BitShares Forum
Main => General Discussion => Topic started by: kisa on September 25, 2014, 07:30:48 am
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This night I was thinking about 10% yield once again.
Why should Sally invest in bitUSD or bitGLD? Effectively, she is lending USD to the startup exchange at 10% interest. Will she get her money back? Well, that depends on whether the peg holds and bitAsset market stays liquid. For the peg to hold and stay liquid systematically, we need enough bitUSD or bitGLD longs at ANY point in time, not only when "BTSX looks overvalued". Imho we need some 10-15% of BTSX market cap to be invested in bitAssets longs so that there is little downward or illiquidity pressure on respective pegs.
So, many Sallys would ask, why should I systematically hold bitUSD if I believe that the peg will hold and stay liquid? Then I better invest in BTSX for 10000% prospective yield... Wait, at least until we have enough depth and become established, well known and trusted bank, there is a substantial risk that pegs won't always work as planned. But then Sallys need better compensation for such risk than 10% yield. Perhaps some 20-30% participation in shorts profits sounds rather fair.
I might be overlooking something, and let's say payments utility might help to increase bitUSD long holdings. But I sense that either each larger BTSX investor should be "expected" to exchange 15% of his holdings into bitAssets for the sake of their liquidity and peg stability. Or the compensation for bitAssets longs should become proportional to the risk of peg future disruption/illiquidity and opportunity cost of missing on BTSX rally. Otherwise sounds like BTSX investors looking for people who enable their prospective 10000% return for 10% yield with uncertain payback.
Note - bitAssets don't offer systematic diversification from BTSX business model risk. Yes, you can diversify short term price risk, but that doesn't create reason for critical mass of longs at all times...
So my intuition tells me that we will likely see deficit of bitAssets longs going forward... someone else concerned?
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The yield is probably less than 5% now as they're changing the way shorts compete in version 04.17 that will have the effect of increasing collateral but decreasing yield.
The good news is this change should actually create a stable tight liquid peg, like within 1% if they get the bots apparently under development running. It's actually very exciting. This was their goal from the start and I think this change should achieve it and with even more collateral backing the system. Very excited about it.
How much demand will there be in a buggy risky system at 1-1 is the question of course. 10% yield would have been more than sufficient in the short term for BitBTC, BitSLV etc. with a tight liquid peg but I think we're looking at a lot less yield than that with the new system. I would like to see them maximise fees from long term shorts to create more yield & drive BitAsset demand myself.
(On the other side of the coin when you look at something like silver it's very bulky to hold the physical commodity so your next best bet is trusting a vault, but then you pay fees when you buy and register bars, storage costs and withdrawal fees plus there's still small confiscation risk. So BitSLV with a bit of yield actually compares very favourably as a way to hold a portion of your silver investment I feel even at this stage.)
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Agree bitSLV easier to buy and hold than physical.
What probability do you see that you won't find a buyer for your bitSLV at pegged value when you need cash...?
What compensation would you expect for such a risk?
If you think the risk is close to 0, why invest in bitSLV if you can hold BTSX?
Who would then hold bitSLV if not you?
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Diversification...
Once merchants get on board (working on that) then demand for BitUSD to make purchases will be much higher... once the system is stable for a couple of months or more with a solid BitUSD peg then you can see huge demand for BitUSD..
Once on-ramps and off-ramps get easier and the yield has a solid history... watch out.
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Diversification...
Once merchants get on board (working on that) then demand for BitUSD to make purchases will be much higher... once the system is stable for a couple of months or more with a solid BitUSD peg then you can see huge demand for BitUSD..
Once on-ramps and off-ramps get easier and the yield has a solid history... watch out.
Not only watching out, Dan! Holding all my breath and looking forward! :) I would even suggest social consensus of investing 20% into bitAssets for all BTSX investors for the start phase. Yes merchants and payments utility probably the answer. Wrt. diversification I have to disagree as bitAssets don't offer systematic diversification away from BTSX, while BTSX has superior risk/return characteristics...
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Diversification...
Once merchants get on board (working on that) then demand for BitUSD to make purchases will be much higher... once the system is stable for a couple of months or more with a solid BitUSD peg then you can see huge demand for BitUSD..
Once on-ramps and off-ramps get easier and the yield has a solid history... watch out.
Not only watching out, Dan! Holding all my breath and looking forward! :) I would even suggest social consensus of investing 20% into bitAssets for all BTSX investors for the start phase. Yes merchants and payments utility probably the answer. Wrt. diversification I have to disagree as bitAssets don't offer systematic diversification away from BTSX, while BTSX has superior risk/return characteristics...
