MPAs are like derivatives on the underlying asset. They are not required to distribute a dividend like the underlying asset does. However, their valuation would need to reflect the value of any dividends received, otherwise the MPA is a provably inferior investment to owning the underlying asset outright (*). This may not matter as much for low dividend growth stocks, but is significant for higher dividend stocks.

Even on a dividend discount model, the price only ever reflects the valuation of future dividends. At the exact point a stock goes ex-dividend, its price falls (in theory by the value of the dividend). Apple stock holders do not lose value, because they receive the actual dividend. bitAPPLE holders would lose value, if they received no distribution, and the price was defined as the stock price. They can be compensated for this if the price is defined as an accumulation price (i.e. with dividends reinvested), rather than the actual stock price.
As an aside, I would like exactly this sort of flexibility to exist in Smartcoins 2.0, which I have discussed previously.

[**** footnote on why the MPA would be inferior and either price below par, or if forced to par by settlement rules, lack demand.]

(*) If the Apple MPA only ever reflected the price of Apple stock, and never distributed dividends, any user could get paid the dividend stream for free without any price risk. They would do this as follows.

(i) Deposit $250 worth of BTS as collateral to self-create a long and short on bitAPPLE, and sell the bitAPPLE for $125. On this leg, you are short the APPLE price.
(ii) Use the proceeds of your bitAPPLE sale to buy an Apple share for $125. On this leg, you are long the APPLE price, plus long the dividend stream.

In theory the market would be willing to accept a much lower price on bitAPPLE.

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Exactly who implements is a secondary consideration, as long as CNX is internally comfortable with feasibility and availability of resources.

Don't get the relation to CNX .. the blockchain can also pay for indepenent 3rd party projects .. like a hardware wallet, public API, coldstorage services, mobile wallet, alternative wallet and many more .. not just core development.

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I think such project proposals could in principle be formed by anybody in the community, with input from CNX. Although it is only to be expected that initially most projects will be put forward by CNX or individual developers.

Even though CNX is a heavy dev company I don't see the need for input from them .. in principle we could also have a software development in europe and one in asia .. in the end, the shareholder vote for their hardforks .. not CNX .. and from what I know .. BM doesn't want to have a say in BitShares at all ..

Good points! I was missing the fact this can be expanded to any development teams outside of CNX.

Quote from: starspirit on July 13, 2015, 12:02:07 pm

Wouldn't these be much more effective as project proposals than job applications? The core goal is to create value for BTS and demonstrate why any project will do so. So we need to be able to compare the strategic advantages of different work directions. I also suspect most of the community can't easily judge the skills of a developer (CNX itself seems best placed to do that), but they can make judgements on the cost/benefit of a project.

Project proposals would normally include, amongst other things:

- description of project
- benefits
- costs
- risks
- timeframe
- resources

Eventually .. yes but as long as a delegate can hardly pay a single person's expenses I don't see how it could fund a whole project ..
But I agree ..

What I imagined here was that a project concept can be promoted by the community and then outsourced to developers, rather than having to be initiated by the developers themselves. For example, if the community was keen to pursue a particular strategic direction in development. Whereas there's a risk that an eclectic mix of individual developers coming to the community may simply promote ad-hoc improvements. But it would take time for the community to develop such coherence of thought.

I still think the project proposal format is the most appropriate for the community to vote on though, backed up by the skill of the developers proposing to implement it. This moves beyond a simple job application format.

As long as you are happy for bitAPPLE to represent a number of Apple shares that grows over time, you can always define the exposure as as accumulation index that assumes any dividends are reinvested. Price feeds would need to adjust accordingly. This would mean no dividends are required to be distributed.

...actual USD raises some exit node dilemmas, puts us towards the Ripple side of crypto

Could you explain what you mean here?

sorry i'm not following, could you boil it down to a simple example? what would be examples of collateral used for EXA.USD ... EXZ.USD if not BTS?

EXA.USD would be a UIA issued by member Exchange A that is redeemable for fiat USD. Its backed by the reputation of Exchange A to make good on that promise. These UIAs don't yet exist, but they might - for reference, see Stan's comments here:
https://bitsharestalk.org/index.php/topic,16736.msg222999.html#msg222999

If we had 10 such member exchanges, each with such a UIA (which they are incentivised to create for more transaction fees), then shorts collectively could form a diversified pool of these IOUs, substantially reducing counter-party risk to any one party. Simplistically, if the pool were equally weighted, a 10% collateral margin would be sufficient to cover the total default of any one of these parties.

In extremis, were the Bitshares network sufficiently large, there could be unlimited such issuers, varying in reputation, across which the shorts could pick and choose to build a diversified pool.

The basic problem with IOUs backed by single issuers is counter-party risk. So for example, an IOU for USD from an exchange is always subject to the viability of that exchange, and whether you will eventually be able to withdraw.

