Are we going to be the first, bitAPPLE (article)

[cylonmaker2053]

There is the stock split too.   It is actually a real challenge/expense to get the detailed dividend and split data required without having rounding errors (which compound over time) or violating someone's terms of service.   It is as if we have the new technology and that it is better if we support companies that upgrade.

Yes, in principle bitAssets should allow for ALL possible corporate actions such as dividends, bonus issues, buybacks, takeovers and share splitting.
The impact of any of these should be a fair adjustment to asset value and obligation of shorts.

There are two ways I can think of to do this in the case of stocks:

i) Replicate the corporate actions for owners of bitAssets. That would involve making distributions from the collateral pool for dividends, splitting the number of bitAssets for stock splits etc. I think to work out all these adjustments, while possible, would be very difficult to implement.

ii) Define a bitAsset as representing a varying number of shares. Then the fair value of the bitAsset can be adjusted over time to reflect all of these events. For example, a dividend would result in an increase in the underlying number of shares represented, essentially assuming reinvestment. A stock split would simply represent a change to the number of underlying shares.

I prefer (ii), at least initially, because I think it is a lot easier to deal with. There are no additional mechanics required for implementation of bitAssets, apart from the flexibility to define fair value as a function of stock price that depends on an adjusted number of shares over time.

the more we flush out this theoretical asset, the more i'm starting to think it's maybe too problematic to worry about, the possible rewards not worth the headache; especially since we have so many possible billions of dollars of capital flows from the simple pegged products, like bitUSD, bitCNY, bitEUR, bitBRENT, bitGOLD, bitSILVER, etc. mimicking corporate equity, which means trying to account for all the possible decision permutations management could make, seems like a mess when we're sitting on a gold mine in possible value with our current products. by no means is this impossible--maybe something to keep flushing out for 3.0--but i sure hope our devs don't divert any brain power or labor hours at this point.

[starspirit]

There is the stock split too.   It is actually a real challenge/expense to get the detailed dividend and split data required without having rounding errors (which compound over time) or violating someone's terms of service.   It is as if we have the new technology and that it is better if we support companies that upgrade.

Yes, in principle bitAssets should allow for ALL possible corporate actions such as dividends, bonus issues, buybacks, takeovers and share splitting.
The impact of any of these should be a fair adjustment to asset value and obligation of shorts.

There are two ways I can think of to do this in the case of stocks:

i) Replicate the corporate actions for owners of bitAssets. That would involve making distributions from the collateral pool for dividends, splitting the number of bitAssets for stock splits etc. I think to work out all these adjustments, while possible, would be very difficult to implement.

ii) Define a bitAsset as representing a varying number of shares. Then the fair value of the bitAsset can be adjusted over time to reflect all of these events. For example, a dividend would result in an increase in the underlying number of shares represented, essentially assuming reinvestment. A stock split would simply represent a change to the number of underlying shares.

I prefer (ii), at least initially, because I think it is a lot easier to deal with. There are no additional mechanics required for implementation of bitAssets, apart from the flexibility to define fair value as a function of stock price that depends on an adjusted number of shares over time.

[jamesc]

There is the stock split too.   It is actually a real challenge/expense to get the detailed dividend and split data required without having rounding errors (which compound over time) or violating someone's terms of service.   It is as if we have the new technology and that it is better if we support companies that upgrade.

[lil_jay890]

Yes how do I avoid Reporting within the bitshares/ Bitcoin/ crypto/ network?  Let's  just keep it at that for now . We wouldn't want others to commit these tax breaches

As I see it now you could keep trading back and forth.  Lets say you grow your account value 10% or 20%, I don't think you would have to report that until you cashed out into fiat or purchased a good or service with your bitAssets.

