experiment", holding for a month to a year doesn't seem like enough incentive to park large amounts of capital in the system just yet. Also, this still doesn't give any more incentive for merchants to adopt. If they already have the Credit/Debit infrastructure, why would they deviate away from it to pay the same amount in conversion fees and spread fees?

Offline xeroc

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Re: Interest on BitUSD - A Proposal for Review
« Reply #5 on: September 05, 2014, 03:51:44 PM »
So basically holding bitUSD in the system would pretty much be the same as holding money in a high interest bank account, but with higher interest rate and all the advantages and flexibility of crypto. Also the longer you hold, the higher the interest rate, pretty much the same as for term deposits where the interest rate increases the longer you sign up for. And the best is that you still have access to your funds at any time.
The interest rate (as I understood it) depends on the fees earned from the trades on the exchange .. not sure that they are
a) high
b) and/or constant

but for sure .. >=0% ... na .. too pesimistic: fees are > 0%

lol
+5%
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Offline emski

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Re: Interest on BitUSD - A Proposal for Review
« Reply #6 on: September 05, 2014, 03:56:16 PM »
You don't mean to give as interest the entire "rainy day" fund , do you? I hope it is just a percentage of it.
That 10% might greatly vary with different types of transactions but it might work as magic word for average Joe.

Personally I like the idea but I think it is too early for that.
If everyone uses this just as a savings account the volume might be lower and the expected "rainy day" fund might grow a lot slower.
And if the expectations aren't met on the beginning it might hurt the system.

Offline maqifrnswa

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Re: Interest on BitUSD - A Proposal for Review
« Reply #7 on: September 05, 2014, 04:04:23 PM »
If interest is high (10%), there will be extra demand for bitUSD - it might hurt the peg. BitUSD may trade above USD.
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Offline bytemaster

Re: Interest on BitUSD - A Proposal for Review
« Reply #8 on: September 05, 2014, 04:08:15 PM »
You don't mean to give as interest the entire "rainy day" fund , do you? I hope it is just a percentage of it.
That 10% might greatly vary with different types of transactions but it might work as magic word for average Joe.

Personally I like the idea but I think it is too early for that.
If everyone uses this just as a savings account the volume might be lower and the expected "rainy day" fund might grow a lot slower.
And if the expectations aren't met on the beginning it might hurt the system.

Yes... the whole rainy day fund.   It is there for the BitUSD holders anyway.  If the black swan happens and there are "fractionally backed USD" the USD holders still got the "value" and the interest will probably offset any fractional backing concerns. 
For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline bytemaster

Re: Interest on BitUSD - A Proposal for Review
« Reply #9 on: September 05, 2014, 04:08:55 PM »
If interest is high (10%), there will be extra demand for bitUSD - it might hurt the peg. BitUSD may trade above USD.

There will be plenty of people willing to Short USD to maintain the peg because BTSX will grow at 2x the rate of BitUSD demand.
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 cgafeng

Re: Interest on BitUSD - A Proposal for Review
« Reply #10 on: September 05, 2014, 04:09:55 PM »
I think the key is make bitusd  liquidity, if nobody use it , it means nothing.
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Offline tonyk

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Re: Interest on BitUSD - A Proposal for Review
« Reply #11 on: September 05, 2014, 04:12:37 PM »
I think the key is make bitusd  liquidity, if nobody use it , it means nothing.

That too (if you mean useable by itself), but the 2 processes will help each other, in my view.
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline bytemaster

Re: Interest on BitUSD - A Proposal for Review
« Reply #12 on: September 05, 2014, 04:16:19 PM »
I think the key is make bitusd  liquidity, if nobody use it , it means nothing.

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

Offline Riverhead

Re: Interest on BitUSD - A Proposal for Review
« Reply #13 on: September 05, 2014, 04:16:53 PM »
Just so we're clear: This is not interest it is a dividend. The holders of bitUSD are participating in a revenue sharing plan. Also, paying out half the revenue as a dividend and retaining the other half as the insurance fund sounds good. The theory that people will look at their dividends as insurance if something bad happens I don't think will fly. The dividend is earned revenue and they'll be upset if they find one day that it needs to be used to bail out the market.


Other than those points I LOVE this idea. It makes a truly compelling case to hold bitUSD.

Offline speedy

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Re: Interest on BitUSD - A Proposal for Review
« Reply #14 on: September 05, 2014, 04:18:39 PM »
What about the original idea of shorters paying interest to the longs - is that lo longer workable? I always thought that was nice and simple because you could charge a fixed amount from shorters relative to how long the short position was open for.

 

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