BitShares Forum

Main => General Discussion => Topic started by: Riverhead on August 23, 2014, 02:37:38 pm

Title: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: Riverhead on August 23, 2014, 02:37:38 pm
I want to add an article to the reddit "Explain it like I'm Five" section. Please edit or tell me why it's a complete fabrication and I should start over :) . I am writing this as a person who has a basic understanding of the stock market but am by no means an economist.


https://docs.google.com/document/d/1C_4MR4d8AsoqWQw8UMCyKeuvhO5TSws_TPHG421HVJg/edit?usp=sharing (https://docs.google.com/document/d/1C_4MR4d8AsoqWQw8UMCyKeuvhO5TSws_TPHG421HVJg/edit?usp=sharing)


Let's take Google. The share price of Google is supposed to be their book value plus some fudging for revenue, growth potential, etc. It's why share-price/book is a key stat that tries to guess how much intangible value pushing the price above or below book is correct.
Now let's take two day traders:

Trader A looks at the price of Google and says, "$400? Heck no.  They're about to be regulated out of existence and Amazon is releasing Amazon Search soon. I think it's worth $80" so they short.


Trader B thinks Trader A is off his rocker. The Google pipeline looks awesome and the stock will easily reach $600 by the end of the year. He bids long $500.

And so the game goes on. The big take away from this is neither have even the slightest interest in gaining a controlling stake in Google. It could be the worth of fiddle sticks for all they care.  The important thing is one person thinks it's worth more than the other and the market transactions tend toward a consensus of the intangible value above/below book.

Call them Google Shares or bitGoogle, it doesn't matter. It's not like if you had a Google share you could walk into Google HQ and start scarfing down the free food. The share really only has demand, and therefore value, because someone else thinks they can sell it for more later.
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: bytemaster on August 23, 2014, 02:48:40 pm
The take away from this is that people don't want Dollars, they want the VALUE of a dollar.    You can have a dollar worth of anything, gold, silver, gas, or Bitcoin.   The amount of gold/silver/gas or Bitcoin will change over time but why do you care how much gold/silver/gas or bitcoin you have so long as what you have is worth a dollar.

People don't buy gold because they want gold, they buy gold because they want the exposure to the price.  Any asset that tracks the value of gold faithfully is as good as gold for 99% of the people who aren't using gold for industry.
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: Riverhead on August 23, 2014, 03:00:23 pm
The take away from this is that people don't want Dollars, they want the VALUE of a dollar.    You can have a dollar worth of anything, People don't buy gold because they want gold, they buy gold because they want the exposure to the price.  Any asset that tracks the value of gold faithfully is as good as gold for 99% of the people who aren't using gold for industry.


I like this better. This is the same as my, "neither have even the slightest interest in gaining a controlling stake in Google, the important thing is they can sell it to someone else for more later".


Perhaps I should rewrite it using bitGold and your take aways.  Thanks for the input.
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: Ggozzo on August 23, 2014, 04:33:56 pm
Try this:

1dollar bill equals $1.
4 quarters equal $1.
10 dimes equal $1.
20 nickels equal $1.
100 pennies equal $1.

So sometimes you have different coin worth different amounts and depending on how many of each coin you have they can add up to $1.

BTSX and bitUSD are similar in this same way.

BTSX are the coins that can add up to 1 bitUSD. The only difference is that people get to decide how much value BTSX has every day, hour, minute and second relative to a dollar. Thus, BTSX will constantly be changing from a "Penny" coin one day, to a "quarter" coin on some other day.

For example:

2 days ago, 115 BTSX equaled 1 bitUSD (approximations)
Yesterday, 33 BTSX equaled 1 bitUSD
Today, 40 BTSX equals equals 1 bitUSD

Here is the kicker: 1 bitUSD always equals $1.
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: toast on August 23, 2014, 06:29:10 pm
None of these explain why it actually tracks...

Sent from my SCH-I535 using Tapatalk

Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: Ggozzo on August 23, 2014, 07:17:50 pm
None of these explain why it actually tracks...

Sent from my SCH-I535 using Tapatalk

Explain it like you're talking to a FIVE year old.
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: Riverhead on August 23, 2014, 07:34:00 pm

Actually as I'm writing this my thoughts are changing. It'll track GOOG because people need to be able to trade their bitGOOG for GOOG at 1:1 (bitGOOG->bitUSD->USD->Broker->NYSE.GOOG..maybe there's a shorter path). I think I have had an epiphany lol. Stupid thick skull.
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: toast on August 23, 2014, 09:31:37 pm
None of these explain why it actually tracks...

Sent from my SCH-I535 using Tapatalk

Explain it like you're talking to a FIVE year old.

It works because everyone else thinks it works. If you don't think it will work, you will lose money by trading the wrong way, because you disagree with the majority. So the only people that stay in and make money are those that agree.

The other explanations are more complex *and* fail to explain *why* it works, they just say *how*.
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: GaltReport on August 23, 2014, 09:37:55 pm
Try this:

1dollar bill equals $1.
4 quarters equal $1.
10 dimes equal $1.
20 nickels equal $1.
100 pennies equal $1.

So sometimes you have different coin worth different amounts and depending on how many of each coin you have they can add up to $1.

BTSX and bitUSD are similar in this same way.

BTSX are the coins that can add up to 1 bitUSD. The only difference is that people get to decide how much value BTSX has every day, hour, minute and second relative to a dollar. Thus, BTSX will constantly be changing from a "Penny" coin one day, to a "quarter" coin on some other day.

For example:

2 days ago, 115 BTSX equaled 1 bitUSD (approximations)
Yesterday, 33 BTSX equaled 1 bitUSD
Today, 40 BTSX equals equals 1 bitUSD

Here is the kicker: 1 bitUSD always equals $1.

So, is buying bitUSD like cashing out without having to pay taxes?
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: busygin on August 23, 2014, 09:57:11 pm
For everyone to act as if bitUSD represents USD is a better Nash equilibrium than ignoring bitUSD. That's one-sentence explanation that should suffice for people who know what a Nash equilibrium is.
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: xeroc on August 23, 2014, 10:10:22 pm
For everyone to act as if bitUSD represents USD is a better Nash equilibrium than ignoring bitUSD. That's one-sentence explanation that should suffice for people who know what a Nash equilibrium is.
I had to goole it :) - doesn't hurt for the reader to also goole that term!

