Will bitassets in 2.0 Still Earn Interest?

[cylonmaker2053]

With bitshares 2.0. If some wanted to create a new bitasset and they wanted it to earn interest, could they still do that?

As I understand it yes, but you need to loan it out on the bond market.

i'm not familiar enough with how 2.0 is being coded, but it'll either be possible to create your MPA with embedded interest characteristics like the current bitUSD, or use the new bitUSD model of segregating MPA and bond market issuance of the MPA, which would be where interest could be earned.

[speedy]

With bitshares 2.0. If some wanted to create a new bitasset and they wanted it to earn interest, could they still do that?

As I understand it yes, but you need to loan it out on the bond market.

[konelectric]

With bitshares 2.0. If some wanted to create a new bitasset and they wanted it to earn interest, could they still do that?

[cylonmaker2053]

@starspirit & @cylonmaker2053

I think we're all in agreement regarding the central issue here.  You shouldn't try to fix what ain't broke.
I do agree with @cylonmaker2053 I wasn't here when the decisions were made so I'm stuck and just going to have to roll with the flow as it were.  That doesn't mean I'm not going to piss and whine about it though.  Pissing and moaning is my god given right as an American

LOL yes, i'm in completely agreement and intend to do my fair share of complaining! starting this thread was part of that process

I do wonder if we're coming about it all sideways though.  bitUSD works in part because of the confidence we are all placing in the devs to do it right.  If the changes they are making don't suit what we all agree is the better purpose, I wonder if a UIA or other instrument couldn't be constructed which gives us back the feature set we are asking for.  Maybe call it iUSD, if that's possible perhaps we just launch a series of assets constructed similarly.  Again I don't know if any of this is possible.  I read the stuff about what's coming though and I think it's totally feasible.

Point of fact if we had a freely tradable UIA or whatever they call a custom coin, that was backed by a market pegged coin and a bond, that would actually solve the problem.  Especially if we could find enough people to form a critical mass of users to keep the instrument liquid. (i stands for instrument).

Just a thought, I'm not talking about a fork here, more of a blend of what we're getting in an effort to keep what we've already got.

such a UIA could certainly have its place, as could a sort of decentralized bitgold.com where we have a hybrid of our own bitGOLD, but backed by metal in a vault. the sky's the limit once we get rolling...

[cylonmaker2053]

If there were a floating rate between longs and shorts, then the free market would decide who pays who and how much. At any time it could be nearly guaranteed that this rate would not be the single point solution 0%. If the free market set the rate, there would be no need for further debate. Supply and demand, taking into account all conceivable factors and arguments, would be balanced at that rate (assuming it is completely unrestrained).

yes, absolutely! if we can set this up right and sufficient traders enter the space, then prices will tell us everything we need to know without further debate.

To relegate the free market mechanism to the bond market does not serve the same purpose, because it forces bitUSD to be locked away. Demand for bonds does not necessarily flow over to demand for commerce or everyday transactions. In fact, if bond rates are high enough, the opportunity cost of holding bitUSD at the ready is so high that it is less likely to be kept liquid for use in transactions.

An at-call variable rate deposit market is a solution to bridge this gap. As the variable rate will be economically linked with yields in the bond market, the relative yields will settle at a level that provides a balance between the liquidity demand for transactions and the demand for less liquid term investment.

As I often conclude these comments however, i need to add the caveat that the market- determined interest rate today, especially on currencies undergoing financial repression (esp USD and EUR) might well be very low if not negative. This will not always be the case however, especially with currencies in higher interest rate regimes.

'bond market' need not mean what it means in the hyper regulated financial markets of the non-crypto world. i'm envisioning the same sort of at-call variable rate deposit market of which you speak + all sorts of variable maturity and rate structure debt instruments. we should see submarkets form for the most interesting parts of the rate and term spectrums.