The solution proffered by BitShares to date has been to eliminate counter-party risk altogether, by backing tokens with BTS. But that also has a weakness - investment risk. BTS can be volatile, and its fundamentals can change dramatically, especially for what amounts today to a micro-cap stock (the future might be very different of course!). The wider market is not currently familiar or confident in the stability of BTS. The way to mitigate this is by stringent collateral requirements. But here there is a trade-off - increasing security for longs means making the product less attractive for shorts.

Another avenue that could be explored is one that seeks to reduce both the counter-party risk and the investment risk. This is done by matching the nature of the collateral as closely as possible to the nature of the asset. (One way to think of this is matching assets to liabilities, reducing the relative risk).

If there were enough IOUs for an asset issued in the UIA market, then any of these IOUs could be used as collateral to back a token in the corresponding asset. A haircut on the value of that collateral would be required to allow for the prospect of issuer default, much in the same way as we allow a haircut on BTS for the volatility risk (a haircut is just another way of saying you need more than 100% of the value held as collateral). But we can go further than this. Shorts could choose which IOUs they want to include as collateral, and in what mix, and because they always bear the first loss on any devaluation of that collateral, it is in their interests to ensure they get the proper mix of quality and diversification.

In the future, suppose there were many exchange or gateway based IOUs for USD, issued as UIAs. Lets label these EXA.USD, EXB.USD, EXC.USD, ... , EXZ.USD. Most will trade close to par. Those that fall below par will have increasing collateral requirements, and shorts will act to move away from these to higher quality IOUs. Thus its the shorts that manage the counter-party risk on behalf of the longs.

In this way a USD token is potentially backed by all the exchange members, with the risk profile managed by users heavily incentivised to maintain quality and diversification.

For high quality IOUs, haircuts might be as little as 10% (this can be adjusted higher if the collateral pool is not very diversified, and lowered as diversification increases). Shorts should be able to earn a reward in the form of a fee from longs (even 1% pa would represent a 10% pa return for shorts) and from market-making. Thus their main reward is an income stream, rather than speculation.

Risk cannot be removed, only changed in form. This is just another way of packaging risk for users of pegged assets.

Quote from: cylonmaker2053 on July 08, 2015, 03:17:22 pm

Great now let's have 10k people actively shorting bitassets

I really don't think that shorting bitassets, aka taking a leveraged long position in BTS, fits the risk profile of most average users or investors. 

I agree with the sentiment that we should not encourage inexpert users to take unfamiliar risks, but shorting bitassets does not always require a leveraged long position in BTS. There is a wider range of possible motives, which I believe can be made simpler over time with customised tools, as I describe here...
https://bitsharestalk.org/index.php/topic,16986.msg218678.html#msg218678

Further, in future collateral could come in a greater range of acceptable forms than just BTS.

Quote from: ccedk on July 08, 2015, 10:53:10 pm

Quote from: starspirit on July 08, 2015, 01:30:07 am

I would like to better understand how the actual functionality will look for users, because it appears a bit vague to me at the moment. (Apologies if the answers are obvious to others). So as a starting point:

Say I have fiat USD, and I want to start trading cryptos. I send the fiat USD to CCEDK - do I then receive bitUSD in return or a gateway USD (say CCEDK.USD)?

Likewise if I were to send BTC or alt-coin to CCEDK, do I receive the Smartcoin version (e.g. bitBTC) or a gateway equivalent (say CCEDK.BTC)? If there were more than one privatised Smartcoin equivalent of any fiat or crypto, which version would I receive?

Assuming I receive the appropriate Smartcoin equivalents, then is my crypto-trading limited to whatever cryptos are currently represented in BitShares in Smartcoin form? ie. I speculate in bitDASH rather than real DASH or a gateway IOU called CCEDK.DASH?

What is the profit model for CCEDK dependent on? For example, would CCEDK be creating their own privatised Smartcoins to represent DOGE, DASH, BLK etc in order to earn trading fees as a privatised issuer? Or would they be rewarded in some way for setting up markets for various trading pairs? If there are multiple exchanges like CCEDK in the network competing in these activities, would we end up with multiple representations of each coin (which would not seem very efficient from a user perspective)?

Or is the profit model transformed primarily into a referral model, where CCEDK receives a cut of all trading activity in the BitShares exchange resulting from members brought into the system?

How are different exchanges in the BitShares Exchange Network likely to differentiate themselves?

It seems a lot like this is all questions based on CCEDK being the new Bitshares wallet, and as such I would appreciate @Stan to come up with some clever explanation on the various options!

Since you are asking a generic question, I'll provide a generic answer and let CCEDK and other partners comment on their specific customizations when they are ready to announce them.

