@merivercap: I've certainly appreciated having the chance to read all of your excellent input on this matter lately. However, I'm having trouble understanding why you think consumers would care so much whether BitUSD fluctuates around $1 or just at/above $1.
Thanks
@tbone!
Yeah every minor issue with most consumers can add significant friction. I'm ok with not going after peer-to-peer transactions as a business because I know 4-20 cent fees are a significant enough psychological friction to prevent mass p2p transactions. Hence we can go after merchants who can cover the cost of transactions and the consumers won't see the small transaction fees.
This leads me to the other friction for consumers of obtaining and using bitUSD. Even a minor premium is psychological friction. Every fee to get into bitUSD is friction. We are already facing an uphill battle. We don't need to give additional benefits to merchants. They are willing to pay up to 1-2% more so giving them guarantees is not necessary.
1. Consumers naturally will think of 1 bitUSD as equivalent to 1 dollar. Maybe around 20% of consumers might exchange it 1:1 despite a permanent premium out of laziness. Many will start taking out their change purse and actually charge 1.05 or 1.10 or 1.15 for each bitUSD so people are going to be transacting with change. That's extremely inconvenient. I don't even want to do that. We need most general exchanges to happen 1:1 or adoption will grind to a halt. We're trying to create a new money and so even the tiniest issue will psychologically deter users.
2. On top of the premium there will be fees to get in and out so the prices will be even higher especially in the beginning. We're going to see bitUSD for 1.25 - 1.35. (Note: BitQuick.co was selling bitUSD at 1.35 - 1.45 in Bitshares 1.0 near the tail end of the transition and during the bear market). Those kind of premiums are non-starters for consumers. So it's already hard for people that will pay 1-5% fees to get in, but a premium will make the market even more out of whack. Adoption will grind further to a halt.
Minor friction in this space is a big deal and there's already too much friction already. If we hope to have a shot at getting the mainstream or even early adopters to use this system as money we have to be careful at every little thing we do. This premium is not a minor issue either.
Imo, a peg fluctuating above 1:1 is as good as a peg fluctuating around 1:1 if deviation from the peg is small. If a premium was less than a penny, nobody would care.
Premiums in the beginning are going to be huge. All the p2p exchanges are going to be selling bitUSD at 1.2+
Furthermore you will get far less liquidity if you don't know what the accepted value of bitUSD is. The best way is to declare it to be 1:1 among consumers and traders. That's it. Simple.
Otherwise if you only set a floor at 1 you will have an ever changing premium around 1.1, but the accepted value of bitUSD will be different for everyone .. some people will say 1.08 .. others will say 1.12..some will say they don't know.. and it will always fluctuate... So with the confusion in trading you'll get far less liquidity (and I'm not even including forced settlement in this conversation which will make liquidity even worse.)
So if I can guess what the outcome of two designs would be you will have one trading between .95 and 1.05 (spread of 10 cents) or another trading at 1.00 to 1.25 (spread of 25 cents) all things being equal and in non-bull markets.
The floor could be lower... for example, if the floor is set to $0.97, then the worst case scenario is that it's still competitive w/ PayPal. If the average premium is around 3%, it means USD will float right around $1.00.
So don't guarantee $1.00 .. instead, offer $1.00 on average, but guarantee that one can ALWAYS get 97% of face value.
It's the best of both worlds, no?
That's a little better, but we don't need a guarantee in the first place. Markets fluctuate so if you want to get out on average you should be able to get out at $1.00 anyways...some trades you'll get $1.05 and others you'll get .95 and yet others you'll get $1... your average exit will still average $1 without needing a guarantee.