I am looking for an standard open source license that prohibits distribution of modifications to the code except as separate "patch files" that must be applied by the user *after* they have received the code. 

Ideally it would also prohibit distributing binaries of modified code.

Chronos is joining our team has a developer working on the user interface in the wallet.   We would like to set up a 100% delegate on his behalf.  I am looking for someone who can run his delegate for 5% and then pay him 95% every 2 weeks.   

I would like to get this delegate set up and voted in as soon as possible.  Any volunteers for running this delegate?

Someone proposed this idea to me and I wanted to present it for general discussion:

1.  Assume a worker was elected and had a fixed daily budget
2.  Assume the worker used their daily budget to pay people to lock up their funds for 1 year.
3.  Assume the worker prioritized users by who was willing to lock up the most funds for the least reward

Under such a system, funds are taken out of circulation increasing the price in the short term.  Everyone who is a long-term holder should be competing to lock up their funds leaving only those who value liquidity more than the reward holding the liquid coins.   

In general this should lock up 10 to 20x more funds than it would release via dilution and if the program is "maintained" would certainly reduce the liquid supply for many years.   In effect, it could more than counter all dilution for at least 1 year after the program is voted out.

The key points are this:
1. No extra dilution
2. Everything shareholder approved

Those that lose under this program are those who "hold for years" but don't participate.   Everyone else benefits.   In other words, those who "might want liquidity but never use their liquidity" end up slightly diluted after many years.

Anyway, I just wanted to remind everyone of the policy of all such spending being subject to shareholder approval and that I am committed to not increasing the dilution rate or long term supply.  Merely trying to give us tools to empower you all.   

Feedback appreciated.

In this post I introduced some economic analysis: https://bitsharestalk.org/index.php/topic,16127.0.html

It has been nicely summed up by Thom.

• Buying 1 BitUSD should always be the most cost effective means to purchase BTS
• USD : BitUSD market price + BitUSD : BTS market price should be factored into the BTS : USD price feed
• It is far better for price feeds to error in the favor of BitUSD holders than in the favor of shorts
• Cashing out of BTS should be done more efficiently (for USD through other channels) than using BitUSD
• Creating BitUSD will *should* always cost more than $1.00
• BitUSD will initially be created by individuals who want to stay in a crypto currency but wish to have a price floor.

Two which the main critiques were:

1. An assumption that BitAssets 2.0 depends upon USD/BitUSD gateways  (false assumption)
2. I didn't say *how* to achieve all of the *shoulds*
3. I need to be laser focused and this whole discussion is a distraction and BitAssets 1.0 is "just fine".

Now I would like to respond:

BTA 2.0 approach does not depend upon USD/BitUSD gateways, it merely indicates that if there was a market between BitUSD and IOU USD that it should trade at 1.00 or greater at all times assuming the IOU was from a reliable source.    If we assume that there is an IOU USD issuer on the blockchain, that means that traders have two ways to get into BTS:  Buy BitUSD and Sell for BTS and Buy BTS directly with their USD.   Both markets would occur on the blockchain.    Given the existence of both markets and our target of making sure that BitUSD is always worth *AT LEAST* $1.00 then buying BitUSD for $1.00 should always be a win (or at least equal) if your goal is to buy BTS. 

Lets assume that the on chain IOU USD vs BTS market was very liquid and its 1hr moving average was used as the price feed.  What incentive would someone with USD have to buy BitUSD first?   

1.  They must pay IOU USD Trading Fees Either Way
2.  They must pay BitUSD trading fees *if* they go through BitUSD
3.  Going through BitUSD allows them to "buy" without slippage if they buy in large quantities
4.  They are free from counter party risk while trading.

