[Edit May 12: The ideas in this thread have now been superseded by whitepaper here: https://bitsharestalk.org/index.php/topic,15880.0.html]

**** SHORT VERSION ****

This post outlines an alternate method of creating a stable, pegged currency, that I believe may have better pegging and liquidity over the current bitAsset approach, with comparable security. As I'm not a developer/coder, I would like for others to comment on the theoretical and technical feasibility, assuming such an approach has not already been analysed in the past. The basic construction is that there is a pool of depositors on one side, that receive tradeable deposit receipts at the feed price (e.g. a BankUSD) in exchange for their BTS, and a pool of borrowers on the other side, which an agent in the middle (I'm loosely calling it a "bank") automatically matches off on each block, at the feed price, according to prioritisation rules on both sides. This negates the need for longs and shorts to meet directly in a price-negotiating market, BankUSD holders can get instant redemption at the feed price (requiring loans to be callable), and all other participants can trade at the feed price subject to some delay. Following up the initial OP idea, I further suggest how all parties may be able to always trade instantly at the feed price (removing the need for matching delays) by having borrowers share in a pool where leverage is able to fluctuate up to some maximum limit.

The OP also contains a suggestion around assets whose main purpose is trading and speculation, being to treat them more like traditional expiring derivatives, rather than requiring fungibility. The thought here is to encourage more trading activity, simpler arbitrage and better liquidity.

[Edit: Mar 29 - My thinking on the bank mechanism evolves through the thread - for example allowing standing orders at a premium or discount to the feed price, and also allowing for the alternative that such features could be incorporated into the current bitAsset market. These are working ideas moreso than a proposal at the moment, depending on feedback.]

*** LONG VERSION ***

I think there are potentially two types of bitAssets - bitCurrencies, and bitTradingAssets. For bitCurrencies, this might include any asset that could conceivably be used in exchange for goods and services, such as bitUSD, bitCNY, bitEUR, bitBTC, bitGOLD etc. For these it is important to have very consistent price-pegging, high liquidity and critically, fungibility.

However other bitAssets may be used primarily for investment and trading exposures, which I denote bitTradingAssets. Examples might be bitDOW, bitAPPL etc. Traders do not care about fungibility. However, they are still concerned with effective pegging and liquidity, and will be willing to move on price for that liquidity.

With that in mind, I think it may be worth separating the implementation approaches for these different types of assets. I wondered about the following approaches:

bitCurrencies, and a Bank

To achieve consistent price-pegging, while still allowing fungibility, one approach is fixed price redeemability (for sellers). Via arbitrage such fixed-price redeemability would flow through to strongly pegged prices and liquidity in all external markets where the bitCurrencies trade.

Rather than a bid/offer market for bitAsset/BTS, a centralised entity or agent, on the block-chain, could stand between the pool of longs and the pool of shorts to automatically mediate supply and demand, much as banks today stand between a pool of lenders (depositors) and borrowers. If we would desire deposits to be callable, then loans on the other side must also be callable. Withdrawal prices can then be fixed and immediate.

Alternative matching schema are possible, but here is one way in which transactions might be ordered by the "Bank" for each block:

- Withdrawals are first paid at the price feed from margin calls on loans, new depositors, then from loan repayments, and then from called loans. To guarantee that withdrawals are paid on demand, loans must be callable, beginning with those paying the lowest interest, or factoring in lowest collateral if system collateral is low.
- Remaining margin calls on loans, other loan repayments, and then deposits, are re-lent at the price feed to new borrowers, starting with those offering the highest interest.
- Remaining unfilled orders either side wait in the queue, and get priority in terms of age (depositors) or interest (borrowers).

Interest rates should adjust to mediate lop-sidedness in supply and demand over time, although this will not be immediate. Borrowers might also be able to voluntarily increase their current interest rate or collateral to avoid being called.

This system could be implemented with no bank equity (its merely a facilitator), but there may be some delays in time it takes for depositors, new borrowers or repaying borrowers to be filled, even if they would be prepared to pay to act more urgently. Better mediation of supply and demand might be possible if such excess payment is allowed in certain ways. In any case, it is always possible for people to make use of public markets in the bitAsset elsewhere to fill or hedge their position at an agreeable floating price if they demand more urgent liquidity.

