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

[Bitcoinfan]

In the real market-- since shorts are borrowing the stocks (and therefore pay interest on that) they also have to pay any dividends that are received back to the stock owner.  If you are making a statement that no one will short because it is a bad deal, then you will have to explain why there are so many shorters in the real marketplace, despite the disadvantage you perceive?

[puppies]

Please don't institute any of this.  I don't think either option i or option ii. Will work without an external infusion of funds.  These reasons have been stated previously in this thread by myself and others before they were ignored. 

puppies, if you are referring to this comment...

I am not 100% on the structure of MPA's in 2.0, and thats why I was talking about the administrator of the asset.  It really doesn't matter if that is an individual or the network as a whole though.  Unless you're suggesting dilution to pay for the dividends (which I would strongly oppose), the funds to pay the dividends would need to come from fees of some sort.  Paying dividends would necessitate reducing the profit of the network, increasing fees, or a combination of both.  I think paying dividends could be a very effective way of getting people to hold bitassets.  I hope to see lots of experiments to find the optimum level of profit for the network, and incentive to hold.  I don't think the network should take on the responsibility of matching the dividends paid out by a centralized company.  BTS holders should not be forced to pay bitAPPLE holders.

...then I wanted to clarify how this is intended to operate. Building dividends into the NAV increases the obligation against shorts, as it rightfully should. There is no need for the network, BTS holders, or anybody else to fund this. Have I understood your concern, and was that your main issue with it?

@fuzzy

Can you ask @bytemaster if he is implementing @starspirit no. 2 of bitAsset valuing in the hangout tomorrow.  And if we are still 3 months away from 2.0 if we are three months away I will start a bounty.

Thank you each individual for your contribution to this thread and for kind words.

It's up to the feed producer and has can be enabled immediately out the gate with bit shares 2.0 presuming it delivers on what it promises

You could publish the value price in the feed with all adjustments baked in.   It doesn't have to match the real price it just has to be correct and verifiable.

What you both say makes sense. As a starting point, the easiest approach is to define the "asset" as a portfolio (that is adjusted from time to time) rather than a single share, and the feed producers could supply the price of that total portfolio rather than on a single share, with the same overall feed mechanics we use today. The same process could apply to more diversified portfolio mixes as well.

The trick is to ensure all the feed producers use a consistent method and timing for adjustments. This raises a few follow-up questions in my mind -

- Should the issuer or feed producers be responsible for alterations to the portfolio composition? Does this legally expose them to having some form of control over the asset?
- How should consensus be reached, especially with new event-types that might require some discussion?
- How can quality be managed, so that valuation inconsistencies do not arise? For example, we would not want feed producers mixing post-event (adjusted) prices with a pre-event (non-adjusted) portfolio for example. This needs to be transparent and able to be filtered out, rather than relying on the median estimate to take care of this.

In the end, these might be pragmatic questions for the issuer as much as they might be questions for the BitShares protocol.

If the shorts are on the hook to match the value provided by owning an actual share, then I think you will have a hard time finding many shorts.

I would have to believe that current market price + all future dividends and splits reinvested in the stock will decline in value compared to the underlying asset. 

Unless I am very bearish on this particular stock I won't take that bet. 

It would be a great deal for the longs, but I think you would have to sweeten the pot to get many shorts involved.

[starspirit]

Please don't institute any of this.  I don't think either option i or option ii. Will work without an external infusion of funds.  These reasons have been stated previously in this thread by myself and others before they were ignored. 

puppies, if you are referring to this comment...

I am not 100% on the structure of MPA's in 2.0, and thats why I was talking about the administrator of the asset.  It really doesn't matter if that is an individual or the network as a whole though.  Unless you're suggesting dilution to pay for the dividends (which I would strongly oppose), the funds to pay the dividends would need to come from fees of some sort.  Paying dividends would necessitate reducing the profit of the network, increasing fees, or a combination of both.  I think paying dividends could be a very effective way of getting people to hold bitassets.  I hope to see lots of experiments to find the optimum level of profit for the network, and incentive to hold.  I don't think the network should take on the responsibility of matching the dividends paid out by a centralized company.  BTS holders should not be forced to pay bitAPPLE holders.