From wikipedia:
Quote
In game theory, the Nash equilibrium is a solution concept of a non-cooperative game involving two or more players, in which each player is assumed to know the equilibrium strategies of the other players, and no player has anything to gain by changing only their own strategy.[1] If each player has chosen a strategy and no player can benefit by changing strategies while the other players keep theirs unchanged, then the current set of strategy choices and the corresponding payoffs constitute a Nash equilibrium.
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: luckybit on August 23, 2014, 10:16:52 pm
I want to add an article to the reddit "Explain it like I'm Five" section. Please edit or tell me why it's a complete fabrication and I should start over :) . I am writing this as a person who has a basic understanding of the stock market but am by no means an economist.


https://docs.google.com/document/d/1C_4MR4d8AsoqWQw8UMCyKeuvhO5TSws_TPHG421HVJg/edit?usp=sharing (https://docs.google.com/document/d/1C_4MR4d8AsoqWQw8UMCyKeuvhO5TSws_TPHG421HVJg/edit?usp=sharing)


Let's take Google. The share price of Google is supposed to be their book value plus some fudging for revenue, growth potential, etc. It's why share-price/book is a key stat that tries to guess how much intangible value pushing the price above or below book is correct.
Now let's take two day traders:

Trader A looks at the price of Google and says, "$400? Heck no.  They're about to be regulated out of existence and Amazon is releasing Amazon Search soon. I think it's worth $80" so they short.


Trader B thinks Trader A is off his rocker. The Google pipeline looks awesome and the stock will easily reach $600 by the end of the year. He bids long $500.

And so the game goes on. The big take away from this is neither have even the slightest interest in gaining a controlling stake in Google. It could be the worth of fiddle sticks for all they care.  The important thing is one person thinks it's worth more than the other and the market transactions tend toward a consensus of the intangible value above/below book.

Call them Google Shares or bitGoogle, it doesn't matter. It's not like if you had a Google share you could walk into Google HQ and start scarfing down the free food. The share really only has demand, and therefore value, because someone else thinks they can sell it for more later.


Not backed yet. But it isn't impossible to make a Ripple Gateway which turns BitUSD into USD.
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: tonyk on August 23, 2014, 10:21:26 pm
It will not be backed lucky....

Not yet, not ever.

Yes I suggest dilation of the above.
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: toast on August 23, 2014, 10:21:36 pm
I want to add an article to the reddit "Explain it like I'm Five" section. Please edit or tell me why it's a complete fabrication and I should start over :) . I am writing this as a person who has a basic understanding of the stock market but am by no means an economist.


https://docs.google.com/document/d/1C_4MR4d8AsoqWQw8UMCyKeuvhO5TSws_TPHG421HVJg/edit?usp=sharing (https://docs.google.com/document/d/1C_4MR4d8AsoqWQw8UMCyKeuvhO5TSws_TPHG421HVJg/edit?usp=sharing)


Let's take Google. The share price of Google is supposed to be their book value plus some fudging for revenue, growth potential, etc. It's why share-price/book is a key stat that tries to guess how much intangible value pushing the price above or below book is correct.
Now let's take two day traders:

Trader A looks at the price of Google and says, "$400? Heck no.  They're about to be regulated out of existence and Amazon is releasing Amazon Search soon. I think it's worth $80" so they short.


Trader B thinks Trader A is off his rocker. The Google pipeline looks awesome and the stock will easily reach $600 by the end of the year. He bids long $500.

And so the game goes on. The big take away from this is neither have even the slightest interest in gaining a controlling stake in Google. It could be the worth of fiddle sticks for all they care.  The important thing is one person thinks it's worth more than the other and the market transactions tend toward a consensus of the intangible value above/below book.

Call them Google Shares or bitGoogle, it doesn't matter. It's not like if you had a Google share you could walk into Google HQ and start scarfing down the free food. The share really only has demand, and therefore value, because someone else thinks they can sell it for more later.


Not backed yet. But it isn't impossible to make a Ripple Gateway which turns BitUSD into USD.

This will only confuse things further for someone who doesn't get why it should track to begin with, even without gateways
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: Empirical1 on August 24, 2014, 12:22:09 am
This is kind of how I explain to gambling people...

Imagine betting on a big soccer match; If the score is 2-0 with 5 minutes to go, there's no way if I gave you the same betting odds for the 2-0 winning team as the 2-0 down team that you'd bet on the losing team right?

From that we can see that betting on the team likely to lose without receiving much better odds is a bad idea. 

With BitUSD everybody has already agreed beforehand the outcome of the 'soccer match' was 1-1. 

As a result it's very hard to move the market too much in another direction, because it's simplicity itself for the majority of bettors to notice if 1BitUSD is moving too far from 1USD.

As an example - If BitUSD was 0.95 to 1 USD, unless you were getting better odds for it to go to 0.9, there's no reason to fight the bettors taking it back to 1-1. It would be like betting for the losing team without being given better odds to do so. So the right move is always to bet in the direction of  1-1. 

Provided you trust the collateral system* to back up the bets, then you can have a lot of confidence the bettors are going to keep 1BitUSD very closely tied to 1USD.

As a result retailers/savers/other can substitute BitUSD for USD if it benefits them to hold/accept an asset mirroring the value of a USD held in a decentralised way.

*The collateral system. Because crypto-currencies are volatile people going short have to post a lot of collateral in the form of BTSX. Additionally as a contingency, fees charged for making bets are directed to an insurance fund. However in practice only an extremely rapid BTSX flash crash of more than 50% would bring any of the insurance fund into play
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: tonyk on August 24, 2014, 12:30:38 am
How many 5 year old bettors do you know? Just kidding... :)
Or one with knowledge of Nash equilibrium?

For me the Riverhead's is getting me lost in the middle of it and skyscraperfarm's is actually having more differences than similarities.

I personally can not come with explanations even close to being simple. The one that I consider the simplest usually leave the people like 'What? What are talking about'.

So my suggestion is let's pile up explanations for 21+ year olds. The more the better. I do believe that one never knows, which particular one will 'click' for someone's way of thinking.
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: Empirical1 on August 24, 2014, 12:49:18 am
How many 5 year old bettors do you know? Just kidding... :)
Or one with knowledge of Nash equilibrium?

True :) I find some of it hard to understand let alone explain.

I also think non-bettors going long BitUSD, (Retailers/Savers etc.) will find a BitUSD has a practical value that could be 1-2% off a USD and it's possible the bettors could adjust slightly to reflect that too, but I didn't want to have to explain that...