Based upon these points the following things would result in me just buying BTS directly with USD rather than buying BitUSD first.
1.  High trading fees for BitUSD would make two hops more expensive
2.  A lag/time delay
3.  I can get more BTS via IOU USD than via BitUSD

Based upon this analysis I would do the following:

1. 0% fee for forced liquidation
2. As short as possible, I think instant forced settlement at the feed is the way to go.
3. Allow all BitUSD to be force liquidated at the feed at any time.
4. very low trading fees for BitUSD assets

What these rules would imply for the BitUSD shorts:
1. Don't sell below the feed.
2. Don't sell within the error range of the feed
3. Maintain high collateral at all times to minimize risk of being called.
4. There is an implicit "no shorting below the feed" rule.
5. Shorts may have to sell above the feed, but they also have to cover above the feed thus the position is USD neutral
6. In addition to USD price change risk, shorts also face premium change risk that could go for or against them. 

What these rules would imply for BitUSD longs:
1. To buy the first BitUSD requires you to pay to cover the shorts risks... a premium equal to the feed error / other factors
2. You can likely sell your BitUSD for a similar premium thus you are still protected from volatility and the "premium" doesn't matter to traders/hedgers.   
3. You can easily sell your BitUSD for USD at 1:1 to someone looking to buy BTS (they profit by the premium on internal market).
4. You would almost never request forced settlement because you would end up forfeiting the premium. 

What these rules would imply for the Price Feed:
1. The less error it has the lower the premium on the internal market.
2. Shorts carry 99% of the price-feed risk, shorts can be forced to cover at the feed.
3. Longs carry ~0% of the price feed risk, if the feed is manipulated too low they can just refuse to sell.

What the outside world would see:
1. BitUSD always trades for more than $1.00 worth of BTS.
2. BitUSD : IOU USD market is the most liquid / lowest spread
3. BitUSD has the lowest trading fees agains BTS
4. If I accept BitUSD as payment I know I can sell it for $1.00 (or more) worth of value.

In a bull market BitUSD is still not sold below the feed due to instant forced settlement
In a bear market the premium for creating new BitUSD goes up.

In conclusion I would like to submit that from a traders perspective BitUSD constantly trading a couple percent above USD against BTS is just as good as trading near 0% because the RELATIVE price movements are all the same.    From the perspective of merchants and everyone else you want them to know that 1 BitUSD to USD is the floor and ALWAYS a safe price to exchange at.   

Note:  What we have been calling BitAssets 3.0 I am renaming to BitAssets 2.0 for this paper because otherwise everyone outside this forum would be confused if we started talking about 3.0 when 2.0 never existed.     

BitAssets 2.0
Stable Decentralized Digital Currencies

This paper introduces a practical approach to creating a stable digital currency.  There have been many proposed strategies for “price fixing” a digital currency to a national currency or other commodity.    Historically the goal is for the asset to have a market value within a very tight tolerance of an outside asset.    This paper would like to challenge that goal and instead propose a different goal: maintain a minimum value for the asset but do not attempt to control the maximum value.
   
For the purposes of this paper BitUSD will refer to any digital crypto-currency that is intended to be worth $1.00.  BitUSD is merely an example to facilitate discussion and in general could be substituted with any other commodity or currency.   For a crypto currency token we will assume BTS, but it could just as easily be any other crypto-currency. 
When two people get together to barter goods, it is often the case that neither party knows the *exact* value of the goods they are trading.   Instead, each party considers the “minimum value” each item may have to them and uses this minimum value to set their prices.    This principle holds true for almost all merchants that accept crypto-currencies as payment for goods and services.   These merchants set their prices based upon the risk of the crypto-currency falling in value between the time they accept payment and the time they convert the payment to a stable store of value.    A customer paying for something with Bitcoin often does so at an exchange rate that is lower than what they could theoretically get if they sold instantly at an exchange.   

Each and every day people trade pennies which have $0.02 worth of copper in them as if they were only worth $0.01.   The fact that somewhere there exists someone willing to pay $0.02 for the penny does not change the fact people use it at face value.   

Attempting to construct a crypto-currency that is “pegged” to the dollar means that every merchant accepting BitUSD is willing to do so at the same ratio as they would cash.   Conversely, every customer is willing to part with their BitUSD to buy a good without feeling they were overpaying.    This is a far looser definition of a pegged currency than many people attempt to construct, but it is also a far more useful one.