[Bitcoinfan]

Yes how do I avoid Reporting within the bitshares/ Bitcoin/ crypto/ network?  Let's  just keep it at that for now . We wouldn't want others to commit these tax breaches

[lil_jay890]

MPAs are like derivatives on the underlying asset. They are not required to distribute a dividend like the underlying asset does. However, their valuation would need to reflect the value of any dividends received, otherwise the MPA is a provably inferior investment to owning the underlying asset outright (*). This may not matter as much for low dividend growth stocks, but is significant for higher dividend stocks.

Even on a dividend discount model, the price only ever reflects the valuation of future dividends. At the exact point a stock goes ex-dividend, its price falls (in theory by the value of the dividend). Apple stock holders do not lose value, because they receive the actual dividend. bitAPPLE holders would lose value, if they received no distribution, and the price was defined as the stock price. They can be compensated for this if the price is defined as an accumulation price (i.e. with dividends reinvested), rather than the actual stock price.
As an aside, I would like exactly this sort of flexibility to exist in Smartcoins 2.0, which I have discussed previously.

[**** footnote on why the MPA would be inferior and either price below par, or if forced to par by settlement rules, lack demand.]

(*) If the Apple MPA only ever reflected the price of Apple stock, and never distributed dividends, any user could get paid the dividend stream for free without any price risk. They would do this as follows.

(i) Deposit $250 worth of BTS as collateral to self-create a long and short on bitAPPLE, and sell the bitAPPLE for $125. On this leg, you are short the APPLE price.
(ii) Use the proceeds of your bitAPPLE sale to buy an Apple share for $125. On this leg, you are long the APPLE price, plus long the dividend stream.

In theory the market would be willing to accept a much lower price on bitAPPLE.

I argue that MPA apple is an inferior investment to actual apple stock.  I've made the argument that the stock price is priced w/ dividend annoucements.  MPA Apple also does not have to pay capital gains tax and income tax which can be ranging from 25% - 40% markdown from the sale price of the stock.  MPA Apple is therefore much more superior  even though it doesn't give out dividends.

You would still have to pay capital gains tax on anything you make within the bitshares system... You could try to avoid it, but I think the IRS would see it as capital gains.

[Bitcoinfan]

MPAs are like derivatives on the underlying asset. They are not required to distribute a dividend like the underlying asset does. However, their valuation would need to reflect the value of any dividends received, otherwise the MPA is a provably inferior investment to owning the underlying asset outright (*). This may not matter as much for low dividend growth stocks, but is significant for higher dividend stocks.

Even on a dividend discount model, the price only ever reflects the valuation of future dividends. At the exact point a stock goes ex-dividend, its price falls (in theory by the value of the dividend). Apple stock holders do not lose value, because they receive the actual dividend. bitAPPLE holders would lose value, if they received no distribution, and the price was defined as the stock price. They can be compensated for this if the price is defined as an accumulation price (i.e. with dividends reinvested), rather than the actual stock price.
As an aside, I would like exactly this sort of flexibility to exist in Smartcoins 2.0, which I have discussed previously.

[**** footnote on why the MPA would be inferior and either price below par, or if forced to par by settlement rules, lack demand.]

(*) If the Apple MPA only ever reflected the price of Apple stock, and never distributed dividends, any user could get paid the dividend stream for free without any price risk. They would do this as follows.

(i) Deposit $250 worth of BTS as collateral to self-create a long and short on bitAPPLE, and sell the bitAPPLE for $125. On this leg, you are short the APPLE price.
(ii) Use the proceeds of your bitAPPLE sale to buy an Apple share for $125. On this leg, you are long the APPLE price, plus long the dividend stream.

In theory the market would be willing to accept a much lower price on bitAPPLE.

I argue that MPA apple is an inferior investment to actual apple stock.  I've made the argument that the stock price is priced w/ dividend annoucements.  MPA Apple also does not have to pay capital gains tax and income tax which can be ranging from 25% - 40% markdown from the sale price of the stock.  MPA Apple is therefore much more superior  even though it doesn't give out dividends. 