If the bitCurrency were cheap on external exchanges, arbitragers could buy it, and instantly redeem it to make a profit. If it were expensive, arbitragers could wait in the deposit queue with their BTS, and when they receive the bitAsset, sell it externally in exchange for BTS again (or step off the deposit queue if the bitCurrency premium normalises). This should ensure external markets are closely pegged and liquid, subject to some delays that may be experienced on the bank queue.

bitTradingAssets, and a derivatives exchange

I think bitAssets are not yet meeting this need because there are problems with consistent pegging, liquidity, and high collateral requirements for traders. The Bank idea is also not good for bitTradingAssets because there may be delays in getting set when supply and demand is lop-sided, when traders may prefer liquidity, and collateral is still higher than elsewhere.

Traditional derivatives have an expiry date. Given that fungibility is not a requirement of trading assets, I suggest that bitTradingAssets could be created in a similar way, with staggered expiry dates. By having certainty around the convergence of the bitAsset price to the feed price at expiry, this would lead to simpler 2-way arbitrage, helping to keep the price in line with the feed, and tending toward zero at expiry. (The current bitAsset structure creates some practical difficulties for arbitrage). This approach would also facilitate options markets on these assets.

Since these are trading positions, rather than  long term stores of value, long term security is not as important as for bitCurrencies. Fractional deposit margining could be used, with frequent margining. Positions could be automatically closed on both sides when the pool on one side is at risk of being insufficient. In extreme black swans, there may be a partial loss on one side, but I think that risk is acceptable here.

If this approach allowed collateralisation by bitCurrencies rather than BTS, I feel it may have even wider appeal. In combination, BitShares would be able to replicate the functionality of existing centralised exchanges trading a wide range of asset types, but without the centralisation risk.

Either of the above ideas could be run under common ownership (all BTS holders) or as UIAs, with different business models and service models being possible.

A lot of things I haven't thought through though, for example price feeds, which the above is highly dependent on, still have lag and accuracy problems

The crypto-community generally espouses maximum decentralisation, and is often seen as the reaction against the growing centralisation of wealth and power in modern society. However there is a case to make for a less extreme view - that the degree of centralisation versus decentralisation needs to find a balance, and we also need to be clear about what exactly we are decentralising, and what we are centralising.

For example, take decentralised decision-making. Its clearly difficult, sometimes impossible, for coordinated decisions to be made by a large decentralised group, and to be made on a timely and effective basis. Yet often, situations call for such sharp decision-making. Especially when it comes to opportunistic or strategic situations.

Further, members of large groups do not universally have the skill or time to reflect on every group decision that might be required. Most will be inclined to delegate the decision-making on specific issues to trusted and philosophically aligned parties. This makes a more efficient system by allowing all members of the network to specialise and focus their energy on the things that are most rewarding to them.

The key property that needs to be decentralised among a stakeholder base is power. As long as stakeholders hold the keys that empower or disempower their delegated decision-makers, and these can be enacted effectively and promptly without those decision-makers usurping the process, then decision-blocs and decision-heirarchies might actually prove to be very efficient structures in society, that, rather than serving the decision-makers, serve only the stakeholders. With this stakeholder power, the decentralised network ought to be able to deconstruct and reconstruct whatever structures they desire according to their mutual effectiveness. The current delegate system with slate-votes is but an early example of this.

The power of a system to grow and dominate its competitors lies in this organic balance - decentralisation with centralisation, self-organisation with global action. Developing the organisational and stakeholder control tools that would facilitate this would make a more powerful, adaptive and enduring system.

Greece is struggling to convince its creditors that the un-payable level of debt should be recognised as such to give the economy room to breathe and grow. Unfortunately the European elites know that Greece's negotiating power is constrained by the knowledge that failure to meet the demands of the Troika would ultimately force a Greek exit from the euro, which is not really considered a palatable option even by most Greeks, given this would involve a return to the Drachma, which has a history of corruption and hyper-inflation. The people of Greece have a choice between continued bowing to the European community for a generation or more, or a return to a poor and corruptible currency.

However, crypto-currency introduces a new option - a currency that is transparent and non-corruptible. If the Drachma could potentially be re-introduced in crypto-currency form, the people of Greece could have a currency they have faith in, without the risk of high inflation. And further, if it had the property that the public had ownership of the currency system through a voting system - whereby they could for example, vote on or veto any changes to the source code that underpins the currency - the people of Greece could finally have faith in true ownership of their own currency. If such a system were actually viable today, and discussed openly among Greeks, it may give them another solid option to deal with the crisis, or at a minimum, real negotiating power with its creditors should it prefer to stay on the Euro.