Creating BitUSD
All crypto-currencies are free floating assets with a value that is constantly changing with market perception.  This is the basic building block from which a stable currency must be forged.  The systems that have been proven to work are essentially variations on a *contract for difference* (CFD) where there is sufficient collateral tied up to honor the contract.   In a contract for difference one party agrees to pay the other party an amount equal to the change in price between two assets over time.     In this way the parties can gain opposite exposure to the price movements without ever having to own the asset they are speculating on.   

BitUSD is the long position of a CFD based on the exchange rate between BTS and a US Dollar and is collateralized with BTS.   All CFD contracts need a judge and this means either a trusted price feed, an arbitration agent, or voluntary settlement between the long and short side of the contract.    BitShares provides all three of these options.   Normally longs and shorts will choose to voluntarily settle at a fair price because it is the fastest and lowest risk option; however, at any time a long (BitUSD holder) may request to have their position settled at the median of a set of trusted price feeds with sufficient delay to ensure that neither party has access to information faster than the price feed can be updated.   

The magic of BitUSD is that it makes all long positions fungible and they can be used to settle any short position.   When a forced settlement is requested it is simply matched against the least collateralized of the short positions.    Thus we can say that any individual BitUSD is at least as valuable as the long position of the least collateralized CFD.  Its value takes into consideration the risk of the collateral becoming insufficient.     Based upon this construction we can clearly see that BitUSD will meet the necessary requirement to be accepted at face value by merchants. 

The precise exchange rate between BitUSD and the underlying crypto-currency is not relevant from the perspective of the users of BitUSD (merchants and consumers).  All merchants and consumers care about is knowing that if they pay $1.00 for a BitUSD they can sell it for $1.00 in the future.    In general merchants and consumers should need little if any knowledge about the underlying crypto currency (BTS) and therefore we should presume these users will never look at the BTS/BitUSD market.   The only people who care about the BTS/BitUSD market are crypto-currency speculators, market makers, and arbitrage bots.   

To establish BitUSD as a viable USD alternative simply means minimizing the arbitrage opportunity between merchants accepting BitUSD at $1.00 and selling to speculators for slightly more than $1.00.    Most users do not want to go from BitUSD through a crypto-currency to get to USD nor do they want to go from USD through a crypto-currency to get BitUSD.   Instead BitUSD to USD becomes the market that matters and it should develop a very narrow spread as USD flows from users bank accounts to BitUSD to merchants which then sell the BitUSD back to other users.  The spreads in BitUSD to USD would be so insignificant that everyone would consider them equal. 

While the spreads between BitUSD and USD may be low, the spread between BitUSD and the backing crypto-currency could be much larger due to the high volatility of the crypto-currency.   It is economically unviable to have large buy and sell walls any where near the price feed for the same reason that selling a large quantity in any market results in slippage.  The value of a crypto-currency is far to “fuzzy” in the mind of the market for anyone to make money making the market with a very narrow spread.
The real underlying demand that drives BitUSD:USD to 1:1 is from arbitrage bots and speculators buying BitUSD first as a means to buy the BTS more cheaply than via alternative channels.    This means that buying 1 BitUSD for $1.00 should always be the most cost effective means to purchase the underlying crypto-currency, BTS.   This realization has many implications for the design goals of BitAssets 2.0.

First and foremost this means that BitUSD holders should always be able to force settle at a fair price in just about any quantity in a relatively short period of time.  A whale looking to buy BTS in bulk would get the best price possible by buying BitUSD with USD and then selling it for BTS on the internal exchange.  In a worst case they could force settle it in a large quantity and still end up buying the BTS cheaper than alternative means.

