Part 1So every once in a while I revisit the theory of Smartcoins. At this point the best way for me to describe how Smartcoins are created is explaining the idea of creating monetary assets using debt. It's actually much like how traditional banks create money, but we can discuss that some other time.
The basic idea is that you can take any asset: home, car, TV and create monetary assets from it. If a home costs $500,000 you can create a $200,000 loan from it and use it as money. You can take your car that's worth $5,000 and create a loan on it for $2,000 and use it as money. You can do the same with a $1,000 TV. You can create a $200 loan and use it as money. Hence you can really monetize any asset that exists in the world if you wanted to.
In the case of Bitshares, the DAC is the asset that you can create monetary assets from. Feel free to read a white paper we've been working on here:
http://bit.ly/1KpkGfePart 2Ok so let's talk about the Bitshares platform right now. We can click a button and create USD Smartcoins using BTS as collateral. If we borrow $10,000 that is our debt to the network and we eventually have to pay that back. The price feed determines about how many BTS that $10,000 is worth every hour or so. Currently we would have to purchase $10,000 in USD Smartcoins from the network to extinguish our debt.
Let's think about this scenario. Let's say the Bitshares DAC is worth $10,000,000. Let's say hypothetically one person Bob owned most of the network and wanted to create $4,000,000 in USD Smartcoins and clicks a button to do. Let's further assume Bob sends these $4,000,000 USD Smartcoins to wallet B from his wallet A and loses his key to wallet B. In this scenario Bob can never purchase the USD Smartcoins back to extinguish the debt because there is none available, and if the Bitshares DAC falls to $7 million in value (1.75x USD Smartcoin total debt) it would seem that there would be a black swan/global settlement.
Part 3If the above is true, what about allowing people to extinguish the USD Smartcoin debt by paying in BTS. The price feed always determines the USD Smartcoin/BTS price every hour. In this scenario Bob can take $4,000,000 he has in his bank, purchase BTS and extinguish the debt and prevent any global settlement from occurring.
This also leads to having USD Smartcoin assets in the ecosystem that are not tied to any debt. The reason this can occur is because outside capital was put into the ecosystem. Bob now may have a debt outside the ecosystem of $4,000,000 or he could just be really wealthy. In any case let's say out of good fortune Bob finds his lost key for wallet B. He can now pay his outside debt with the USD Smartcoins he recovered.
Part 4The mechanism above allows us to create monetary assets independent of the supply of USD Smartcoins in the ecosystem. It may minimize the potential for global black swan settlements. All that is required is that if someone creates a debt, they pay back the network with the equivalent value based on the price feed. It can be with internal assets or external assets via BTS. Thinking about this further, theoretically we don't even need an internal trading market or liquidity. We can use external pricing as the measure of value. Of course having good internal markets and using price feeds based on internal markets may prove more reliable in estimating value in the long run.
Anyways.. just some quick late night musings and wanted some feedback to see if this made sense, and if I'm missing something etc... thx.