The best pretty simple explanation is maybe Bytemaster's from yesterday -


The primary assumption is that there exists a crypto-asset with no counter party and a non-zero value.  IE: bitcoin, Nxt, and BTSX.

The secondary assumption is that the volatility of this asset is within some reasonable range.  200% initial collateral seems to be reasonable, but it could easily be 400% if the volatility called for it.   

Given these assumptions we then assume there are two individuals in the free market that want a "contract for difference".  Contracts for difference are well established and proven and even used in counter party.  One person is given price stability and the other is given leverage.   

If you assume the contract for difference was settled by a 3rd party price feed then it is clear how it would work.   

So given those initial fundamentals we can slowly build up to BitAssets.   The first step is to take the same contract and remove the 3rd party price feed and instead use Nash Equilibrium.  Both parties will want to exit at some point and thus have to agree on a price in the future.  Assuming they were both equally wanting to exit their position the price they would agree at would be the "fair price".   Now clearly if there are only two parties to the trade they may not want to exit at the same time.    So you allow the "long" side to sell his position to others and you allow the "short" side to cover with anyone.   

If someone wants to be a stubborn jerk and not settle then that is fine.... eventually a margin call will be triggered.   The peg will fluctuate as the relative demand for longs vs shorts settling causes the peg to have a settlement premium sufficient to motivate settlement.   

I think it is fairly clear that if there is a price feed from a trusted source that was used to enforce settlement then the system would work to the extent that you could trust the feed.   The hypothesis is that this price feed is irrelevant given a market full of speculators and market makers willing to hold until a short voluntarily covers at a fair market price.

I hope that through this perspective I have shown what the economic incentives are and how the core principles are sound.  All that remains to be seen is whether "market consensus and speculation" is enough to enforce a peg via a "decentralized price feed" or "prediction market" mechanic.  My understanding of game theory and economic incentives tells me this will work, but even if I am wrong I know that price feeds can be used as a "trusted" judge on the "smart contracts for difference".   It is an entirely different game to trust someone to produce a fair feed (or 101 someones) than to trust someone to maintain a vault full of gold.

Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: tonyk on August 24, 2014, 12:52:01 am
Actually for me too, the above one by BM is one of the simplest.

But as I said above, the ones that I myself consider the simplest, usually do not even start to connect with other peoples brains...
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: Riverhead on August 24, 2014, 01:48:26 am
It's possible this planned article is for not as the explanation cannot be made simple. There are a few different answers in this thread of varying complexity. Each could be right but non of which fits into the eli5 bucket.

A good example of one, and what gave me the idea is this:

http://www.reddit.com/r/explainlikeimfive/comments/1jvduu/eli5_how_does_publicprivate_key_encryption_work/
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: GaltReport on August 24, 2014, 02:09:40 am
I'm starting to see how BitUSD could maintain it's expected market peg to USD within the BitShares system but I'm also starting to think about how one would spend either BitUSD or USD as one still needs to these days until people and organization directly accept BitUSD in place of fiat USD.  So, it seems to me that for me to pay my mortage if I am holding in BitUSD it would be:

BitUSD->BTSX->Bter Exchange->BTC->Coinbase->Bank Account->Mortgage Company

which is still too unnecessarily convoluted.  What is the Ideal?  BitUSD->Mortgage Company ?? 

What is realistic?  BitUSD->CoinBase->Bank Account->Mortgage Company ?

Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: tonyk on August 24, 2014, 02:16:53 am
I'm starting to see how BitUSD could maintain it's expected market peg to USD within the BitShares system but I'm also starting to think about how one would spend either BitUSD or USD as one still needs to these days until people and organization directly accept BitUSD in place of fiat USD.  So, it seems to me that for me to pay my mortage if I am holding in BitUSD it would be:

BitUSD->BTSX->Bter Exchange->BTC->Coinbase->Bank Account->Mortgage Company

which is still too unnecessarily convoluted.  What is the Ideal?  BitUSD->Mortgage Company ?? 
Yes
What is realistic?  BitUSD-> CoinBase ->Bank Account->Mortgage Company ?
Yes, as in CoinBase or somebody else.
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: GaltReport on August 24, 2014, 02:18:46 am
I'm starting to see how BitUSD could maintain it's expected market peg to USD within the BitShares system but I'm also starting to think about how one would spend either BitUSD or USD as one still needs to these days until people and organization directly accept BitUSD in place of fiat USD.  So, it seems to me that for me to pay my mortage if I am holding in BitUSD it would be:

BitUSD->BTSX->Bter Exchange->BTC->Coinbase->Bank Account->Mortgage Company

which is still too unnecessarily convoluted.  What is the Ideal?  BitUSD->Mortgage Company ?? 
Yes
What is realistic?  BitUSD-> CoinBase ->Bank Account->Mortgage Company ?
Yes, as in CoinBase or somebody else.

I like it!!  +5%
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: Riverhead on August 24, 2014, 02:59:14 am
It works because everyone else thinks it works. If you don't think it will work, you will lose money by trading the wrong way, because you disagree with the majority. So the only people that stay in and make money are those that agree.


Sounds like the Fine Art market. The intrinsic value of the Mona Lisa is $0 however it sells for millions because of a collection of people that are willing to buy/sell it from/to each other. Like a successful night club that everyone goes to because everyone goes there.
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: jae208 on August 24, 2014, 10:36:20 am
None of these explain why it actually tracks...

Sent from my SCH-I535 using Tapatalk

Explain it like you're talking to a FIVE year old.

It works because everyone else thinks it works. If you don't think it will work, you will lose money by trading the wrong way, because you disagree with the majority. So the only people that stay in and make money are those that agree.

The other explanations are more complex *and* fail to explain *why* it works, they just say *how*.

Why it works... because humans can sometimes be very irrational.  :)
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: xeroc on August 24, 2014, 11:23:50 am
Why it works... because humans can sometimes be very irrational.  :)
Ther market peg is actually VERY rational .. it is a so called "negative feedback" loop that forces the price towards the consensus the more it moves a way from it ..