  This would put pressure on the BitUSD:USD price lifting it to $1.01 USD per BitUSD.   The USD : BitUSD market price combined with the BitUSD : BTS market price can and should be factored into the BTS : USD price feed.  Thus a whale buying up BitUSD and raising the price would also move the price feed and keep the market balanced.
If the most effective means for buying BTS is through BitUSD then it means that selling BTS for BitUSD should also be the least efficient means of cashing out.  Instead BTS should be sold for USD through other channels more efficiently than through BitUSD.   The ability to sell BTS for USD is the foundation of the value of the collateral behind BitUSD.   If the collateral received by forced settlement cannot be sold for USD of equal or greater value then the price feed was off.  If it ever becomes more efficient to cash out of BTS into USD though BitUSD then the market will sometimes push BitUSD down to $0.99 and break the floor that merchants and consumers are counting on.
From this we can conclude that it is far better for price feeds to error in the favor of BitUSD holders than in the favor of shorts.   We can also conclude that the spread on the internal market should not be of any concern so long as buying BitUSD for $1.00 remains the most cost effective means of buying BTS.

Impact on Shorts
As a result of this analysis it is clear that those shorting BitUSD into circulation must by necessity sell at price above the feed and that creating BitUSD will always cost more than $1.00.  After all if buying BitUSD with USD at 1:1 is always going to be the most efficient means of buying BTS then that means someone buying BitUSD with BTS is always going to pay more than $1.00.   Thus someone buying BitUSD from a short will have to pay more than $1.00 worth of BTS for it otherwise the BitUSD will fall to less than $1.00.

BitUSD will initially be created by individuals who want to stay in a crypto currency but wish to have a price floor.   They must sell their BTS and receive less BitUSD than they would have received by selling their BTS for real USD.    The difference will depend upon the demand from shorts looking for leverage.   For the sake of an example, lets assume that there is a bear market and thus shorts are conservative and asking for $1.05 worth of BTS per BitUSD.   This means that the first BitUSD had to pay this spread.   It also means that he could turn around and ask $1.04 worth of BTS to exit his position.  In all likely hood there would be offers to buy at 1.03.  In other words, the BitUSD / BTS market should never be expected to trade centered on the price feed, but above the feed by an amount proportional to how bearish the market is.   In other words the spread of BTS to BitUSD will depend upon willingness of shorts to borrow and ultimately the how bullish/bearish the market is.

In a BTS bull market then the premium to create BitUSD would be low, perhaps $1.01 or even $1.00.    In a BTS bear market then the premium to create BitUSD would be high, perhaps $1.10 or more.   Shorts have no way to force a BitUSD holder out of their position and thus must price in the risk of being unable to buy BitUSD cheaply to cover.    In either case the result is proper, in a bear market BitUSD becomes the cheapest way to buy BTS and thus causes new money to flow in through BitUSD and ultimately allows shorts to cover from this new money at a fair price.   

Conclusion
The rules of BitAssets need to guarantee a floor on the value of BitUSD of $1.00 and the cost of providing this floor is certainly greater than 0.   Therefore, the cost of buying BitUSD from a short and thus creating new BitUSD should always be more than $1.00.   When things are bullish for BTS then the cost of providing the floor is lower than when things are bearish.   In a bear market the BitUSD supply would contract as all new money flowing into BTS via BitUSD would be sucked up by shorts covering. 

Toast has been a great member of our team but has always been a free agent and not an employee.   He came to BTS to produce the DNS chain but that has been absorbed by BTS.

He is currently serving as a liaison to BTS Music team which was progressing largely without technical support from the core team until Toast went over to help.   I recently talked with Toast about the future for BTS Music and am gathering the requirements that they would need to launch on the BTS chain rather than their own chain.   

To my knowledge Toast is actually bringing new money into the BTS ecosystem and is still a believer in our future.   I applaud Toast for finding a way to pay his bills while still contributing to our ecosystem full time without having to sell all of his BTS.   

Toast is sending any BTS his delegates earn to the angel account and we are using those funds to keep the other developers fed. 

To Clarify:  Music is still planning their own chain and that hasn't changed.  I am merely attempting to find out what it would take to CHANGE that while still providing a win for NOTE holders.   It is possible that nothing could change that.  COB and Eddie have done said nothing and my position has long been a desire to bring them into BTS.   