[Bitcoinfan]

Not the solution your looking for but: The MPA owner could sell right before dividend disbursement date and then purchase afterwards when the stock price is lower from distributing dividends.  Therefore It would have the same effect. The gains in the transaction will equal the dividend. 

[MrJeans]

MPAs are like derivatives on the underlying asset. They are not required to distribute a dividend like the underlying asset does. However, their valuation would need to reflect the value of any dividends received, otherwise the MPA is a provably inferior investment to owning the underlying asset outright (*). This may not matter as much for low dividend growth stocks, but is significant for higher dividend stocks.

Even on a dividend discount model, the price only ever reflects the valuation of future dividends. At the exact point a stock goes ex-dividend, its price falls (in theory by the value of the dividend). Apple stock holders do not lose value, because they receive the actual dividend. bitAPPLE holders would lose value, if they received no distribution, and the price was defined as the stock price. They can be compensated for this if the price is defined as an accumulation price (i.e. with dividends reinvested), rather than the actual stock price.
As an aside, I would like exactly this sort of flexibility to exist in Smartcoins 2.0, which I have discussed previously.

[**** footnote on why the MPA would be inferior and either price below par, or if forced to par by settlement rules, lack demand.]

(*) If the Apple MPA only ever reflected the price of Apple stock, and never distributed dividends, any user could get paid the dividend stream for free without any price risk. They would do this as follows.

(i) Deposit $250 worth of BTS as collateral to self-create a long and short on bitAPPLE, and sell the bitAPPLE for $125. On this leg, you are short the APPLE price.
(ii) Use the proceeds of your bitAPPLE sale to buy an Apple share for $125. On this leg, you are long the APPLE price, plus long the dividend stream.

In theory the market would be willing to accept a much lower price on bitAPPLE.

Good summary.
We need to find some kind of solution for dividend paying stocks.
We could always launch MPAs without dividends and see what happens. But from an investment point of view it would put anyone who buys bitAAPL at a financial disadvantage to people buying AAPL. But who knows what would happen. Only one way to find out...

[starspirit]

MPAs are like derivatives on the underlying asset. They are not required to distribute a dividend like the underlying asset does. However, their valuation would need to reflect the value of any dividends received, otherwise the MPA is a provably inferior investment to owning the underlying asset outright (*). This may not matter as much for low dividend growth stocks, but is significant for higher dividend stocks.

Even on a dividend discount model, the price only ever reflects the valuation of future dividends. At the exact point a stock goes ex-dividend, its price falls (in theory by the value of the dividend). Apple stock holders do not lose value, because they receive the actual dividend. bitAPPLE holders would lose value, if they received no distribution, and the price was defined as the stock price. They can be compensated for this if the price is defined as an accumulation price (i.e. with dividends reinvested), rather than the actual stock price.
As an aside, I would like exactly this sort of flexibility to exist in Smartcoins 2.0, which I have discussed previously.

[**** footnote on why the MPA would be inferior and either price below par, or if forced to par by settlement rules, lack demand.]

(*) If the Apple MPA only ever reflected the price of Apple stock, and never distributed dividends, any user could get paid the dividend stream for free without any price risk. They would do this as follows.

(i) Deposit $250 worth of BTS as collateral to self-create a long and short on bitAPPLE, and sell the bitAPPLE for $125. On this leg, you are short the APPLE price.
(ii) Use the proceeds of your bitAPPLE sale to buy an Apple share for $125. On this leg, you are long the APPLE price, plus long the dividend stream.

In theory the market would be willing to accept a much lower price on bitAPPLE.

[Bitcoinfan]

To me this discussion is groundless since there is a generally misunderstanding of how markets work.  There is no need at all to pay out dividends, since based on years of academic research, the stock price should already reflect that in its value.  Why else do you think a company has a stock price?  Because we're betting on the amount another seller will sell it for (eg. orginal bitshares molymorphic digital asset).  No.  its because shareholders have a stake of the profits from dividends.  Therefore the price reflects dividends.  This is the onereason why molymorphic digital assets did not work-- since there was no stake in profits, no causal relationship to the companies financial performance, the system was pegging based on inferences of what other people would buy or sell based on the agreement of name and what the asset possibly represents. 