...then I wanted to clarify how this is intended to operate. Building dividends into the NAV increases the obligation against shorts, as it rightfully should. There is no need for the network, BTS holders, or anybody else to fund this. Have I understood your concern, and was that your main issue with it?

@fuzzy

Can you ask @bytemaster if he is implementing @starspirit no. 2 of bitAsset valuing in the hangout tomorrow.  And if we are still 3 months away from 2.0 if we are three months away I will start a bounty.

Thank you each individual for your contribution to this thread and for kind words.

It's up to the feed producer and has can be enabled immediately out the gate with bit shares 2.0 presuming it delivers on what it promises

You could publish the value price in the feed with all adjustments baked in.   It doesn't have to match the real price it just has to be correct and verifiable.

What you both say makes sense. As a starting point, the easiest approach is to define the "asset" as a portfolio (that is adjusted from time to time) rather than a single share, and the feed producers could supply the price of that total portfolio rather than on a single share, with the same overall feed mechanics we use today. The same process could apply to more diversified portfolio mixes as well.

The trick is to ensure all the feed producers use a consistent method and timing for adjustments. This raises a few follow-up questions in my mind -

- Should the issuer or feed producers be responsible for alterations to the portfolio composition? Does this legally expose them to having some form of control over the asset?
- How should consensus be reached, especially with new event-types that might require some discussion?
- How can quality be managed, so that valuation inconsistencies do not arise? For example, we would not want feed producers mixing post-event (adjusted) prices with a pre-event (non-adjusted) portfolio for example. This needs to be transparent and able to be filtered out, rather than relying on the median estimate to take care of this.

In the end, these might be pragmatic questions for the issuer as much as they might be questions for the BitShares protocol.

[eagleeye]

Please don't institute any of this.  I don't think either option i or option ii. Will work without an external infusion of funds.  These reasons have been stated previously in this thread by myself and others before they were ignored.

How much external fusion are you getting at?

We need the developers to chime in @monsterer , @xeroc , @alt and @wackou

We need to know which way these other giants think as well.

[jamesc]

Next issues are front running (you pay more for feeds that are closer to real time). 

Also pricing errors (even happens to MSN), transactions are not reversible.

[jamesc]

@fuzzy

Can you ask @bytemaster if he is implementing @starspirit no. 2 of bitAsset valuing in the hangout tomorrow.  And if we are still 3 months away from 2.0 if we are three months away I will start a bounty.

Thank you each individual for your contribution to this thread and for kind words.

It's up to the feed producer and has can be enabled immediately out the gate with bit shares 2.0 presuming it delivers on what it promises

You could publish the value price in the feed with all adjustments baked in.   It doesn't have to match the real price it just has to be correct and verifiable.

[puppies]

Please don't institute any of this.  I don't think either option i or option ii. Will work without an external infusion of funds.  These reasons have been stated previously in this thread by myself and others before they were ignored. 

[Bitcoinfan]

@fuzzy

Can you ask @bytemaster if he is implementing @starspirit no. 2 of bitAsset valuing in the hangout tomorrow.  And if we are still 3 months away from 2.0 if we are three months away I will start a bounty.

Thank you each individual for your contribution to this thread and for kind words.

It's up to the feed producer and has can be enabled immediately out the gate with bit shares 2.0 presuming it delivers on what it promises

[eagleeye]

@fuzzy

Can you ask @bytemaster if he is implementing @starspirit no. 2 of bitAsset valuing in the hangout tomorrow.  And if we are still 3 months away from 2.0 if we are three months away I will start a bounty.

Thank you each individual for your contribution to this thread and for kind words.

[starspirit]

Starspriit what's your thoughts on the new market mechanism for 2.0.  Do you have any concerns?  what are the biggest weaknesses that will hinder it from working?

This is off-the-cuff, so I might miss a few things.

Positives:

(a) Recently proposed mechanism that Smartcoins are self-created by shorts and then sold into the market, rather than shorts selling directly to create them. Big simplification of market mechanism.
(b) Removal of you-get-what-you-ask-for pricing to approach external market standard. This was an unnecessary cost on users.
(c) Removal of expiries on shorts. Recognition that settlements against shorts can be queued in other ways.
(d) Simplification of collateral rules for shorts, only need to meet minimum.

