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Offline santaclause102

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BitUSD30+
« on: September 13, 2014, 09:51:41 PM »

I refer to the discussion on https://soundcloud.com/beyond-bitcoin-hangouts around minute 30. BM said it would make sense to have BitUSD20 (bitUSD with 20% interest p.a.) or another BitUSD asset with more interest. The conclusion was drawn that by finding an interest rate at which bitUSD longs and shorts are balanced would be an adequate way of the market finding the price of a bitAsset.

I would say though that the consequence of this is that the price of BitUSD is directly correlated to the value of BTSX this way and not to the value of the USD. For example if it turns out that supply and demand for BitUSD50 is balanced then this means that (given that I am solely in for speculation purposes and given that I am ok to give up some BTSX liquidity for the medium term (long enough to sit out some unpredictable short term price falls)) the market expects that BTSX will go up in price 50% per year. If I expected BTSX to go up by more than 50% per year I would just stay in BTSX, if I think BTSX will go up less than 50% p.a. I would want to go all in BitUSD50.

Where am I thinking this wrong?

notice: I refer to the fixed interest concept, not the currently varying yield based on market fees.
« Last Edit: September 13, 2014, 09:57:11 PM by delulo »

Offline tonyk

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Re: BitUSD30+
« Reply #1 on: September 13, 2014, 10:04:16 PM »
In simple terms BM just said that bitUSD30 will likely trade at a premium - the buyer will have to pay price bigger than 1 bitUSD (in BTSX) per 1 bitUSD30, to attract interested shorts.

[I, on the other hand, have now I idea how anybody will/can determine an interest on something with no termination date - though it is probably beyond the scope of this thread;
After all a lot of people  said you can not have this asset with no actual delivery, and make it work. And yet BM is way on the way of proving that this can be done...In other words, I am speaking before reading the white-paper.]
« Last Edit: September 13, 2014, 10:31:31 PM by tonyk »
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline arhag

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Re: BitUSD30+
« Reply #2 on: September 13, 2014, 10:33:35 PM »
I still haven't been able to wrap my head around what the market will do with something like BitUSD30 under different conditions. But now that we aren't considering the original FDIC plan that diluted BTSX to pay for backing undercollateralized shorts, I guess it doesn't really matter too much. Whatever craziness happens with this experiment should remain isolated to BitUSD30 holders and shorts. I am interested in seeing the results of this experiment. I still don't like how it requires setting an explicit fixed interest rate in the BitAsset definition though.

Offline tonyk

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Re: BitUSD30+
« Reply #3 on: September 13, 2014, 10:43:00 PM »
I still haven't been able to wrap my head around what the market will do with something like BitUSD30 under different conditions. But now that we aren't considering the original FDIC plan that diluted BTSX to pay for backing undercollateralized shorts, I guess it doesn't really matter too much. Whatever craziness happens with this experiment should remain isolated to BitUSD30 holders and shorts. I am interested in seeing the results of this experiment. I still don't like how it requires setting an explicit fixed interest rate in the BitAsset definition though.
Totally agree that it is best it was pushed back (not implemented together with the 'rea'l bitUSD), if you read my post I just begged for that thing only.
I also agree with the other bolded parts.
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline theoretical

Re: BitUSD30+
« Reply #4 on: September 13, 2014, 11:31:44 PM »

Basically a BitUSD30 would be equivalent to a promise to deliver 100 BitUSD in one year which the short side would write and sell for 77 BitUSD (rounded to the nearest BitUSD to make life easier).

Then what would happen?  I'm guessing the short would sell the BitUSD for BTSX (you don't borrow money and pay interest unless you plan to do something with the money you borrow).  Then of course this needs collateralized, so assuming 2x margin requirement the short would have to put up 46 BitUSD of his own -- which would also be sold for BTSX.  So the equity in the initial position is:

- Long: 77 BitUSD worth of BTSX (principal)
- Interest: 23 BitUSD worth of BTSX (interest)
- Short: 23 BitUSD worth of BTSX (margin)

So basically the short's short 100 BitUSD with only 23 BitUSD worth of equity.  Assuming a margin call occurs when the short is halfway to being wiped out, the short might go down as far as 11.50 BitUSD equity.

This sounds like an awfully risky high-leverage arrangement.

I think my idea of creating a fixed-interest product by auctioning off network income [1] is way more likely to remain solvent.

[1] https://github.com/drltc/bitbond-proposal/blob/master/bitbond.md
BTS- theoretical / PTS- PZxpdC8RqWsdU3pVJeobZY7JFKVPfNpy5z / BTC- 1NfGejohzoVGffAD1CnCRgo9vApjCU2viY / the delegate formerly known as drltc / Nothing said on these forums is intended to be legally binding / All opinions are my own unless otherwise noted / Take action due to my posts at your own risk

Offline tonyk

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Re: BitUSD30+
« Reply #5 on: September 14, 2014, 12:20:11 AM »

Basically a BitUSD30 would be equivalent to a promise to deliver 100 BitUSD in one year which the short side would write and sell for 77 BitUSD (rounded to the nearest BitUSD to make life easier).
How did you come to that conclusion. Who told you they will have termination date?

Then what would happen?  I'm guessing the short would sell the BitUSD for BTSX (you don't borrow money and pay interest unless you plan to do something with the money you borrow).  Then of course this needs collateralized, so assuming 2x margin requirement the short would have to put up 46 BitUSD of his own -- which would also be sold for BTSX.  So the equity in the initial position is:
Why 2x margin; How did you decide on that figure?


- Long: 77 BitUSD worth of BTSX (principal)
- Interest: 23 BitUSD worth of BTSX (interest)
- Short: 23 BitUSD worth of BTSX (margin)

So basically the short's short 100 BitUSD with only 23 BitUSD worth of equity.  Assuming a margin call occurs when the short is halfway to being wiped out, the short might go down as far as 11.50 BitUSD equity.
This sounds like an awfully risky high-leverage arrangement.


Yes, it does sound as something totally risky - especially keeping in mind that only the interest is collateralized.


I think my idea of creating a fixed-interest product by auctioning off network income [1] is way more likely to remain solvent.

[1] https://github.com/drltc/bitbond-proposal/blob/master/bitbond.md

What is the great benefit of this massively complex product?
Fungibility ? - OK, after 100 loops and bounds, it is like 'corn' and 'wheat'(not sure it is, but let's assume it is for the sake of argument) - any practical great benefit from that?
« Last Edit: September 14, 2014, 12:23:29 AM by tonyk »
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Ggozzo

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Re: BitUSD30+
« Reply #6 on: September 14, 2014, 02:08:13 AM »
It better be called something other than bitUSD. Call it a bitCoupon30, or bitRate30, just not bitUSD30.

Offline tonyk

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Re: BitUSD30+
« Reply #7 on: September 15, 2014, 06:04:09 AM »
It better be called something other than bitUSD. Call it a bitCoupon30, or bitRate30, just not bitUSD30.
+5%

bitInterest30 ?
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline serejandmyself

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Re: BitUSD30+
« Reply #8 on: September 15, 2014, 06:29:57 AM »
It better be called something other than bitUSD. Call it a bitCoupon30, or bitRate30, just not bitUSD30.

 +5%
btsx - bitsharesrussia

 

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