Not everyone is seeking return... many people want to diversify out of the banks with their purchasing power but don't want it exposed to the full volatility. Others just want to do business.
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Diversification...
Once merchants get on board (working on that) then demand for BitUSD to make purchases will be much higher... once the system is stable for a couple of months or more with a solid BitUSD peg then you can see huge demand for BitUSD..
Once on-ramps and off-ramps get easier and the yield has a solid history... watch out.
Not only watching out, Dan! Holding all my breath and looking forward! :) I would even suggest social consensus of investing 20% into bitAssets for all BTSX investors for the start phase. Yes merchants and payments utility probably the answer. Wrt. diversification I have to disagree as bitAssets don't offer systematic diversification away from BTSX, while BTSX has superior risk/return characteristics...
Not everyone is seeking return... many people want to diversify out of the banks with their purchasing power but don't want it exposed to the full volatility. Others just want to do business.
+5%
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Wrt. diversification I have to disagree as bitAssets don't offer systematic diversification away from BTSX, while BTSX has superior risk/return characteristics...
Yes but there will probably be some profit taking that stays within BTSX. Rather than pay to convert BTSX at an exchange and then pay again to convert to fiat and then incur all the fees I listed above regards moving into silver, I'll find it much more worthwhile to go long BitSLV with some of my profit taking even though it will still have BTSX failure risk.
Not that I've actually properly shorted in practice yet, but in theory I should also be able to say short BitUSD with some of my BTSX while going long say BitSLV with another portion and keep the same overall exposure to BTSX at a time like this when I think the chance of BTSX falling a lot from this CAP is low.
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Seems that even assuming zero bugs and a tight peg with huge bid/ask walls and favorable risk/reward trade off as far as systemic risk to BTSX and bitX* assets, there will still be a longish road ahead for BitsharesX
Here's why:
One cannot rule out merchants accepting bit* assets for payment in the long run, but that can only happen if/when the network effects take over, i.e. BitSharesX would need coinbase/circle or equivalents onboard for easyish connections to fiat accounts, etc etc.
I would rather NOT assume network effects in the short and medium term, not least because Bitcoin already "owns" the mindshare.
Instead, having a stable version with a tight and liquid peg and decent yield, overtime might begin a virtuous cycle of non-BTSX fans holding some of their assets in bitUSD or bitSLV which will create more visibility which will create more usage, etc etc ...
This virtuous cycle should be enough to escape kisa0145's conundrum of "why hold bitUSD at <= 10% yield when BTSX has a much much higher yield while having the same systemic risk ?", i.e. credibility should beget credibility.
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Wrt. diversification I have to disagree as bitAssets don't offer systematic diversification away from BTSX, while BTSX has superior risk/return characteristics...
Yes but there will probably be some profit taking that stays within BTSX. Rather than pay to convert BTSX at an exchange and then pay again to convert to fiat and then incur all the fees I listed above regards moving into silver, I'll find it much more worthwhile to go long BitSLV with some of my profit taking even though it will still have BTSX failure risk.
Not that I've actually properly shorted in practice yet, but in theory I should also be able to say short BitUSD with some of my BTSX while going long say BitSLV with another portion and keep the same overall exposure to BTSX at a time like this when I think the chance of BTSX falling a lot from this CAP is low.
Thanks Empirical appreciate your thoughts! The question I was pointing out to was that the guy who sells you bitSLV most likely BTSX bull and not rushing to cover. So when you decide to sell your bitSLV you need another willing buyer or you create downward pressure on bitSLV peg. Also an arbitrageur who might buy off you slightly below the peg will need a willing buyer closer to the peg. So I am just contemplating, if 5-10% yield will attract enough buyers at any time to ensure mkt depth and liquidity, given that there is likely to be strong interest in max shorting bitAssets. Hopefully as BM said there are enough diverse reasons apart from return for investing into bitSLV... or otherwise, at initial stage at least, shorts might need to share more of their profits with the longs...
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Wrt. diversification I have to disagree as bitAssets don't offer systematic diversification away from BTSX, while BTSX has superior risk/return characteristics...
Yes but there will probably be some profit taking that stays within BTSX. Rather than pay to convert BTSX at an exchange and then pay again to convert to fiat and then incur all the fees I listed above regards moving into silver, I'll find it much more worthwhile to go long BitSLV with some of my profit taking even though it will still have BTSX failure risk.