At the core of everything sits the Cryptonomex web wallet with built-in decentralized exchange and financial products factory which will be hosted on partner sites.  This provides the standard back end (market order books and trading engine, etc.) and front end (hosted web wallet that looks like a familiar exchange.)

It also provides built-in interfaces to other leading coins and partner-supplied financial products and services.

Fiat can enter/exit the system via any member with the proper licenses who can buy/sell any asset on the BitShares exchange that they like from their own inventory of SmartCoins and Exchange Issued Assets.  They can even sell assets issued by other partners if they want to.  Just like selling books on Amazon - from inventory in their own wallet accounts. 

So customers can choose between bitDash or CCEDKdash on the network or actual Dash in CCEDK inventory on their dash wallet.  (Of course the CCEDKdash UIA on the bitshares network is essentially nothing but a claim on the actual Dash in the CCEDK wallet and is only as good as their counterparty promise to redeem it.)  Users get the choice whether to take that risk or pay to move into the BitShares bitDash market pegged asset to be counterparty free.  Or they could choose the CCEDK private pegged asset which only trusts CCEDK to publish a price feed not to hold the currency itself.  In practice, other exchanges will offer similar choices and all will trade with slight premiums or discounts based on perceived risk and reputation of each issuer.

Repeat:  Users get the choice.  Shocking.

Once a user has those assets, they can trade them with no further counterparty risk on the decentralized exchange - interacting with users from every partner on the network.

So, as you have just seen and will soon see again (cue the dark mystery music), businesses who are not exchanges can join our network and instantly have a basic exchange and wallet built in (just like a typical shopping cart is built in) and integrated with their industry-specific business processes. 

Stay tuned for more Summer Announcements.

Then each partner/industry gets to customize it as much as they want, including:

• Making simple branding or "white label" changes with logos and color schemes.
• Adding in GUI elements to present extra site-unique tools and features.
• Linking between these GUI elements to custom business logic between the BitShares wallet and other coin wallets or the APIs of other fiat payment services and partners.
• Implementing their own assets and financial products using the tools provided by BitShares for which they get their share of the fees associated with those products
• Implementing their own unique customer support services and loyalty programs.
• Implementing their own unique customer acquisition strategies competing to sign up BitShares users.
• Implementing their own unique strategies to train and up-sell customers into using more services for which they are entitled to their share of the fees from the whole network for every customer they signed up.
• Negotiating their own deals to bring other partners into the mix - like CCEDK did with Bit-X.

Example:  A worker in Omaha feeds some of his paycheck dollars into a Peak Ventures ATM machine and one second later his wife in Tijuana buys groceries with it using her CCEDK Nanocard. 

The use cases of all the newly available seamless partner integrations are mind-boggling.

Everybody wins:
The issuer of an asset   gets the fees from   the use of that asset      by everybody else's users.
The recruiter of a user   gets the fees from   the use of the network   for everybody else's products.

... and we all benefit from greater economic volume - which itself attracts more users and service providers.

So, bottom line:

• Network members compete to win and retain customers - usually drawn from completely different demographics.
• Our affiliate incentive program gives them credit for everything those customers do on the whole network - by introducing them to products and services offered by other network partners.
• They gain by having their own products and services marketed to the customers of other network members.
• They gain by sharing market depth and liquidity in a single global marketplace.
• They gain by sharing in the "unhackable" and "transparent" set of order books that protect the consumers for the first time from exchange counterparty risk.

This changes everything.

Thanks for your comments Stan, and highlighting the flexibility in the range of assets an exchange could offer. Below are some more questions, I'm really just trying to understand how the pieces work. Feel free to correct any of my misunderstandings.

When we say the exchanges will be able to share market depth and liquidity, are we referring specifically to markets where both tokens in the pair are on-chain assets?

The way I am seeing this at the moment (correctly or not) is that, like a traditional exchange, I can deposit fiat USD, alt-coins, or other types of assets to the member exchange. Any deposits in the form of off-chain assets (e.g. fiat currency, BTC, LTC etc) then get credited to my account with that member exchange as an IOU from them, supported by their inventory of that asset, until I withdraw them from the member exchange, or trade them for another asset. I presume I will be able to hold on-chain assets obtained through the member exchange in some way that is counterparty-risk free, and transfer to or from the hosted wallet.

I am then supposing that where I am trading between two assets, at least one of which is an IOU from the exchange, that those markets have liquidity specific to the member exchange, and do not benefit from shared depth or liquidity with other exchanges. I'm thinking this because the buyer or seller on the other side needs to want to accept the issuer-specific IOU in return.

When I do exchange trades exclusively between on-chain assets (e.g. BTS, bitUSD, bitDASH etc), then market depth and liquidity is shared because the exchange GUI is drawing on the common market in the DEX.

Is this close to what users should expect?