BitAsset 2.0 Requirements & Implied Design

[topcandle]

No, BitPay would only need to Know *their* customers and not all users of BitUSD.

[/quote]

Yeah, but since whitelisted BitUSD will be most convertable, wouldn't there be a central tendency of whitelisted BitUSD becoming more widely accepted and more transact-able?  This would follow Gresham's Law, that bad money drives out the good money.  I guess I'll save this for the Friday meetup, but I see in the end no one would use non-whitelisted BitUSD because its not accepted in most normal places and the good nonwhitelisted BitUSD would be driven out of existence?  I guess its not so bad since there still exists the option of choice.   

[sumantso]

Starspirit,
   I am not really concerned about merchants so much as payment processors.   Most merchants will not be setting up their own node on the network to accept payment directly, instead they will go through a 3rd party.    More importantly, most merchants will not *directly* accept crypto, instead they will accept USD through a service provider that hides all cryptos, including BitUSD from them.      In the case of most non-stable crypto's, the payment processors simply hide the fee in the "exchange rate". 

   So the person I am really catering to is the middle man.   

   Early adopters of crypto use it because of properties other than price.   Most "crypto-consumers" wouldn't mind paying a fee to buy something with crypto, after all they would be paying a fee to exit to fiat anyway.   

   Traders don't care about anything other than "free market pricing" and "stable rules".   For them a premium doesn't matter because it all comes out in the end.

   I reject the notion that we can establish a peg with 0 premium and 0 volatility in the premium and those seeking this perfection are seeking the impossible.   Supply and Demand are constantly changing along with market perception of the valuation of BitShares.   

  Lets take a "perfect" and "balanced" system of a simple prediction market that settles once per year at a "perfectly fair" price.    In this prediction market both sides have the exact same liquidity and expectation of profit.  Any deviations from the value of $1.00 is a profit opportunity for both parties.   

  Under such a system what is the "volatility" of the premium?   It is proportional to the holding cost until settlement combined with the demand for leverage on BTS.   I would expect a range around $1.00 that could be off by over 10% at times.    So even with guaranteed settlement at a fair price on a specific date in the future you do not get an asset that is always worth $1.00 with a stable premium.    The best we can do is get an asset that is approximately worth $1.00 and the volatility in the premium is beyond our control. 

  If the premium is persistently biased by a certain minimum amount then the market will end up adjusting prices to account for that bias.  This "constant bias" can be relatively stable and can be removed by adjusting the feed.

It seems to me you're making it lopsided so as to encourage adoption and liquidity. I feel the opposite will happen, there will be even less users and liquidity will suffer and it will again fall into the vicious cycle.

In my humble opinion the current BitAssets is fine, it only needs a few rule changes and simplifications. More importantly, it needs adoption to improve liquidity.

See you in another half a year. I hope you're proven to be correct this time, as otherwise it is difficult to see BTS surviving another bear phase. For all those who are sure this is going to further mess things up, the run up in price in anticipation of the release of the '17000 line' BTS would be a good opportunity to exit.

[bytemaster]

Starspirit,
   I am not really concerned about merchants so much as payment processors.   Most merchants will not be setting up their own node on the network to accept payment directly, instead they will go through a 3rd party.    More importantly, most merchants will not *directly* accept crypto, instead they will accept USD through a service provider that hides all cryptos, including BitUSD from them.      In the case of most non-stable crypto's, the payment processors simply hide the fee in the "exchange rate". 

   So the person I am really catering to is the middle man.   

Since these payment processors are first-in-line in accepting cypto and are targeted for regulation, are there no concerns over places like Bitpay requiring only whitelisted BitUsd in order to meet regulatory oblligations?

No, BitPay would only need to Know *their* customers and not all users of BitUSD.

[topcandle]

Starspirit,
   I am not really concerned about merchants so much as payment processors.   Most merchants will not be setting up their own node on the network to accept payment directly, instead they will go through a 3rd party.    More importantly, most merchants will not *directly* accept crypto, instead they will accept USD through a service provider that hides all cryptos, including BitUSD from them.      In the case of most non-stable crypto's, the payment processors simply hide the fee in the "exchange rate". 

   So the person I am really catering to is the middle man.   

Since these payment processors are first-in-line in accepting cypto and are targeted for regulation, are there no concerns over places like Bitpay requiring only whitelisted BitUsd in order to meet regulatory oblligations? 

[bytemaster]

Starspirit,
   I am not really concerned about merchants so much as payment processors.   Most merchants will not be setting up their own node on the network to accept payment directly, instead they will go through a 3rd party.    More importantly, most merchants will not *directly* accept crypto, instead they will accept USD through a service provider that hides all cryptos, including BitUSD from them.      In the case of most non-stable crypto's, the payment processors simply hide the fee in the "exchange rate". 