The dividend discount model (DDM) is a method of valuing a company's stock price based on the theory that its stock is worth the sum of all of its future dividend payments, discounted back to their present value.[1] In other words, it is used to value stocks based on the net present value of the future dividends. The equation most widely used is called the Gordon growth model. It is named after Myron J. Gordon of the University of Toronto, who originally published it along with Eli Shapiro in 1956 and made reference to it in 1959.[2][3] Their work borrowed heavily from the theoretical and mathematical ideas found in John Burr Williams 1938 book "The Theory of Investment Value."

https://en.wikipedia.org/wiki/Dividend_discount_model

Ya we know this.
But if you discounting future dividends you need to get those dividends.
If you dont get those dividends you cant discount it.
Its like saying you should value a goose that represents a gold-egg-laying-goose at the same value given to a gold-egg-laying-goose even if your goose doesnt lay any golden eggs.
I would personally pay more for a goose that lays golden eggs than for one that does not.

So MPA should trade at a discount to actual stock price.
MPA value = real world stock price - discounted future dividends

The issue is that when you use the perpetuity model for stock valuation you end up with a zero value for dividend paying stocks if you remove the dividends.
But then again, models are always a bit funny.

This is really complicating things.  From what I gather if a stock gives the same dividend rate in perpetuity, then the stock price will not change.  It will have greater than a zero value.  Remember the stock price is relative to other growth rates of stocks around the market.  So you could say paying out in dividend might make you richer in quantity, but does it make you richer in terms of overall market value?  Not really. 

Its possible we're talking pass each other.  But again I'd reiterate, you don't need to mess with giving out or pegging to include a dividend.  Once a stock dividend is announced, the stock price will reflect all information available about the dividend disbursements, including how much, when, and what it is discounted at.  Cause markets are efficient, it can be considered, at that point in time, the most probably event/ occurrence of the future. 

[cylonmaker2053]

yes, exactly...no need to complicate things, or to take actions that'd diverge the price of the pegged asset to the underlying.

Haha I think Bitshares has already complicated things in a beautiful way.
Its exhausting trying to explain Bitshares to people in finance.

[/quote]

yes, for sure we're adding a beautiful new chapter to the story of finance! i hope to be one of the first academics to document it

[cylonmaker2053]

To me this discussion is groundless since there is a generally misunderstanding of how markets work.  There is no need at all to pay out dividends, since based on years of academic research, the stock price should already reflect that in its value.  Why else do you think a company has a stock price?  Because we're betting on the amount another seller will sell it for (eg. orginal bitshares molymorphic digital asset).  No.  its because shareholders have a stake of the profits from dividends.  Therefore the price reflects dividends.  This is the onereason why molymorphic digital assets did not work-- since there was no stake in profits, no causal relationship to the companies financial performance, the system was pegging based on inferences of what other people would buy or sell based on the agreement of name and what the asset possibly represents. 

The dividend discount model (DDM) is a method of valuing a company's stock price based on the theory that its stock is worth the sum of all of its future dividend payments, discounted back to their present value.[1] In other words, it is used to value stocks based on the net present value of the future dividends. The equation most widely used is called the Gordon growth model. It is named after Myron J. Gordon of the University of Toronto, who originally published it along with Eli Shapiro in 1956 and made reference to it in 1959.[2][3] Their work borrowed heavily from the theoretical and mathematical ideas found in John Burr Williams 1938 book "The Theory of Investment Value."

https://en.wikipedia.org/wiki/Dividend_discount_model

Ya we know this.
But if you discounting future dividends you need to get those dividends.
If you dont get those dividends you cant discount it.
Its like saying you should value a goose that represents a gold-egg-laying-goose at the same value given to a gold-egg-laying-goose even if your goose doesnt lay any golden eggs.
I would personally pay more for a goose that lays golden eggs than for one that does not.