BitAssets 2.0

The goal of creating a stable, highly liquid, accurate pegged crypto currency has been as elusive as it is desirable for those interested in a trust-free digital currency.   BitShares has experimented with several approaches and has devised an approach that largely works, but which is still lacking.   This paper presents a new approach to establishing a trust-free pegged crypto-currency.  In this new approach the market rules are simple and a price feed has minimal ability to impact the market.

In finance, a contract for difference (CFD) is a contract between two parties, typically described as "buyer" and "seller", stipulating that the seller will pay to the buyer the difference between the current value of an asset and its value at contract time (If the difference is negative, then the buyer pays instead to the seller). In effect CFDs are financial derivatives, that allow traders to take advantage of prices moving up (long positions) or prices moving down (short positions) on underlying financial instruments and are often used to speculate on those markets.

BitShares takes the concept of a contract for difference and applies it to a crypto-currency relative to a national currency and settles it in the crypto currency.   For the purpose of this paper we will assume a CFD between BitShares BTS and the US Dollar and call the long position BitUSD.  Normally contracts have different settlement dates backed by different collateral amounts which makes them infungible.  BitShares attempts to make all BitUSD positions fungible and thus usable as a currency. 

The challenge with this approach is that there are no expirations on the BitUSD positions which creates a situation where the two sides of the market have no means of settling at a fair price if one side of the market refuses to settle.    In order to address this concern BitShares has gone to great lengths to force all short positions to cover at a fair price every 30 days and guarantee redeemability to the BitUSD holders but BitShares has no ability to guarantee redeemability to the shorts.     In order to guarantee redeemability to the longs the market must limit the price at which new shorts can sell.  This creates an artificial barrier that is highly dependent upon a price feed in order to prevent abuse.

In an ideal world the market would operate freely and the CFD would settle all parties at a fair price once.   If we assume that short and long positions settle at a trusted price once per year, then market forces will drive the price of the long side to follow the real-time USD value without the need to publish a price all year, only a single price is needed once per year.

Unfortunately, this forced settlement would expose users of the long position to the underlying crypto-currency once per year.   To give users an option to stay in BitUSD year-round means that two parallel CFD markets would be required that settle once per year offset by 6 months.  A user that wishes to have no exposure to the underlying crypto-currency can switch which CFD market they are in every 6 months.

Minimizing Market Manipulation at Settlement
Because settlement depends upon a price feed, market participants need confidence that the settlement price will be reasonable and free from any surprises.   To achieve this the price feed must be provided by multiple sources that are unlikely to collude and it must be provided on a daily basis.   To further protect market participants from sudden price movements or changes in the behavior of the feed producers, the 30 day moving average (or median) of the price feed could be used as the settlement price.   

From the perspective of a prediction market, speculating on the future value  of a 30 day moving average is nearly identical to speculating on the exact price any time the event is more than 30 days in the future.   This means that 11 months out of the year the prediction market will track the instantaneous price changes.   During the last 30 days the market will start to have more information about the 30 days that are factored into the moving average and the price will start to converge on the moving average rather than tracking the instantaneous price.

If you assume there exist two markets offset by 6 months, then the real time price from the second market can be averaged into the price feed to further reduce the impact of any individual feed producer from attempting to manipulate the price for gain. 


Creating a Pegged Asset without Expiration

The process of rebalancing an account between two different CFD markets can be mostly automated.  A market making bot can issue a new asset without any expiration that can always be redeemed for the long position with more than 30 days until expiration.   Every 6 months this bot would rebalance its portfolio of assets.   10 months out of every year the two CFD markets should have a near 1:1 price which means that that natural spreads between the two otherwise nearly identical markets would allow the bot to convert with minimal cost.  As the issuer of an asset, the bot would be generating income from every place its asset is used in other markets.   This is a very valuable service that should easily cover the cost of rebalancing the portfolio over 5 months.   The bot could rebalance its portfolio by enabling a lower spread with no fees when converting from a longer expiration CFD to a  shorter expiration CFD.

In a flat market the 30 day moving average is above the daily price half of the time and below the daily price the other half of the time.   This means that half of the time the expiring long position will be worth more than the long position expiring 6 months later and the trading bot would have no trouble liquidating any remaining stock in the last month.   This leaves only the situation when the 30 day moving average makes the expiring position less desirable than the position 6 months away.   In this event the trading bot would be exposed to the difference between the 30 day moving average and the real time price if it was unable to migrate positions in the 5 prior months.   