Not that I've actually properly shorted in practice yet, but in theory I should also be able to say short BitUSD with some of my BTSX while going long say BitSLV with another portion and keep the same overall exposure to BTSX at a time like this when I think the chance of BTSX falling a lot from this CAP is low.
Thanks Empirical appreciate your thoughts! The question I was pointing out to was that the guy who sells you bitSLV most likely BTSX bull and not rushing to cover. So when you decide to sell your bitSLV you need another willing buyer or you create downward pressure on bitSLV peg. Also an arbitrageur who might buy off you slightly below the peg will need a willing buyer closer to the peg. So I am just contemplating, if 5-10% yield will attract enough buyers at any time to ensure mkt depth and liquidity, given that there is likely to be strong interest in max shorting bitAssets. Hopefully as BM said there are enough diverse reasons apart from return for investing into bitSLV... or otherwise, at initial stage at least, shorts might need to share more of their profits with the longs...
My understanding is in the new version this won't be a problem as it makes it very attractive to market makers. (The previous version made shorts compete on fees, so market making was not profitable, however the new one makes them compete on collateral.) So there will be many people willing to sell me BitSLV by shorting at 1-1 and then many of those people will be eager to cover if I am willing to sell it at less than 1-1 so that they have the opportunity to short again and compound their returns. (Probably using bots) So I think there will be a lot of liquidity and a tight peg in the new system.
The question is how many people will want like me to buy BitSLV at 1-1 in the beginning and in so doing increase the total amount of BitAssets in circulation. We'll have to see if a lot of collateral and a tight peg is enough to attract demand.
As you mentioned there are another group of people that short but that aren't looking to cover quickly, those are the people that would still be happy to compete on fees and then we could use those fees for yield that could attract more BitAsset demand. So I would like to see that opportunity captured some way.
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Wrt. diversification I have to disagree as bitAssets don't offer systematic diversification away from BTSX, while BTSX has superior risk/return characteristics...
Yes but there will probably be some profit taking that stays within BTSX. Rather than pay to convert BTSX at an exchange and then pay again to convert to fiat and then incur all the fees I listed above regards moving into silver, I'll find it much more worthwhile to go long BitSLV with some of my profit taking even though it will still have BTSX failure risk.
Not that I've actually properly shorted in practice yet, but in theory I should also be able to say short BitUSD with some of my BTSX while going long say BitSLV with another portion and keep the same overall exposure to BTSX at a time like this when I think the chance of BTSX falling a lot from this CAP is low.
Thanks Empirical appreciate your thoughts! The question I was pointing out to was that the guy who sells you bitSLV most likely BTSX bull and not rushing to cover. So when you decide to sell your bitSLV you need another willing buyer or you create downward pressure on bitSLV peg. Also an arbitrageur who might buy off you slightly below the peg will need a willing buyer closer to the peg. So I am just contemplating, if 5-10% yield will attract enough buyers at any time to ensure mkt depth and liquidity, given that there is likely to be strong interest in max shorting bitAssets. Hopefully as BM said there are enough diverse reasons apart from return for investing into bitSLV... or otherwise, at initial stage at least, shorts might need to share more of their profits with the longs...
Kisa, do you really care if the buyer of the bitSLV is another human trader or just a bot which just shorted the same amount of butSLV at parity and now is willing to cover at 99.5% of the peg ?
In other words, bytemaster's bot maybe good enough to bootstrap peg credibility in the early days ?
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Alex hey - I don't care who that is, but about motivation. bot is just fine. I just care that there must be enough buyers at 100% also at times BTSX looks cheap. Otherwise bot won't be able to short at 100% and ther won't be market cap and liquidity of bitSLV. So I am trying to understand who are these buyers at 100% - they are not BTSX bulls and not bitSLV market makers...
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Alex hey - I don't care who that is, but about motivation. bot is just fine. I just care that there must be enough buyers at 100% also at times BTSX looks cheap. Otherwise bot won't be able to short at 100% and ther won't be market cap and liquidity of bitSLV. So I am trying to understand who are these buyers at 100% - they are not BTSX bulls and not bitSLV market makers...
The buyers at 100% are the people that want to hold some value as SLV. If there are none there won't be any bitSLV in existence. Seems like you're saying it's bad if there aren't bitSLV in circulation, but why? There's shouldn't be any unless someone wants to hold SLV over BTSX.