   So the person I am really catering to is the middle man.   

   Early adopters of crypto use it because of properties other than price.   Most "crypto-consumers" wouldn't mind paying a fee to buy something with crypto, after all they would be paying a fee to exit to fiat anyway.   

   Traders don't care about anything other than "free market pricing" and "stable rules".   For them a premium doesn't matter because it all comes out in the end.

   I reject the notion that we can establish a peg with 0 premium and 0 volatility in the premium and those seeking this perfection are seeking the impossible.   Supply and Demand are constantly changing along with market perception of the valuation of BitShares.   

  Lets take a "perfect" and "balanced" system of a simple prediction market that settles once per year at a "perfectly fair" price.    In this prediction market both sides have the exact same liquidity and expectation of profit.  Any deviations from the value of $1.00 is a profit opportunity for both parties.   

  Under such a system what is the "volatility" of the premium?   It is proportional to the holding cost until settlement combined with the demand for leverage on BTS.   I would expect a range around $1.00 that could be off by over 10% at times.    So even with guaranteed settlement at a fair price on a specific date in the future you do not get an asset that is always worth $1.00 with a stable premium.    The best we can do is get an asset that is approximately worth $1.00 and the volatility in the premium is beyond our control. 

  If the premium is persistently biased by a certain minimum amount then the market will end up adjusting prices to account for that bias.  This "constant bias" can be relatively stable and can be removed by adjusting the feed. 

[starspirit]

Bytemaster,

You are proposing we need a bitUSD that trades at a premium so that merchants can keep prices matched for USD and bitUSD, while effectively hiding a 6% fee on the bitUSD from the consumer. I'm perplexed why we would harm the wider utility of bitAssets to pander to a specific group accepting currencies like bitUSD. The following would help my understanding:

1. Why do merchants need a 6% fee for accepting bitUSD? Is part of it to cover the variability in the bitUSD premium? Is part of it for the relative inconvenience of dealing in bitUSD? Would this problem diminish with familiarity in the long term?

2. How would you guarantee stability in the premium, that merchants would require to maintain matched prices? In theory it could range anywhere from 0% and up. I've challenged the idea of using a variable settlement fee. If not this, what other mechanism is there?

3. If consumers have a choice between using bitUSD or USD for their purchase, why wouldn't they always choose the USD that was cheaper to obtain and replace? So wouldn't this mean in practice that consumers and merchants keep using USD for external goods and services rather than bitUSD? So is this merchant demand rather futile in the end?

4. If we have a bitUSD that constantly trades at varying premiums, might this significantly diminish its value in other use cases of bitUSD? For example,
- if bitUSD were used for margin accounts in a derivative market, users would need to try to price in the volatility of the underlying asset, as well as movements in their margin collateral
- in bond markets, users would need to try to price in movements in yield as well as movements in the value of the par value of the bond
- in crypto markets, users looking to use bitUSD as a hedge would need to factor in a view on whether the premium might rise or fall
These are just some off-the-top-of-my-head examples of things we are looking to achieve in the near future. It seems to me that the utility of a variable-premium-USD is a lot less than the utility of a parity-USD.

5. Why wouldn't it be better to have a bitUSD trading at parity, that is fair to all parties, and let the free market work out the best way for merchants, consumers and other users to price goods and services around it? If there is mutual benefit to all parties, there is always a solution, isn't there?

6. Is the preference for a premium-USD now strongly being expressed to post-rationalise the lack of a current solution to establishing a parity-USD? On the other hand, I remain highly optimistic that it is possible to have a bitUSD centred on parity, and that is my strong preference at this stage.

7. Does the proposal extend to all bitAssets that are not currencies generally used for transactional purposes? For example, gold, oil, Dow Jones, or other possible bitAssets. In those cases don't we want something as close to parity as we can get, to maximise their utility as tracking instruments?

[merivercap]

I don't pay any fee either. We usually have options of cash, CC, Net Banking. Sometimes specific CCs will even net us discounts, to the tune of 10%. Add to that the whole points getting accumulated thing.

But of course, I will blow it away for a chance to spend more. Even if I, for whatever reason, want to stay in Cryptos, there will be other USD options. It will be stupidity on my part to use BitUSD.

What BM is going ahead with might help getting more merchants, but there will be hardly any spenders. It will struggle with liquidity problems and I am already looking forward to BitAssets 3.0 in some 5-6 months with another set of promises and general sentiment 'we got an amazing product, why is everyone selling?'

I understand and agree with your perspective on spenders.  If BitUSD was designed properly it can replace the traditional cash & banking ecosystem and can outcompete: Paypal, Dwolla, Square, Stripe, Google, Apple Pay etc in a $100B/yr industry... Crypto really can be the final frontier.