Because the bot needs to mitigate risk it would be designed to offer a slowly growing discount on the earlier expiring contract.  This discount wouldn’t need to be much, likely a fraction of a percent and far below the income earned from trading commissions which would allow the bot to operate profitably. 

Protecting Margin Positions

While a price feed is not needed all year, it may be beneficial to publish a feed for the sole purpose of protecting short positions from being squeezed in a thin market.   Market purists would consider the risk of a short squeeze as motivation for having higher collateral.  Either approach may be used and should be viable. 

Conclusion

A trusted organization can create an asset that will follow the value of any price feed assuming the feed is predictable based upon public information.  This organization needs no ties to the outside financial system and can consist of members elected by the stakeholders.   In other words we can assume the two market issued assets and the user issued asset can be managed by a multi-sig account defined as the current set of elected delegates.   

The primary downside to this approach to pegging an asset is that it divides liquidity among 3 different markets rather than concentrating it within a single market.  Fortunately arbitrage between these three markets is relatively cheap and instant which will make them function nearly as one.  This is especially true if the exchange can simultaneously trade across all three markets in a single order.

I would like to take a moment to comment on the recent fall in the price of BTS.   In a word it all boils down to a very common problem in the world of startups, the cost of user acquisition is higher than our ability to monetize it under the current model.   To convey my point I would like to quote some from this blog:

http://www.forentrepreneurs.com/startup-killer/

However after closely watching several hundred startups that have failed, I observed that a very large number of these had solved the product/market fit problem, but still failed because they had not found a way to acquire customers at a low enough cost.

I would like to propose that in addition to team, product, and market, there is actually a fourth, equally important, core element of startups, which is the need for a viable business model. Business model viability, in the majority of startups, will come down to balancing two variables:

Cost to Acquire Customers (CAC)
The ability to monetize those customers, or LTV (which stands for Lifetime Value of a Customer)
Successful web businesses have long understood these metrics as they have such an easy way to measure them. However there is a lot of value in looking at these same metrics for all other businesses.

To compute the cost to acquire a customer, CAC, you would take your entire cost of sales and marketing over a given period, including salaries and other headcount related expenses, and divide it by the number of customers that you acquired in that period.  (In pure web businesses where the headcount doesn’t need to grow as customer acquisition scales, it is also very useful to look customer acquisition costs without the headcount costs.)

To compute the Lifetime Value of a Customer, LTV, you would look at the Gross Margin that you would expect to make from that customer over the lifetime of your relationship. Gross Margin should take into consideration any support, installation, and servicing costs.

As a DAC many of us assumed that if we built it they would come.   Our product solves so many problems in the crypto-currency space and leads in many ways, but it is currently failing because the cost to gain a new user is higher than we can afford with either transaction fees or dilution.    In other words the only thing that can keep this ship moving forward is additional funding and a change to the business model of the DAC that so that it can generate more revenue per user than it costs to acquire a new user.   



Fortunately for us there are many viable ways to both raise money, increase revenue per user, and lower the cost of acquisition.   None of this can happen over night, but what matters it that we are AWARE of what need to be done and are actively taking steps to change the direction of this ship.   

We have a well thought out referral program that will be game changing and that cannot be gamed.  I would like to thank Max for inspiring our solution the details of which will come out as part of a new white paper.     We will be increasing transaction fees, offering bulk discounts, and overall creating a system that will highly reward businesses and merchants that bring us customers.   

The current low price is hard to look at, but unlike other crypto-projects we are actively looking at this as a startup and adapting as necessary to find the business model that takes us to the moon.    Hang tight, invest in people and you will be ok.   I am not giving up and know that we are innovative enough to eventually succeed in this space.  It has been a learning experience, but fortunately I am a fast learner. 

In our case the cost to acquire a new user is currently well over $100, we need to find a way to fund that while lowering costs.