I can probably find some very nice examples from control theroy .. let me search

EDIT:
on wikipedia there are some quite technical examples
http://en.wikipedia.org/wiki/Negative_feedback#Examples

Maybe someone can write sth up with this:
http://en.wikipedia.org/wiki/File:Ballcock.svg
(http://upload.wikimedia.org/wikipedia/commons/thumb/2/23/Ballcock.svg/1000px-Ballcock.svg.png)


My english is not sooo good .. but I think of

whenever the water level is to low .. the market makers start 'creating' USD such that the levels rise ..
on the other hand theirs a leakage .. such that the need to find the balance between .. so that their is not too much water (increases the leakage) and too few water (opens up the refiller) (I got that wrong)
When the water level rises too much, the ventil closes the ventil such that the level is maintained ...
now if you want to have some of those you need to take water out of the bucket ... consequence ... the level drops .. new water comes in

when you want to get rid of your water you put it un the bucket .. the level rises .. and someone else can get water out of it without the the need for the market makers to open the venitl ..

Does that sound valid? Can someone with native english experience rewrite that to an easy understandable text?[/s]
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: Stan on August 24, 2014, 12:07:20 pm
Why it works... because humans can sometimes be very irrational.  :)
Ther market peg is actually VERY rational .. it is a so called "negative feedback" loop that forces the price towards the consensus the more it moves a way from it ..

I can probably find some very nice examples from control theroy .. let me search

EDIT:
on wikipedia there are some quite technical examples
http://en.wikipedia.org/wiki/Negative_feedback#Examples

Maybe someone can write sth up with this:
http://en.wikipedia.org/wiki/File:Ballcock.svg
(http://upload.wikimedia.org/wikipedia/commons/thumb/2/23/Ballcock.svg/1000px-Ballcock.svg.png)


My english is not sooo good .. but I think of

whenever the water level is to low .. the market makers start 'creating' USD such that the levels rise ..
on the other hand theirs a leakage .. such that the need to find the balance between .. so that their is not too much water (increases the leakage) and too few water (opens up the refiller) (I got that wrong)
When the water level rises too much, the ventil closes the ventil such that the level is maintained ...
now if you want to have some of those you need to take water out of the bucket ... consequence ... the level drops .. new water comes in

when you want to get rid of your water you put it un the bucket .. the level rises .. and someone else can get water out of it without the the need for the market makers to open the venitl ..

Does that sound valid? Can someone with native english experience rewrite that to an easy understandable text?

This is a fantastic way to describe this (although developing control systems for unmanned systems is how I spent my first career so perhaps it is just me.  :) )

Yes, we have designed a system with closed loop feedback where the measured error between the commanded (pegged) value and the output (redeemed) value is used to generate a compensating signal that drives the output in the direction of the commanded input.  This is how a camera on the nose of a missile steers it towards its target.  This is also how a thousand buy/sell decisions drive bitUSD to $1.

Most people don't understand rocket science,
but they still believe a missile can hit its target.

Most people won't understand market science,
but they will soon believe a bitAsset will hit its target too.



Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: xeroc on August 24, 2014, 12:09:33 pm
I thought a little more about my previous explanation ... it is not 100% accurate .. but easy to get ..

the more accurate explanation would look like this

- The volume of the bucket is given by the demand for bitAsset (bitUSD) ..
- When people want to have bitUSD .. the volume of the bucket increases
- When people want to get rid of their bitUSD  .. the volume of the bucket is decreased ..
- The price of the bitUSD is the height (or depth) of the water in the bucket
- The total amount of bitUSD is the volume of the bucket .. and thus the demand for bitUSD

the Market Peg is a device (look previous post) that works as follow:
- when the swiming thing (no idea of the name, lets call it the swimmer) .. goes below a certain threashold (i.e. the height/depth of the water, and thus the price of the bitUSD) .. the ventile opens and new bitUSD are created to fill up the buckte
- when the swimmer is at a certain level (ie. height/depth of water) that represents the bitUSD (here comes the consensus over the depth of the water) the swimmer makes the ventile to close again ..
- if the water is too hight .. because someone wanted to get rid of bitUSD and the volume of the bucket decreases (and thus the water level rises) .. the ventile closes completele ...
- If a certain threshold (150% afaik) of the intended(ie. consensus) water level is reached (unless someone buys bitUSD) ... a margin call is performed ... calling for someone that HAS to take water out of the bucket .. and as such .. the water level decreases until consensus is reached again ...

// EDIT:
Advanced:
- in order for the ventil to produce water ... someone has to go buy water ... the price for the new water depends on how low the level is in the bucket (ie, how much he needs to fill up) ... to get the water .. he needs to pay TWICE the price ;-) ...now its getting akward ... can s.o. fix this example

// edit2:
cant make my mind up ... is the water level the price of the bitUSD in btsx ..
we can fix this .. I just cant .... maybe I should get sth. to eat :)
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: xeroc on August 24, 2014, 12:14:30 pm
Most people won't understand market science,
but they will soon believe a bitAsset will hit its target too.
I like that ...
As a controls guy ... can you fix the description above?
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: Empirical1 on August 24, 2014, 12:16:56 pm
I'm starting to see how BitUSD could maintain it's expected market peg to USD within the BitShares system but I'm also starting to think about how one would spend either BitUSD or USD as one still needs to these days until people and organization directly accept BitUSD in place of fiat USD.  So, it seems to me that for me to pay my mortage if I am holding in BitUSD it would be:

BitUSD->BTSX->Bter Exchange->BTC->Coinbase->Bank Account->Mortgage Company

which is still too unnecessarily convoluted.  What is the Ideal?  BitUSD->Mortgage Company ?? 
Yes
What is realistic?  BitUSD-> CoinBase ->Bank Account->Mortgage Company ?
Yes, as in CoinBase or somebody else.
I like it!!  +5%

The cost in fees and time of having to transition via a coinbase initially is why I feel a BitUSD may have a practical value that is 1/2% off a $. (You highlighted earlier in this thread an advantage that may push it the other way though.)

Either way if a BitUSD value is within 1.5% for most they'll be directly interchangeable.
If not I'm still not worried because a BitUSD will still have crushed volatility compared to crypto-currency, so retailers/savers will be a happy to use BitUSD even if it involved a small conversion.
I actually believe a BitUSD will have a practical value of more than 1 USD in the medium term+
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: Riverhead on August 24, 2014, 12:26:32 pm
Very nice Xeroc. I bet someone could put together one of those animated videos explaining the market peg using the water control system graphic animations.

