Cob, I see you're thinking about our Houston discussion
For others you can catch up on some stuff here
http://stableproductivemoney.wordpress.com/2009/03/18/properties-of-token-money/,
https://www.youtube.com/watch?v=XyWfUqEyIZcWithout reiterating everything, bitAssets are capable of tracking the relative value of a data feed. The best data feed would be internal to the DAC so no data manipulation can happen. The most stable crypto assets to back up and collateralize bitAssets would be IOUs which represent something real which is redeemable. IOUs are better capable to create a much more stable bitAsset because people trade the undelrying value of the IOU rather than a commodity-token such as BTS or BTC. The problem with IOUs is of course that both collataralizing tokens on both ends of the bitAsset can completely default, effectively creating inflation for the bitAsset in question.
Everybody is capable of providing value to the market through production (Riegel's idea: "We're all fountains of wealth") by extending our own credit and backing it up with future production at the future's exchange rate. You effectively get a dual currency system, exactly how money is noted in a ledger anyway: a Debit currency and a Credit currency. Those IOUs would be redeemable for your productive capacity.
By using your're IOU as the collateral for one side of the bitAsset you can create somebody else's IOU's as collateral for the bitAsset's other side. This way you create a bitAsset without practical counterparty risk which everybody accepts at par and which can be used for universal pricing and path finding across the value network (very similar to Ripple's XRP being the path-finding mechanism between gateways, but in this case it's a stable bitAsset with flexible money supply rather than a commodity token). Furthermore the counterparty collateralizing your IOU takes on risk but also reaps the benefits by having more buying power with you. So your collateralizers, or in other words -lenders- would in most cases be your immediate supply-chain (or market makers, i.e. Credit Rating Agency). Your "credit limit" would be equal to the total demand for your IOU (or in other words total demand for your future production), however the more IOUs you issue the more interest your supply chain will require from you for their larger risk. Hence you get a very liquid and true market-based credit market and access to cash flow.
The perfect bitAsset would be, as stated above, and internal price feed. If a lot of producers use this IOU system (as a kickstaerter it needs a minimum viable market, or in other words minimum viable liquidity) then you can use the point where the average total supply and demand curve of all IOUs in circulation meet as the univeral pathfinding point. In theory that point would be by definition perfectly stable as it mathematically represents the abstraction of all supply and demand of all relative values in the system. As such the -price- of money (i.e. Unit of Account) is not just decoupled from money itself as with bitAssets, it goes much further than that, it becomes a *universal non-cumulative* value unit.
Fascinatingly this special and unique bitAsset (I'm calling it Perpetual Coin (PC) for now) by definition has no counterparty risk as a whole, but statistically a certain percentage of it's underlying IOUs will default on both ends of the contract, as such it is as inflationary as the total failure rate of both ends of the bitAsset of the producers. However, because this is a DAC we can make sure that the price feed of the PC always matches the internal price point by including demurrage equal to this failure rate, effectively we're introducing entropy into the system which always matches the entropy of the underlying value market, something which never existed before. This way we stabilized PC as a Unit of Acocunt as a point in time, but not as a store of value. That's the next step.
Due to demurrage PC holders who want to store their value will want to invest their PC as a loan to above average producers. They in tern give you their PC IOUs for a future date, in which case you have again counterparty risk which at average should be smaller or equal to the demurrage/entropy rate of the PC as all these factors are in theory counter-cyclical and self-stabilizing to one another.
As such we have effectively splt money into its 3 core functions:
- Medium of Exchange - Producer IOU
- Unit of Account - Perpetual Coin (bitAsset)
- Store of Value - P2P Credit Perpetual Coin
I've got to write this down more clearly somewhere.