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Alex hey - I don't care who that is, but about motivation. bot is just fine. I just care that there must be enough buyers at 100% also at times BTSX looks cheap. Otherwise bot won't be able to short at 100% and ther won't be market cap and liquidity of bitSLV. So I am trying to understand who are these buyers at 100% - they are not BTSX bulls and not bitSLV market makers...
The buyers at 100% are the people that want to hold some value as SLV. If there are none there won't be any bitSLV in existence. Seems like you're saying it's bad if there aren't bitSLV in circulation, but why? There's shouldn't be any unless someone wants to hold SLV over BTSX.
If there is no bitSLV in circulation, then where BTSX trading fees are coming from? ^^
We need large market cap, actively traded bitAssets for BTSX to be profitable..
Btw. can the 2 x amount of BTSX collateral for shorts be easily changed to less in the future if BTSX value stabilizes?
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Alex hey - I don't care who that is, but about motivation. bot is just fine. I just care that there must be enough buyers at 100% also at times BTSX looks cheap. Otherwise bot won't be able to short at 100% and ther won't be market cap and liquidity of bitSLV. So I am trying to understand who are these buyers at 100% - they are not BTSX bulls and not bitSLV market makers...
The buyers at 100% are the people that want to hold some value as SLV. If there are none there won't be any bitSLV in existence. Seems like you're saying it's bad if there aren't bitSLV in circulation, but why? There's shouldn't be any unless someone wants to hold SLV over BTSX.
If there is no bitSLV in circulation, then where BTSX trading fees are coming from? ^^
We need actively traded bitAssets...
Fees from bitasset trading go into yield, not BTSX income. Though I suppose this could change if the yield is "too high".
Also, if you increase the yield, you are encouraging people to sit on their assets, not trade them. But I guess this is fine, that's what drives BTSX demand as it has to be locked up in collateral when people are sitting on the bitasset.
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So what you really want is to encourage people to use this platform to trade, that's how both BTSX and bitasset holders make money.
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Alex hey - I don't care who that is, but about motivation. bot is just fine. I just care that there must be enough buyers at 100% also at times BTSX looks cheap. Otherwise bot won't be able to short at 100% and ther won't be market cap and liquidity of bitSLV. So I am trying to understand who are these buyers at 100% - they are not BTSX bulls and not bitSLV market makers...
The buyers at 100% are the people that want to hold some value as SLV. If there are none there won't be any bitSLV in existence. Seems like you're saying it's bad if there aren't bitSLV in circulation, but why? There's shouldn't be any unless someone wants to hold SLV over BTSX.
If there is no bitSLV in circulation, then where BTSX trading fees are coming from? ^^
We need actively traded bitAssets...
Fees from bitasset trading go into yield, not BTSX income. Though I suppose this could change if the yield is "too high".
Also, if you increase the yield, you are encouraging people to sit on their assets, not trade them. But I guess this is fine, that's what drives BTSX demand as it has to be locked up in collateral when people are sitting on the bitasset.
If having enough liquidity close to the peg does work without increase in yield, and so we get bitAssets issuance to 15-20% of BTSX market cap, then I am more than happy to own BTSX and thankful big time to people who buy bitAssets. :)
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Alex hey - I don't care who that is, but about motivation. bot is just fine. I just care that there must be enough buyers at 100% also at times BTSX looks cheap. Otherwise bot won't be able to short at 100% and ther won't be market cap and liquidity of bitSLV. So I am trying to understand who are these buyers at 100% - they are not BTSX bulls and not bitSLV market makers...
The buyers at 100% are the people that want to hold some value as SLV. If there are none there won't be any bitSLV in existence. Seems like you're saying it's bad if there aren't bitSLV in circulation, but why? There's shouldn't be any unless someone wants to hold SLV over BTSX.
If there is no bitSLV in circulation, then where BTSX trading fees are coming from? ^^
We need actively traded bitAssets...
Fees from bitasset trading go into yield, not BTSX income. Though I suppose this could change if the yield is "too high".
Also, if you increase the yield, you are encouraging people to sit on their assets, not trade them. But I guess this is fine, that's what drives BTSX demand as it has to be locked up in collateral when people are sitting on the bitasset.
If having enough liquidity close to the peg does work without increase in yield, and so we get bitAssets issuance to 15-20% of BTSX market cap, then I am more than happy to own BTSX and thankful big time to people who buy bitAssets. :)
The BTSX market cap is a running target... :) do not expect your %s to be achieved overnight... maybe when BTSX gets to $100 a piece