If such a video could be made so that a non finance guy like myself would have a light bulb go off then this thread will have accomplished its mission.
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: xeroc on August 24, 2014, 12:52:05 pm
wait ...

let me think ... if the demand increases .. the volume increases .. but the price of the bitUSD should rise!!! (at least short term)
so of you have 1m of water ... you need to pay 1USD for 1bitUSD ...
if the water level decreases to .. say 80 cm .. then you need to pay .. say 1.20USD for one bitUSD ..

sure .. the less water there is .. the more expensive it gets!! .. so remove that water level stuff
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: xeroc on August 24, 2014, 12:58:38 pm
you have a bucket full of water ... (with that market peg machine)

you want to buy half of the water .. by adding an extra bucket (with a pipe) that has the same volume ..
then both buckets are half full ..

if you now also want to add an extra bucket .. with the same volume ... you will get less water .. because the water level is not refilled yet ..



ok .. maybe I write sth down offline .. so that I dont' screw up that much publicly ;)
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: xeroc on August 24, 2014, 01:47:48 pm
Rules:
-------------------------------------------------------------------------------
- The volume of the bucket is given by the demand for a bitAsset (bitUSD)
- The goal is to keep the water level constant at the consensus level (say 1
  meter)
- When people want to have bitUSD .. the volume of the bucket increases
  As an example, they add an extra bucket via a pipe to the main bucket.
  Water starts to flow from the main bucket (the market) to the users bucket
  (pocket :) ). The price he has to pay for his water (in liters) depends on
  how much water is in the main bucket. As the water level decreases .. the
  price per liter/gallon increases. Obviously, the water gets rarer and rarer.
  The more the water level moves below the consensus level the more expensive
  it gets.

- When people want to get rid of their bitUSD  .. the volume of the bucket is
  decreased .. The seller wants to put their water back into the main bucket and
  pump it through the pipelines. The water level in the main main bucket rises
  and moves above the consensus level. Hence, the price decreases because of the
  surplus. Other participants no start increasing their buckets because the water
  (bitAsset) is cheap now in contrast to if they had to buy earlier.

- The total amount of bitUSD is the volume of the bucket .. and thus the demand
  for bitUSD

The Market Peg
-------------------------------------------------------------------------------
The Market Peg is a device (look previous post) that works as follow:

http://en.wikipedia.org/wiki/File:Ballcock.svg
(http://upload.wikimedia.org/wikipedia/commons/thumb/2/23/Ballcock.svg/1000px-Ballcock.svg.png)

- In the main bucket there is an extra devise with a ventile that can control
  the water level.

- when the swimmer goes below a certain threshold (i.e. the height/depth of the
  water, and thus (indeirectly) the price of the bitUSD) .. the ventile opens
  and new bitUSD are created to fill up the bucket and the demand.

- In order for the ventil to produce water ... someone has to go buy water ...
  the price for the new water depends on the water level in the bucket.
  Obviously the water level is lower than the consensus level and as such the
  water is expensive if you want to get some. However, he cannot create water
  out of thin air. But he can borrow it from the local water supply with the
  promise to give it back and sell it for the higher-than-consensus price at
  the market (the main bucket). As a security the local water supply offers the
  water at TWICE the market price. The buys accepts the deal and fills up the
  main bucket.

- when the swimmer is at a certain level (ie. height/depth of water) above the
  consensus level (150% afaik)the swimmer makes the ventile to close again and
  call for margin (unless someone buys water/bitAsset).
  A margin call is performed such that the guy who bought water from the local
  water supply and sold it to the market at a high price has to buy his water
  back again at a cheaper price to pay his loan at the local water supply. Thus
  he makes a loss.



I am not so sure about the last paragraph describing the margin call ... could s.o. check?
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: liondani on August 24, 2014, 02:45:31 pm
Very nice Xeroc. I bet someone could put together one of those animated videos explaining the market peg using the water control system graphic animations.

If such a video could be made so that a non finance guy like myself would have a light bulb go off then this thread will have accomplished its mission.

I am sure some random NXT guy will come with a toilet example
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: xeroc on August 24, 2014, 02:49:52 pm
Very nice Xeroc. I bet someone could put together one of those animated videos explaining the market peg using the water control system graphic animations.

If such a video could be made so that a non finance guy like myself would have a light bulb go off then this thread will have accomplished its mission.

I am sure some random NXT guy will come with a toilet example
Yhea, but shit always goes one direction ... ever tried pumping it back into clean water pipes?
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: liondani on August 24, 2014, 02:50:52 pm
lol
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: room0.00000101 on August 24, 2014, 08:15:19 pm
Hi i'm a new poster on the forum and i'm not a tech guy so please bare with me. I maybe completely wrong with some of my thoughts so please excuse my ignorance and put me right. The way i'v read bitUSD is-

People want exposure to the USD because they figure it is less volatile than even the most stable cryptocurrancy.
BitUSD is decentralised on the block chain the government cant touch it or tax it, and bitUSD guarantees a 5% interest rate return. Most high street rates are around 0% so its a great store of value. Sounds very promising

The market dictates whether bitUSD is worth 1:1 for a dollar, its not set by any institution (NXT/XRP) its a question of decentralised concensus.

'Toast'
''It works because everyone else thinks it works. If you don't think it will work, you will lose money by trading the wrong way, because you disagree with the majority. So the only people that stay in and make money are those that agree''

Are we talking game theory here along the lines of the ''prisoner's dilemma'' ?????????

rational cooperative bitUSD           

vs


unrational uncoperative bitUSD

Maybe we could have separate markets? :)

Is it the greedy ''pump and dump'' blag artists who are going to wreck this experiment?
Greedy people looking for a quick return?

Nash equilibrium.............pardon the pun but maybe most people don't have such a ''Beautiful Mind''?

Iv studied logic and bizarrely i'm tempted to bet it will fail, even though it will cost me money?????? will short term greed & pessimism kill bitUSD?

Your thoughts please, i'm new posting on the forum even though i have followed it for a number of months. I'm really enjoying watching the Bitshares project pan out.
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: room0.00000101 on August 24, 2014, 09:08:10 pm
https://www.youtube.com/watch?v=cx-xb6be-ug
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: santaclause102 on August 24, 2014, 09:14:55 pm
Hi i'm a new poster on the forum and i'm not a tech guy so please bare with me. I maybe completely wrong with some of my thoughts so please excuse my ignorance and put me right. The way i'v read bitUSD is-

People want exposure to the USD because they figure it is less volatile than even the most stable cryptocurrancy.
BitUSD is decentralised on the block chain the government cant touch it or tax it, and bitUSD guarantees a 5% interest rate return. Most high street rates are around 0% so its a great store of value. Sounds very promising

The market dictates whether bitUSD is worth 1:1 for a dollar, its not set by any institution (NXT/XRP) its a question of decentralised concensus.