We just need balance, favoring neither merchants nor consumers... in the end we are all both buyers and sellers...buyers of goods & services as well as sellers of goods & services...  there's nothing more to an economy than that. 

[sumantso]

I don't pay any fee either. We usually have options of cash, CC, Net Banking. Sometimes specific CCs will even net us discounts, to the tune of 10%. Add to that the whole points getting accumulated thing.

But of course, I will blow it away for a chance to spend more. Even if I, for whatever reason, want to stay in Cryptos, there will be other USD options. It will be stupidity on my part to use BitUSD.

What BM is going ahead with might help getting more merchants, but there will be hardly any spenders. It will struggle with liquidity problems and I am already looking forward to BitAssets 3.0 in some 5-6 months with another set of promises and general sentiment 'we got an amazing product, why is everyone selling?'

[merivercap]

If  1 bitusd is make at least 1 usd, then people will not hold bitusd.
Because they have to pay more usd to get bitusd, and then spend them like usd. People loose some money in this process.

And people pay the spread to buy BTC and then again when they spend BTC.    People pay 3% higher prices when they pay with Credit Card USD.   

The Bitcoin merchant problem is that no one spends in Bitcoin.  There are 60,000 merchants Bitpay has signed up and meager transaction volume... Most businesses don't pass along the credit card fees to the consumer.  They eat it and that's why Bitcoin is an easy sell to merchants because they want to save the 3% credit card fees.  That's why merchants readily sign up for Bitcoin despite all the headaches.   

Merchants already auto-convert to cash with highly volatile Bitcoin prices and they can do it more easily with BitUSD.  You also want merchants to keep BitUSD, pay their expenses & employees in BitUSD and start a cycle.. with the proposed design they will probably rather sell BitUSD and pay expenses and employees in USD...

NO ONE buys BitUSD just to SPEND BitUSD.   

I'd buy BitUSD to spend it... It has all the benefits of Bitcoin.  It's more convenient than cash.  There are no bank freezes, restrictions etc.  It's more convenient than spending Bitcoin, BTS or BitGold because it will have minimal volatility, but maybe I'll switch to Bitcoin/BitGold if fiat gets volatile.... 

If however, I can sell BitUSD at a premium, then I'd sell it for USD and spend that instead ... It kind of defeats the purpose.

When I was talking with companies about integrating BitUSD they always told me they need a way to "hide their fee" because no customer wants to see a 3% fee tacked on to their order.   If BitUSD was pegged to a value that was $1 +/- 3% then merchants would charge extra or have no incentive to take it and payment processors would charge a 6% fee  (3% for the spread and 3% for their fee).   

*OR* you can have BitUSD selling for $1.06 and merchants / payment processors taking it at face value of $1.00.    If you stay within the BitUSD economy then the premium is a wash.

Bitcoin merchants don't charge a 6% fee when using Bitcoin and it has higher volatility.   Merchants already get the 3% discount so it's unnecessary to give a 3% extra for volatility.. if it's $1 +/- 3% the average value will be $1 ... merchants don't want to make money off the transaction fee.. they will just want to direct consumers away from using credit cards..merchants won't have to change their pricing and will prefer BitUSD....  Again we have a consumer spending problem, not a merchant adoption problem. 

Sure if you stay within the BitUSD economy people won't sweat the difference, but a large premium will discourage people from easily exchanging cash for BitUSD.. people will opt to sell on the exchange rather than naturally trade for another on the street.. the system will probably function, but it won't be as smooth.

Anyways hopefully we get a few Privatized BitUSD with various designs to let the free market work its magic....eagerly awaiting the details.  Thanks.

[bytemaster]

If  1 bitusd is make at least 1 usd, then people will not hold bitusd.
Because they have to pay more usd to get bitusd, and then spend them like usd. People loose some money in this process.

And people pay the spread to buy BTC and then again when they spend BTC.    People pay 3% higher prices when they pay with Credit Card USD.   

NO ONE buys BitUSD just to SPEND BitUSD.   

When I was talking with companies about integrating BitUSD they always told me they need a way to "hide their fee" because no customer wants to see a 3% fee tacked on to their order.   If BitUSD was pegged to a value that was $1 +/- 3% then merchants would charge extra or have no incentive to take it and payment processors would charge a 6% fee  (3% for the spread and 3% for their fee).   

*OR* you can have BitUSD selling for $1.06 and merchants / payment processors taking it at face value of $1.00.    If you stay within the BitUSD economy then the premium is a wash.

OK..I see.
I never see this situation. In China, we do not pay extra fee when we use credit card, but even get extra dicount sometimes.
The merchant side will pay the fee to bank.

