Author Topic: yield on bitAssets not enough?  (Read 3556 times)

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Offline bytemaster

Diversification...

Once merchants get on board (working on that) then demand for BitUSD to make purchases will be much higher... once the system is stable for a couple of months or more with a solid BitUSD peg then you can see huge demand for BitUSD..

Once on-ramps and off-ramps get easier and the yield has a solid history... watch out.

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Offline kisa

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Agree bitSLV easier to buy and hold than physical.

What probability do you see that you won't find a buyer for your bitSLV at pegged value when you need cash...?

What compensation would you expect for such a risk?

If you think the risk is close to 0, why invest in bitSLV if you can hold BTSX?

Who would then hold bitSLV if not you?
« Last Edit: September 25, 2014, 12:08:11 pm by kisa0145 »

Offline Empirical1.1

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The yield is probably less than 5% now as they're changing the way shorts compete in version 04.17 that will have the effect of increasing collateral but decreasing yield.

The good news is this change should actually create a stable tight liquid peg, like within 1% if they get the bots apparently under development running. It's actually very exciting. This was their goal from the start and I think this change should achieve  it and with even more collateral backing the system. Very excited about it.

How much demand will there be in a buggy risky system at 1-1 is the question of course. 10% yield would have been more than sufficient in the short term for BitBTC, BitSLV etc. with a tight liquid peg but I think we're looking at a lot less yield than that with the new system. I would like to see them maximise fees from long term shorts to create more yield & drive BitAsset demand myself.

(On the other side of the coin when you look at something like silver it's very bulky to hold the physical commodity so your next best bet is trusting a vault, but then you pay fees when you buy and register bars, storage costs and withdrawal fees plus there's still small confiscation risk. So BitSLV with a bit of yield actually compares very favourably as a way to hold a portion of your silver investment I feel even at this stage.)

Offline kisa

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This night I was thinking about 10% yield once again.

Why should Sally invest in bitUSD or bitGLD? Effectively, she is lending USD to the startup exchange at 10% interest. Will she get her money back? Well, that depends on whether the peg holds and bitAsset market stays liquid. For the peg to hold and stay liquid systematically, we need enough bitUSD or bitGLD longs at ANY point in time, not only when "BTSX looks overvalued". Imho we need some 10-15% of BTSX market cap to be invested in bitAssets longs so that there is little downward or illiquidity pressure on respective pegs.

So, many Sallys would ask, why should I systematically hold bitUSD if I believe that the peg will hold and stay liquid? Then I better invest in BTSX for 10000% prospective yield... Wait, at least until we have enough depth and become established, well known and trusted bank, there is a substantial risk that pegs won't always work as planned. But then Sallys need better compensation for such risk than 10% yield. Perhaps some 20-30% participation in shorts profits sounds rather fair.

I might be overlooking something, and let's say payments utility might help to increase bitUSD long holdings. But I sense that either each larger BTSX investor should be "expected" to exchange 15% of his holdings into bitAssets for the sake of their liquidity and peg stability. Or the compensation for bitAssets longs should become proportional to the risk of peg future disruption/illiquidity and opportunity cost of missing on BTSX rally. Otherwise sounds like BTSX investors looking for people who enable their prospective 10000% return for 10% yield with uncertain payback.

Note - bitAssets don't offer systematic diversification from BTSX business model risk. Yes, you can diversify short term price risk, but that doesn't create reason for critical mass of longs at all times...

So my intuition tells me that we will likely see deficit of bitAssets longs going forward... someone else concerned?
« Last Edit: September 25, 2014, 11:56:24 am by kisa0145 »