How could the current situation change if the crypto-currency community designed a realistic approach that could be presented to Yanis Varoufakis, the Greek financial minister, and the Greek people? How convincing might this be to the world if it were forked and set up, ready-to-use at a moment's notice, giving it real present tangibility? Could we create the crypto-Drachma today if given the go-ahead?

Personally I think it would need to meet the following criteria, though others may think of more:

1) there would have to be strong confidence that the currency would not be excessively volatile

There should be no attempt by the central bank to peg the new currency, as this could be very naive and costly - it should be allowed to find its own equilibrium exchange rate against other currencies.  But then volatility will be a clear concern. For a start, volatility concerns discount global cryptos like bitcoin that are subject to the whims of a global speculative marketplace. At least for now, this needs to be a currency owned by Greece. If the currency were officially accepted for all wages, goods, services, debt payments and taxes in the Greek economy, its use in all transactions, combined with a known and transparent supply, ought to provide enough stability, at least as much if not better than most fiat currency today. Regardless, initial volatility for a period may be unavoidable as the currency settles to a natural level.

2) it would need to be as easy to use as Euro or any other currency today

At least in the medium term, it may be necessary to facilitate paper cash or credit transactions for most people. Perhaps this could be achieved through an independent body exchanging freely 1:1 between crypto-Drachma and cash-Drachma notes (the latter backed by the crypto-Drachma), providing 100% reserves and full public audit ability. This at least would provide options for those not comfortable with digital wallets.

3) the voting system would need to be fair and incorruptible

Though PoS voting systems usually weigh votes by stake, the preference of the people may be for one citizen one vote. Decentralized voting systems would need to accommodate this and allow for proper identification processes.

These are just some seed ideas, all of which are open to debate. So is this potentially a feasible option for Greece?

The concept of coordinated shunning, as a means of treating those that break agreements, is discussed in this post, https://bitsharestalk.org/index.php?topic=12696.0, based on this BM blogpost, http://bytemaster.bitshares.org/article/2014/12/27/The-Benefits-of-A-Contract-Free-Society/.

I feel this concept needs to be applied very carefully due to its moral implications for all parties involved. Its not clear to me at all that there is an objective answer, though I do have some views. Perhaps people may feel that the circumstances or implementation make all the difference? Views?

[Edit: Originally I had some references for thought, but as I'm not advocating any particular source I removed them. Rationalise on whatever grounds you please.]

Were we in any discussion with Bitfinex?

http://finance.yahoo.com/news/tether-introduces-real-world-currency-160000085.html

I was struggling with this conundrum, open to thoughts of others. My tentative conclusion is BTS does not earn income at all, at least in the traditional sense.

If a company earns income in USD, its underlying asset base rises due to the profit. It can then:

1) distribute this profit to share owners as cash (dividend)
2) use the cash to buy back and burn shares (effectively distributing cash while increasing the value of remaining shares) or
3) keep it retained in the business to increase the value per share.

In each case, there is a return to investors in aggregate as a result of the profit. Importantly its the profit that drives the return, not the form of distribution or re-allocation.

Without a profit, representing an accrual of value of assets held by the entity, no change to the share structure (e.g. burning shares) adds value to the group of owners as a whole. Therefore burning per se (a mere change in ownership structure after the fact of value-creation) cannot be considered income of the entity, and it does not lend any increase in valuation to the entity as a whole.

As BTS (and derivative bitAsset) transactions occur, and BTS are burned, the value per share rises, but the value of the entity does not. There has been no externally-derived value to the group as a whole that can be distributed. There has only been a transfer of value from those burning BTS through transactions to those not. Doesn't this mean that the BTS burning through transaction fees, which we often designate as "income", does not give any value to BTS at all?

This line of thinking has led me to wonder if any crypto-asset can theoretically earn profit, in the traditional sense of the word, unless shares in it represent ownership accrual in things that exist outside its own share ledger. For example, a company has a balance sheet made up of assets outside of its own shares. I think the only way this can be replicated in our ecosystem, or to create "profitable" DACs, is with a resource management system built around the required block-chain(s), that allows the use and improvement of other assets in order accrue more of them (an example is that Music is forced to manage assets (like music tracks) outside the Notes block-chain).

If there is no income, value accretion is driven solely by the increasing utility of the coin itself in use or exchange. This is also potentially a valid approach, but is not so different in approach to most other crypto-currencies in general.

Views?

End Brain-Dump.

Sorry if this has already been covered.