The biggest areas I still think we need to work on are:

(e) A mechanism to target parity rather than a floating premium. This would be more consistent with what traders are familiar with on competing exchanges.
(f) Option of a direct fee/yield mechanism between longs and shorts to mediate supply and demand. In some cases shorts may need incentive to support the issue.
(g) An ability to define the asset as a function of other inputs, with adjustments for dividends, carry costs, yields, asset replacement etc (as per this this thread).
(h) More diversified collateral, which I suspect the wider market would prefer to forced reliance on BTS (with early stage risk), or a derivative of BTS.
(i) Alternatives to full market liquidation in black swan events. Currently even minor losses could trigger these and impact on the bitShares brand. I've started a discussion in another thread.
(j) Re-assess the method of feed production. Currently there is reliance on a small set shared models for feed production.

(k) Expand the design flexibility available to issuers of privatised Smartcoins to accommodate a wider range of entrepreneurial solutions. Ultimately this is the final solution for most of the challenges (and possibly others) above - let the free market determine the best designs. I'm looking forward to the path toward flexibility that will be opened under 2.0, though its only the tip of an iceberg, and my goal is to keep promoting this direction. In fact, then we can all agree to disagree on the best approach and let the market prove what's most effective.

[Bitcoinfan]

Starspriit what's your thoughts on the new market mechanism for 2.0.  Do you have any concerns?  what are the biggest weaknesses that will hinder it from working?

[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.

Your # 2 is the right idea.  It would be the equivalent of a NAV calculation that a Mutal Fund / Actively manage fund would do at the end of the day.  A feed producers responsbility will be to make these calculations everyday, report and submit.  In the end the Spot Prices will be different between a MPA and a Stock, but the Fair Value will be nearly the same.

Exactly. This was the basis for my idea on ETF-style tracking funds here...(although if you read this thread, note that although the primary concept is unchanged, I have since then changed the application of both yield and settlement to what I think is a more efficient approach)...
https://bitsharestalk.org/index.php/topic,16672.msg213412.html#msg213412

If you want an asset to track a stock over time, it needs to track X shares of the stock, where X increases when a divident is paid, a stock split, etc.

For example, I have an asset which initially represents 1 share of XYZ stock which is priced at $10.

XYZ gives a 10 cent dividend (1% of its value at the time of the dividend).  Now, my asset represents 1.01 share. of the stock.  Later the stock does a 2 for 1 split.  Now, my asset represents 2.02 shares of the stock.  And so on.

If you don't do it this way, any stock split will ruin the asset, and it will lose ground over time as the company issues dividends.

We are in agreement.

Assuming (ii) is the preferred model for now, a follow-up question is then how best to implement this NAV style calculation. At this point I tend to think the easiest way is to trust the feed producers to provide all the relevant inputs, rather than trying to code in all the possible permutations of corporate actions at the outset. Feed producers could provide multiple inputs (for example Price, Quantity, and Time), with guidance provided by the issuer and collectively as to how best to adjust these quantities with upcoming events. From this the NAV could be updated automatically.

NAV, rather than price, would then serve as the basis for settlements and liquidation events also.

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.

Yes, shares are a level of difficulty up from currencies, commodities and indexes. I agree it is better we set our sights on the lower hanging fruit first and build up. These are issues we will still need to deal with even in the simpler asset classes, although the event-types are more limited. For example, deposits pay yield. Commodities have costs of carry and funding rates to contend with. Indexes also have dividends (but usually there is shandy accumulation index to use).

[MrJeans]

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.

I really like number ii.

[Ander]

If you want an asset to track a stock over time, it needs to track X shares of the stock, where X increases when a divident is paid, a stock split, etc.

For example, I have an asset which initially represents 1 share of XYZ stock which is priced at $10.

XYZ gives a 10 cent dividend (1% of its value at the time of the dividend).  Now, my asset represents 1.01 share. of the stock.  Later the stock does a 2 for 1 split.  Now, my asset represents 2.02 shares of the stock.  And so on.

If you don't do it this way, any stock split will ruin the asset, and it will lose ground over time as the company issues dividends.

[topcandle]

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.

Your # 2 is the right idea.  It would be the equivalent of a NAV calculation that a Mutal Fund / Actively manage fund would do at the end of the day.  A feed producers responsbility will be to make these calculations everyday, report and submit.  In the end the Spot Prices will be different between a MPA and a Stock, but the Fair Value will be nearly the same.