But it wasn't done that way, and now there are plans to make a fundamental change to the social contract.
Change is scary, even if it's as you believe "for the better good", it's going to scare the hell out of people and they will avoid getting into an uncertain position. This will further reduce demand.
It might not kill it, but it's going to cripple it.
I'll make sure this topic is addressed in the next mumble session.
Or someone please feel free to tear this posting apart and show me every place I'm wrong. This is not meant to start a flamewar or be a troll. You look at my posting history, I am doing what I can to increase bitUSD utility and acceptance, but it's a hard as hell sell already. Make my job easier, prove me wrong, please.
There is a long thread which explains how the decision about removing the yield in 2.0 was reached:
https://bitsharestalk.org/index.php/topic,16143.msg208676.html
But if you haven't got time to read it all here is a short summary by bytemaster:
I would summarize it like this: does cash pay interest? do checking accounts ever pay meaningful interest? There are many people here claiming that the "longs should pay the shorts" well, that is happening naturally by the longs *not charging interest* to the shorts. This will increase supply of BitUSD and reduce the premium above the feed. Any interest payments will only add to the risk profile the shorts face and create larger premiums above the feed. No one ever pays meaningful interest for "on demand instant liquidity investments".
To get high interest bonds usually requires locking up your funds for a period of time in some kind of bond. It normally entails some kind of risk.
If the blockchain mirrors the real world then BitUSD can ben lent at interest for fixed terms in the bond market to shorts who want the guarantee of not being called or who want extra leverage. There will be a huge market to borrow BitUSD against other, more-stable, collateral. IE: Borrow BitUSD using BitGold as collateral. Here is a market that has minimal BTS exposure and will likely have large demand.
So those who need liquidity can stay in BitUSD, those who want yield can offer their BitUSD to the bond market. The existence of the Bond market creates arbitrage opportunities where you can buy BitUSD and then lend it at X% interest. This is just like banking / cash where you have the option to get yield, but not everyone takes it.
Thanks for that. I was afraid that this was the logic used to come to the conclusion. The error in the thought process is that this is NOT a checking account. bitUSD tracks USD, but it is in no way actual USD and it is not fungible for USD.
This does not mean it is useless and I would posit that as time goes on bitUSD will become the most useful of all cryptos, regardless of the yield issue.
There are on and off ramps being worked on.
These ramps will increase the fungibility of bitUSD dramatically and in fact all market pegged assets will benefit.
But it would be a serious mistake to consider bitUSD to be a demand draft account even if you can walk up to an ATM and put it in/ pull it out.
When I can hand you exactly 1 dollar and know that you'll hand me a 1 bitUSD, or vice versa then it can be treated as a demand draft, but even then it still is not demand draft.
So what is bitUSD? bitUSD is a derivative of BTS that locks up an amount of BTS that is guaranteed to always be 1:1 pegged to the US Dollar rate. It is a quantity of BTS to be delivered in the future. It sheds the forex risk of crypto by swapping that risk for the "future funds" risk.
The current bitUSD system is genius level stuff, I cannot express my admiration for this and the other market pegged assets.
Yet holding it, is nowhere near the same level of risk as holding cash in a checking account at a bank.
Even if you get past the FDIC insurance and assume that each bank is responsible for their own deposits as it still is in certain smaller countries that do not have a deposit insurance system. There is still a major risk on the future of funds as compared to a bank in a traditional fractional reserve system.
If BTS drops in value relative to the dollar, the bitUSD is a form of asset protection, but is not complete protection.
Should the instrument be called, it would be called with a fixed quantity of BTS.
I would then be in the unenviable position of either attempting to cut my losses and exit with the herd, or wait with my BTS and pray that the price picks back up. What I would be unable to do is convert 1:1 for USD and exit with any guarantee of value.
There will always be a loss involved, because people and companies have costs associated with playing in the BTS market including the cost of acquisition and disposal itself.
This is why the yield is crucial to long term ownership. No yield means no one willing to hold it long term. The idea of a bond market is nice, but you're doubling the risk it will need to be priced in if you want any buyers.
There is a the future funds risk + risk of non-payment in general.
To be fair, I do not hold any crypto at all beyond what I need for each day's budget. I am currently holding a quantity of bitUSD because the market pegging mechanism has shown to work in most cases.
Yet as the market price of BTS drops, it will become easier and easier for someone to do major damage to the ecosystem, including buying a bunch for the purposes of crashing the price through the floor. This is your dreaded black swan event. It will eventually occur if the price continues to slide and the price continues to slide because demand is flat but supplies are rising.
If BTS was trading closer to a dollar I would feel more comfortable about the proposal. But nothing I've read indicates anything that will drive demand. It seems to me to be change for change sake.
It's a forced change and I believe it will spook the hell out of the market when it does occur. If they're going to do this, then at least allow the liquidity to be mopped up, by adding a way of shrinking the money supply (there may be already, but if there is I'm unaware of it).
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