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General Discussion / Re: Do BitShares need an interest rate?
« on: February 01, 2014, 11:34:53 pm »I interpreted theas allowing for some wiggle room between spot and market. If it is 0%, you should have a tighter correlation. Although lots of people are saying "oh boy, we get
Well, I guess what I'm saying is it almost doesn't matter what % you choose, the market in the long run will correct itself (if
It is a tad tricker than just a premium because there is no expiration date where it comes to 'maturity' so I think it really could be 5% gains funded from those who expect BTS to go up by more than 5% and thus short it. The market peg might even keep it parity with USD even with 5% interest because I think the peg may be mostly independent of the 5%. To be honest we will just have to experiment because there are too many variables for me to model in my head.
I think it would work, as long as a majority believes BTS will appreciate by at least 5% p.a. against the relevant BitAsset. This will most likely be true at the beginning, rewarding all early adopters. Once the value of BTS becomes saturated any drop in price of the BitAsset below the perceived fair value of the infinite bond (far above parity) will be taken advantage of by new longs. Because this fair price is difficult to agree on this will mean high volatility (bad tracking) and possibly drying up BitAsset supply (leading to the BitAsset price floating up and up and up - totally losing tracking).
Just my thoughts, it is very difficult to predict the behaviour of such a novel concept. Definitely too many variables.
This is very similar to the original Ponzi scheme which works fine as long as there is an influx of new capital which is used to pay the high interest promised to the early adopters. Once the supply of new capital stops the bubble pops.
The new question is, will 0% interest rate cause a drop below parity?
Yes: Zero coupon bonds trade at a discount because they earn an interest (0% p.a.) below market rate and they are not redeemable until a point in time far in the future. Because BitAssets are only redeemable after ∞ years they should even be trading at 0 value.
No: Cash does not really trade at a discount to the dollars in my savings account. There are not really any assets around you can earn interest on while holding them yourself. You always have to lend your money to somebody else. Somebody might offer a BitUSD savings account and offer interest on it. If a BitAsset trades below parity shorts would start covering because there is a short-term opportunity to make a profit. And opposed to the case with 5% interest it is now clear where the fair value is.
For now I am tending to "No" but I can't "prove" it yet.