So MPA should trade at a discount to actual stock price.
MPA value = real world stock price - discounted future dividends

The issue is that when you use the perpetuity model for stock valuation you end up with a zero value for dividend paying stocks if you remove the dividends.
But then again, models are always a bit funny.

lol yes i agree completely ...which is why my point is that we're not trying to replicate the economic characteristics of owning corporate equity, particularly bc we have no legal claims on ownership and firm profits...all we're doing is pegging a price to our synthetic asset.

models...yes, they are funny

[MrJeans]

As long as you are happy for bitAPPLE to represent a number of Apple shares that grows over time, you can always define the exposure as as accumulation index that assumes any dividends are reinvested. Price feeds would need to adjust accordingly. This would mean no dividends are required to be distributed.

that's also a good approach

Would make for complicated analysis for uploading feeds and investors would never be able to compare traditional price to Bitshares price.

How about the dividends is distributed by the network creating new tokens of that MPA equal to the amount of dividends needed in proportion to the market cap of the MPA. The new tokens would then be distributed proportionally.

This means everyone gets some dividends which they can trade for bitUSD. Share price stays same as traditional price.

Problem is the dividend tokens are not-collateralize   

Also, still want to know if it is possible to share drop some bitUSD (as dividends) on everyone who owns a certain UIA. Anyone know?

this is a good discussion, but we may be overcomplicating things. a bitAPPL could simply use the stock price feed and that's that...no fancy add-ons to mimic share ownership. we're creating pegged assets, not actual share ownership in corporate equity, so i don't see a need to go beyond simply pulling in the stock price feed and calling it a day.

I agree with what you say here. Personally I can't see a way of representing the dividends of normal stocks using MPA. Dividends are part of the profit from that company, and since we're only trying to peg an asset to its real market value, how could it be possible to distribute dividends? Where would that added value come from? And adding the cumulative value of the dividends to the stock price would only increase the difference between the feed and the MPA value, which will make it very difficult to evaluate in the future.

Unless someone comes up with a very clever way to create and distribute dividends using MPA, I don't see this as easily feasible.

yes, exactly...no need to complicate things, or to take actions that'd diverge the price of the pegged asset to the underlying.

Haha I think Bitshares has already complicated things in a beautiful way.
Its exhausting trying to explain Bitshares to people in finance.

[cylonmaker2053]

To me this discussion is groundless since there is a generally misunderstanding of how markets work.  There is no need at all to pay out dividends, since based on years of academic research, the stock price should already reflect that in its value.  Why else do you think a company has a stock price?  Because we're betting on the amount another seller will sell it for (eg. orginal bitshares molymorphic digital asset).  No.  its because shareholders have a stake of the profits from dividends.  Therefore the price reflects dividends.  This is the onereason why molymorphic digital assets did not work-- since there was no stake in profits, no causal relationship to the companies financial performance, the system was pegging based on inferences of what other people would buy or sell based on the agreement of name and what the asset possibly represents. 

The dividend discount model (DDM) is a method of valuing a company's stock price based on the theory that its stock is worth the sum of all of its future dividend payments, discounted back to their present value.[1] In other words, it is used to value stocks based on the net present value of the future dividends. The equation most widely used is called the Gordon growth model. It is named after Myron J. Gordon of the University of Toronto, who originally published it along with Eli Shapiro in 1956 and made reference to it in 1959.[2][3] Their work borrowed heavily from the theoretical and mathematical ideas found in John Burr Williams 1938 book "The Theory of Investment Value."

https://en.wikipedia.org/wiki/Dividend_discount_model

yeah and going back to basic requirements....what are we trying to do with pegged assets? are we merely setting a price peg around which our synthetic assets oscillate, or are we trying to replicate the economic characteristics of owning corporate equity? of course, the answer is the former (at least for what we've been describing as market-pegged assets), so there's no need to complicate things further.