'Toast'
''It works because everyone else thinks it works. If you don't think it will work, you will lose money by trading the wrong way, because you disagree with the majority. So the only people that stay in and make money are those that agree''

Are we talking game theory here along the lines of the ''prisoner's dilemma'' ?????????

rational cooperative bitUSD           

vs


unrational uncoperative bitUSD

Maybe we could have separate markets? :)

Is it the greedy ''pump and dump'' blag artists who are going to wreck this experiment?
Greedy people looking for a quick return?

Nash equilibrium.............pardon the pun but maybe most people don't have such a ''Beautiful Mind''?

Iv studied logic and bizarrely i'm tempted to bet it will fail, even though it will cost me money?????? will short term greed & pessimism kill bitUSD?

Your thoughts please, i'm new posting on the forum even though i have followed it for a number of months. I'm really enjoying watching the Bitshares project pan out.
You migth want to try to ask precise questions if you want a reply that helps. I would say reading this http://wiki.bitshares.org/index.php/Main_Page and this http://wiki.bitshares.org/index.php/Bitshares_X in sprticular is the fastest way to understand.
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: jakub on August 25, 2014, 09:51:45 am
I appreciate your effort, a simple explanation of Bitshares X is badly needed.

You might find some elements in this post useful:
https://bitsharestalk.org/index.php?topic=7278.msg99599#msg99599
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: Ggozzo on August 25, 2014, 04:51:51 pm
You guys miss the whole point of the post. Explain like you are talking to a 5 year old. A kid. If a kid asks you what the sun is and how it works, telling him about the intricacies of Fussion and thermal energy will not help his understanding.  You are going to say something like, "it's a super huge ball of gas with a heavy center that creates heat and light when it's gas smash together."

Using terms like Nash equilibrium and game theory for simple explanations defeats the purpose of a simple explanation.

A market works because two people agree on the exact value of something. One of those people is a buyer, the other is a seller. Something is only worth as much as someone is willing to pay, and something is only worth as little as someone is willing to sell.


I think if we relate BTSX/bitUSD to Copper/USpenny a clearer picture begins to arise. One thing with value births another with equal value. As long as BTSX has a liquid value outside of the Bitshares platform, bitUSD will equal 1 dollars worth of that BTSX within Bitshares. Traditionally, As long as copper has liquid value outside the US economy, a Penny will equal 1 cent within the US economy. (Copper has subsequently raised in value which is the exact reason why old Pennies with 95% copper or 100% copper are worth more than 1 cent) Just like pennies, BTSX's value changes depending on outside market influences.

Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: jakub on August 26, 2014, 02:02:48 pm
I think I've come up with an alternative view on the market peg explanation.
I look at it from this perspective:
1. who is the one who creates supply of bitUSD
2. who is the one who creates demand for bitUSD
And then I consider what the alternative ways to reach their goals for these people are.
And once you've got that the market peg looks like an obvious outcome.

You'll find more details in Chapter 7 in this thread:
https://bitsharestalk.org/index.php?topic=7628.msg101320#msg101320 (https://bitsharestalk.org/index.php?topic=7628.msg101320#msg101320)


Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: mf-tzo on August 26, 2014, 02:06:46 pm
to me the easiest way to explain to someone why bitsud = usd is that you can buy bitusd and exchange them for btsx, then exchange btsx to external platforms for bitcoins, then exchange your bitcoin for usd.
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: jakub on August 26, 2014, 02:12:10 pm
to me the easiest way to explain to someone why bitsud = usd is that you can buy bitusd and exchange them for btsx, then exchange btsx to external platforms for bitcoins, then exchange your bitcoin for usd.
I guess that's a very similar conclusion to the one I've arrived at.
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: bytemaster on August 26, 2014, 02:16:42 pm
BitUSD requires a liquid market...... right now BitUSD is the best hedge against a falling BTSX because it is cheaper than $1 USD due to all the demand to short.   

What we need are tools that show the arbitrage opportunities... and people willing to accept profits from arbitrage as more reliable than gains in BTSX. 

Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: nakaone on August 26, 2014, 02:26:29 pm
BitUSD requires a liquid market...... right now BitUSD is the best hedge against a falling BTSX because it is cheaper than $1 USD due to all the demand to short.   

What we need are tools that show the arbitrage opportunities... and people willing to accept profits from arbitrage as more reliable than gains in BTSX.

to be fair it will be arbitrageurs paradise. maybe it is best to sit out the dump now, wait for a somewhat stabilisation, talk to the exchanges that they set bitusd/altcoin markets and let it emerge more organically.

btsx is on a pump since the 0.00004 region 
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: jakub on August 26, 2014, 02:30:35 pm
BitUSD requires a liquid market...... right now BitUSD is the best hedge against a falling BTSX because it is cheaper than $1 USD due to all the demand to short.   

What we need are tools that show the arbitrage opportunities... and people willing to accept profits from arbitrage as more reliable than gains in BTSX.
So if I understand this correctly to protect the market peg we need both BTSX/bitUSD and BTSX/USD markets set up on the third party exchange (like bter). Because this will open up the arbitrage opportunities.
In other words, what we need is to enable both bitUSD and USD to be competing ways to purchase BTSX. This will create arbitrage and arbitrage will guard the market peg. Is it correct?
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: bytemaster on August 26, 2014, 02:37:00 pm
BitUSD requires a liquid market...... right now BitUSD is the best hedge against a falling BTSX because it is cheaper than $1 USD due to all the demand to short.   

What we need are tools that show the arbitrage opportunities... and people willing to accept profits from arbitrage as more reliable than gains in BTSX.
So if I understand this correctly to protect the market peg we need both BTSX/bitUSD and BTSX/USD markets set up on the third party exchange (like bter). Because this will open up the arbitrage opportunities.
In other words, what we need is to enable both bitUSD and USD to be competing ways to purchase BTSX. This will create arbitrage and arbitrage will guard the market peg. Is it correct?

BitBTC may be needed... then we can have BitUSD vs BitBTC on chain.   This will also help with arb. ops.
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: jakub on August 26, 2014, 02:46:16 pm
BitUSD requires a liquid market...... right now BitUSD is the best hedge against a falling BTSX because it is cheaper than $1 USD due to all the demand to short.   