We don't see the fee either, it just shows up in higher prices.

[xiahui135]

If  1 bitusd is make at least 1 usd, then people will not hold bitusd.
Because they have to pay more usd to get bitusd, and then spend them like usd. People loose some money in this process.

And people pay the spread to buy BTC and then again when they spend BTC.    People pay 3% higher prices when they pay with Credit Card USD.   

NO ONE buys BitUSD just to SPEND BitUSD.   

When I was talking with companies about integrating BitUSD they always told me they need a way to "hide their fee" because no customer wants to see a 3% fee tacked on to their order.   If BitUSD was pegged to a value that was $1 +/- 3% then merchants would charge extra or have no incentive to take it and payment processors would charge a 6% fee  (3% for the spread and 3% for their fee).   

*OR* you can have BitUSD selling for $1.06 and merchants / payment processors taking it at face value of $1.00.    If you stay within the BitUSD economy then the premium is a wash.

OK..I see.
I never see this situation. In China, we do not pay extra fee when we use credit card, but even get extra dicount sometimes.
The merchant side will pay the fee to bank.

[bytemaster]

If  1 bitusd is make at least 1 usd, then people will not hold bitusd.
Because they have to pay more usd to get bitusd, and then spend them like usd. People loose some money in this process.

And people pay the spread to buy BTC and then again when they spend BTC.    People pay 3% higher prices when they pay with Credit Card USD.   

NO ONE buys BitUSD just to SPEND BitUSD.   

When I was talking with companies about integrating BitUSD they always told me they need a way to "hide their fee" because no customer wants to see a 3% fee tacked on to their order.   If BitUSD was pegged to a value that was $1 +/- 3% then merchants would charge extra or have no incentive to take it and payment processors would charge a 6% fee  (3% for the spread and 3% for their fee).   

*OR* you can have BitUSD selling for $1.06 and merchants / payment processors taking it at face value of $1.00.    If you stay within the BitUSD economy then the premium is a wash.   

[xiahui135]

If  1 bitusd is make at least 1 usd, then people will not hold bitusd.
Because they have to pay more usd to get bitusd, and then spend them like usd. People loose some money in this process.

[xiahui135]

If 1 bitusd equals at least 1 usd, then the longs will not sell bitusd at 1 usd.
People pay more than 1 in usd to get 1 bitusd.
This just make bitusd unpeged.

I also think the current rules is OK when modified. We just need to cancel the shorts' time limit, force bad collateraled shorts to cover at market price, and the collateral can be used to cover.

It conveniently forgets that those paying in BitUSD would rather not use it.

Any particular reason, or just an opinion?

If I had a USD, then I would want to use it before QE12 kicks in.  Why would I not want to use USD or BitUSD.  It tracks the depreciating USD:



You might want to hold your USD and keep going down with the ship, but I don't think that most people will want to hold depreciating assets (unless we give them yield).

The current BitAssets is fine, just need a few tweaks and simplification and more importantly liquidity. Keeping BitUSD within +/- 1% or less of 1 USD was the goal, don't get why the sudden lopsided plan.

We could not hold either side to within 1%, but we can hold one side tight, so we get the lopsided plan (it's the 5th law of Thermo: you can't have your cake and eat it too).  We choose the minimum side, therefore, BitUSD can always be sold at par.  You can buy BitUSD from many different places.  If you can find a deal, then good for you.  If you don't want to short BitUSD right now, then someone else will.

Looking to buy BitUSD?  Well look no further:

But I still have BitUSD for sale.

[starspirit]

I think getting merchants to accept BitUSD is doing it the hard way.

Debit cards will emerge that you can load with BitUSD and spend as ordinary USD.
Merchants won't know the difference.  They get USD and don't care about fiat counter party risk.

So BitUSD will always convert to at least a dollar when it hits your card and any surplus after the card's fees just sits on the card as a small bonus.  You only load the card with what you are going to use in the near future which is a negligible amount of counter party risk.  The rest stays safe in your BitUSD "savings account" until you need to move it to your debit card's "checking account".

Ordinary users will like that they sometimes get a small bonus when loading their card.  It will seem like yield.  Biased to be always a positive number.

Such a system would work everywhere on Day 1.

Except that the ordinary users would need to pay a premium to get the bitUSD in the first place. By this reasoning that will seem like a loss. Biased to always be a negative number. Completely negating the "yield".

I like the sound of the debit card payment concept. However for this discussion, it does not make a bitUSD premium a benefit to anybody. Might as well buy euro above parity to the USD (which it is, and perhaps we could call it premium-USD), then when you load your multi-currency card and get USD, the resulting quantity is guaranteed to be a bigger number. I don't think anybody would believe that is a yield though.