What we need are tools that show the arbitrage opportunities... and people willing to accept profits from arbitrage as more reliable than gains in BTSX.
So if I understand this correctly to protect the market peg we need both BTSX/bitUSD and BTSX/USD markets set up on the third party exchange (like bter). Because this will open up the arbitrage opportunities.
In other words, what we need is to enable both bitUSD and USD to be competing ways to purchase BTSX. This will create arbitrage and arbitrage will guard the market peg. Is it correct?

BitBTC may be needed... then we can have BitUSD vs BitBTC on chain.   This will also help with arb. ops.

But would you agree that arbitrage is a better justification for market peg then market consensus approach?
For me both approaches can be right but the one involving arbitrage looks more solid in the eyes of the outside world.
And when we have both bitUSD and USD competing as ways to trade against BTSX then we have arbitrage holding the market peg in place.
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: Ggozzo on August 26, 2014, 02:54:45 pm
BitUSD requires a liquid market...... right now BitUSD is the best hedge against a falling BTSX because it is cheaper than $1 USD due to all the demand to short.   

What we need are tools that show the arbitrage opportunities... and people willing to accept profits from arbitrage as more reliable than gains in BTSX.
So if I understand this correctly to protect the market peg we need both BTSX/bitUSD and BTSX/USD markets set up on the third party exchange (like bter). Because this will open up the arbitrage opportunities.
In other words, what we need is to enable both bitUSD and USD to be competing ways to purchase BTSX. This will create arbitrage and arbitrage will guard the market peg. Is it correct?

BitBTC may be needed... then we can have BitUSD vs BitBTC on chain.   This will also help with arb. ops.

Yes, this would be nice.

Side note, market hasn't been true to outside prices for at least the last couple hours. Market is trading around 22btsx/bitUSD when on the excjphanges they are going for 28btsx/$1 .

Did we get forced shirt covers? It was a ~50% drop from the high?
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: bytemaster on August 26, 2014, 02:58:55 pm
The demand for shorts has outstripped demand for BitUSD thus far.... so right now BitUSD is cheap relative to USD.    Few players are performing the arb. role at this point in time... I think it will take a while for things to get there.
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: Riverhead on August 26, 2014, 03:46:56 pm
Sounds like there is some opportunity for me to diversify my btsx holdings.
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: luckybit on August 26, 2014, 05:48:10 pm
The demand for shorts has outstripped demand for BitUSD thus far.... so right now BitUSD is cheap relative to USD.    Few players are performing the arb. role at this point in time... I think it will take a while for things to get there.

Can you teach us to play that role? More players would take the role if we understood the markets but right now it's too complex for most people.

I think the best idea is to just buy BitUSD and wait out the storm.
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: bytemaster on August 26, 2014, 05:59:24 pm
The demand for shorts has outstripped demand for BitUSD thus far.... so right now BitUSD is cheap relative to USD.    Few players are performing the arb. role at this point in time... I think it will take a while for things to get there.

Can you teach us to play that role? More players would take the role if we understood the markets but right now it's too complex for most people.

I think the best idea is to just buy BitUSD and wait out the storm.

When the BitUSD price of BTSX is high... sell BTSX to buy BitUSD... for a while the price was .05 BitUSD per BTSX... when the price falls to .04 BitUSD per BTSX, sell your BitUSD back to the market at the peg price.     You will make the gain from selling BTSX at .05 and buying it back at .04....   

The challenge here is that you have to separate out your investment in BTSX from your arb profits.  If BTSX doubles to $0.10, you can still make money from your arb assuming you can sell your BitUSD for BTSX at 0.10.   You missed the capital gains must you made arb. gains.   Arb gains should be less risky than BTSX and can be made in any market condition (up/down/sideways).   If you want to bet on BTSX to the max, then you may not make as much from arm.

My personal recommendation is that your BTSX holdings are more likely to go up if you help maintain the peg and add liquidity... so everyone should use at least 10% of their holdings to add liquidity.  The combined strategy will likely cause your BTSX holdings to grow faster than if no one provided liquidity.
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: Shentist on August 26, 2014, 06:09:04 pm
1. would be nice to see the calculated marketprice from coinmarketcap.com in the market - i just flip all the time.

2. a calculated average of my positions would also be good to see if i am in the profits
- like 1.000 bitUSD average cost 22.25 profit/loss: 1.10
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: oldman on August 26, 2014, 07:50:04 pm
The demand for shorts has outstripped demand for BitUSD thus far.... so right now BitUSD is cheap relative to USD.    Few players are performing the arb. role at this point in time... I think it will take a while for things to get there.

Can you teach us to play that role? More players would take the role if we understood the markets but right now it's too complex for most people.

I think the best idea is to just buy BitUSD and wait out the storm.

When the BitUSD price of BTSX is high... sell BTSX to buy BitUSD... for a while the price was .05 BitUSD per BTSX... when the price falls to .04 BitUSD per BTSX, sell your BitUSD back to the market at the peg price.     You will make the gain from selling BTSX at .05 and buying it back at .04....   

The challenge here is that you have to separate out your investment in BTSX from your arb profits.  If BTSX doubles to $0.10, you can still make money from your arb assuming you can sell your BitUSD for BTSX at 0.10.   You missed the capital gains must you made arb. gains.   Arb gains should be less risky than BTSX and can be made in any market condition (up/down/sideways).   If you want to bet on BTSX to the max, then you may not make as much from arm.

My personal recommendation is that your BTSX holdings are more likely to go up if you help maintain the peg and add liquidity... so everyone should use at least 10% of their holdings to add liquidity.  The combined strategy will likely cause your BTSX holdings to grow faster than if no one provided liquidity.

Perhaps we should incorporate a robotic trading assistant into the wallet.

Most of the market operations are algorithmic and do not require much thinking beyond what the end goal is. People know what they want to do, they just don't know which buttons to push to get there.

ie. The user could select an investment goal (BTSX bull/bear, arb, hedge, etc. or perhaps simpler choices like 'I think BTSX is going up', 'I think BTSX is going down', 'High risk', 'Low risk', 'Provide liquidity'. etc.) and the assistant (wizard!) could take them through step by step. Alternatively, user can designate assets have the assistant execute. The assistant should have access to live price feeds and be aware of user balances/portfolio holdings.

There are robotic asset management services out there that do this sort of thing, and they are gaining in popularity.

Implementing a robotic trading assistant would be a huge value-added service that would make it easier for non-investors to participate and not get frustrated/hosed, ie. make the initial investing/trading experience positive and most importantly quick and easy.

This is an opportunity for Bitshares to leapfrog the industry, like skipping landlines and going straight to mobile.


Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: tonyk on August 26, 2014, 07:54:49 pm
The demand for shorts has outstripped demand for BitUSD thus far.... so right now BitUSD is cheap relative to USD.    Few players are performing the arb. role at this point in time... I think it will take a while for things to get there.

Can you teach us to play that role? More players would take the role if we understood the markets but right now it's too complex for most people.

I think the best idea is to just buy BitUSD and wait out the storm.

When the BitUSD price of BTSX is high... sell BTSX to buy BitUSD... for a while the price was .05 BitUSD per BTSX... when the price falls to .04 BitUSD per BTSX, sell your BitUSD back to the market at the peg price.     You will make the gain from selling BTSX at .05 and buying it back at .04....   

The challenge here is that you have to separate out your investment in BTSX from your arb profits.  If BTSX doubles to $0.10, you can still make money from your arb assuming you can sell your BitUSD for BTSX at 0.10.   You missed the capital gains must you made arb. gains.   Arb gains should be less risky than BTSX and can be made in any market condition (up/down/sideways).   If you want to bet on BTSX to the max, then you may not make as much from arm.

My personal recommendation is that your BTSX holdings are more likely to go up if you help maintain the peg and add liquidity... so everyone should use at least 10% of their holdings to add liquidity.  The combined strategy will likely cause your BTSX holdings to grow faster than if no one provided liquidity.

I played for a bit today... with an average position of probably 750 bitUSD. And while I did made about $100 it is not user friendly at all at the moment... I have a hundred suggestions but the main point is 'Manual arbitrage with the current state of the system is nothing short of energy draining...'

my 0.02 BTSX
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: bytemaster on August 26, 2014, 08:15:19 pm
The demand for shorts has outstripped demand for BitUSD thus far.... so right now BitUSD is cheap relative to USD.    Few players are performing the arb. role at this point in time... I think it will take a while for things to get there.

Can you teach us to play that role? More players would take the role if we understood the markets but right now it's too complex for most people.

I think the best idea is to just buy BitUSD and wait out the storm.

When the BitUSD price of BTSX is high... sell BTSX to buy BitUSD... for a while the price was .05 BitUSD per BTSX... when the price falls to .04 BitUSD per BTSX, sell your BitUSD back to the market at the peg price.     You will make the gain from selling BTSX at .05 and buying it back at .04....   

The challenge here is that you have to separate out your investment in BTSX from your arb profits.  If BTSX doubles to $0.10, you can still make money from your arb assuming you can sell your BitUSD for BTSX at 0.10.   You missed the capital gains must you made arb. gains.   Arb gains should be less risky than BTSX and can be made in any market condition (up/down/sideways).   If you want to bet on BTSX to the max, then you may not make as much from arm.

My personal recommendation is that your BTSX holdings are more likely to go up if you help maintain the peg and add liquidity... so everyone should use at least 10% of their holdings to add liquidity.  The combined strategy will likely cause your BTSX holdings to grow faster than if no one provided liquidity.

I played for a bit today... with an average position of probably 750 bitUSD. And while I did made about $100 it is not user friendly at all at the moment... I have a hundred suggestions but the main point is 'Manual arbitrage with the current state of the system is nothing short of energy draining...'

my 0.02 BTSX

I hear you...
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: jakub on August 26, 2014, 08:26:41 pm
My personal recommendation is that your BTSX holdings are more likely to go up if you help maintain the peg and add liquidity... so everyone should use at least 10% of their holdings to add liquidity.  The combined strategy will likely cause your BTSX holdings to grow faster than if no one provided liquidity.

I would be happy to help with the liquidity but I'm still confused how to use the market part of the GUI.
So please give us a good guide how to use the GUI and what the different tables and columns mean and we will give liquidity in return.
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: bytemaster on August 26, 2014, 08:30:48 pm
We will build more help into the GUI.
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: jakub on August 26, 2014, 08:38:14 pm
We will build more help into the GUI.
That'd be nice but a 5 minute video describing the full cycle of going short and covering would do the job.
Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: luckybit on August 27, 2014, 09:31:17 am
The demand for shorts has outstripped demand for BitUSD thus far.... so right now BitUSD is cheap relative to USD.    Few players are performing the arb. role at this point in time... I think it will take a while for things to get there.

Can you teach us to play that role? More players would take the role if we understood the markets but right now it's too complex for most people.

I think the best idea is to just buy BitUSD and wait out the storm.

When the BitUSD price of BTSX is high... sell BTSX to buy BitUSD... for a while the price was .05 BitUSD per BTSX... when the price falls to .04 BitUSD per BTSX, sell your BitUSD back to the market at the peg price.     You will make the gain from selling BTSX at .05 and buying it back at .04....   

The challenge here is that you have to separate out your investment in BTSX from your arb profits.  If BTSX doubles to $0.10, you can still make money from your arb assuming you can sell your BitUSD for BTSX at 0.10.   You missed the capital gains must you made arb. gains.   Arb gains should be less risky than BTSX and can be made in any market condition (up/down/sideways).   If you want to bet on BTSX to the max, then you may not make as much from arm.

My personal recommendation is that your BTSX holdings are more likely to go up if you help maintain the peg and add liquidity... so everyone should use at least 10% of their holdings to add liquidity.  The combined strategy will likely cause your BTSX holdings to grow faster than if no one provided liquidity.

Perhaps we should incorporate a robotic trading assistant into the wallet.

Most of the market operations are algorithmic and do not require much thinking beyond what the end goal is. People know what they want to do, they just don't know which buttons to push to get there.

ie. The user could select an investment goal (BTSX bull/bear, arb, hedge, etc. or perhaps simpler choices like 'I think BTSX is going up', 'I think BTSX is going down', 'High risk', 'Low risk', 'Provide liquidity'. etc.) and the assistant (wizard!) could take them through step by step. Alternatively, user can designate assets have the assistant execute. The assistant should have access to live price feeds and be aware of user balances/portfolio holdings.

There are robotic asset management services out there that do this sort of thing, and they are gaining in popularity.

Implementing a robotic trading assistant would be a huge value-added service that would make it easier for non-investors to participate and not get frustrated/hosed, ie. make the initial investing/trading experience positive and most importantly quick and easy.

This is an opportunity for Bitshares to leapfrog the industry, like skipping landlines and going straight to mobile.
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Title: Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
Post by: santaclause102 on September 01, 2014, 09:57:29 pm
https://bitsharestalk.org/index.php?topic=8027.msg105843#msg105843