[devlux]

@starspirit & @cylonmaker2053

I think we're all in agreement regarding the central issue here.  You shouldn't try to fix what ain't broke.
I do agree with @cylonmaker2053 I wasn't here when the decisions were made so I'm stuck and just going to have to roll with the flow as it were.  That doesn't mean I'm not going to piss and whine about it though.  Pissing and moaning is my god given right as an American

I do wonder if we're coming about it all sideways though.  bitUSD works in part because of the confidence we are all placing in the devs to do it right.  If the changes they are making don't suit what we all agree is the better purpose, I wonder if a UIA or other instrument couldn't be constructed which gives us back the feature set we are asking for.  Maybe call it iUSD, if that's possible perhaps we just launch a series of assets constructed similarly.  Again I don't know if any of this is possible.  I read the stuff about what's coming though and I think it's totally feasible.

Point of fact if we had a freely tradable UIA or whatever they call a custom coin, that was backed by a market pegged coin and a bond, that would actually solve the problem.  Especially if we could find enough people to form a critical mass of users to keep the instrument liquid. (i stands for instrument).

Just a thought, I'm not talking about a fork here, more of a blend of what we're getting in an effort to keep what we've already got.

[starspirit]

If there were a floating rate between longs and shorts, then the free market would decide who pays who and how much. At any time it could be nearly guaranteed that this rate would not be the single point solution 0%. If the free market set the rate, there would be no need for further debate. Supply and demand, taking into account all conceivable factors and arguments, would be balanced at that rate (assuming it is completely unrestrained).

To relegate the free market mechanism to the bond market does not serve the same purpose, because it forces bitUSD to be locked away. Demand for bonds does not necessarily flow over to demand for commerce or everyday transactions. In fact, if bond rates are high enough, the opportunity cost of holding bitUSD at the ready is so high that it is less likely to be kept liquid for use in transactions.

An at-call variable rate deposit market is a solution to bridge this gap. As the variable rate will be economically linked with yields in the bond market, the relative yields will settle at a level that provides a balance between the liquidity demand for transactions and the demand for less liquid term investment.

As I often conclude these comments however, i need to add the caveat that the market- determined interest rate today, especially on currencies undergoing financial repression (esp USD and EUR) might well be very low if not negative. This will not always be the case however, especially with currencies in higher interest rate regimes.

[cylonmaker2053]

@devlux,
i agree that the changes with 2.0 risk smothering the progress we've made so far with our MPAs. i'm not a huge fan of shifting course so substantially right now, but i also have only recently become active in this community and wasn't around for the early days and discussion that led to the shift decision; because of that, i'm basically just accepting the changes as something others with more experience deemed necessary. the fact that i haven't dumped all my BTS yet means i'm hunkering down to see whether the risk pays off.

i don't think the bond markets need be complex or prohibitive to uneducated bitasset investors. for instance, i'm planning my business model to facilitate moving USD into bitUSD and then into the right bonds or bills for my clients. making the process seamless and communicating this to customers is the entrepreneurial opportunity. you're right, the average guy thinking of parking some funds in bitUSD won't want to dork around with bond market trading, but we can easily offer services for that individual to bring the yield to them.

since we'll have both an asset/currency market and a bond market, real demand for either should be considered as a joint process, not separately. bidUSD demand will be driven by the bond market if there's sufficient yield, and the bond market demand will similarly be influenced by the demand into bitUSD. it'll be a general equilibrium problem that could work out beautifully.

e.g. it would be inappropriate to consider demand for bitUSD without considering the bond market. if bond yields were, say, 10%, then the demand for bitUSD (and its eqM price) would respond accordingly...it would be the demand driver despite there not being the same interest bearing process as currently exists.

that's just the yield stuff...there are organic crypto reasons to buy bitUSD, such as migrating assets onto a blockchain to avoid financial repression (Greece/Argentina), enable near-intantaneous-no-questions-asked transfers, avoid banking system transaction fees, etc. i'm betting hard on the world demanding our products even after the 2.0 migration.

[cylonmaker2053]

Demand is currently higher than supply, that's why there's an almost 50k bitUSD wall at feed price. It's people waiting to be able to cover their expired short.

The money supply is either controlled by the demand or the supply, whichever is more restrictive. As shorts need to cover, they need to acquire bitUSD on the market. If none is for sale in the order book at parity, they either let their short expire and let it stand unfulfilled at feed price, waiting for someone else to short or sell in the wall, or they buy bitUSD at market price (a few % higher than parity), or they short to themselves (again at a % little higher than parity).

If there's not enough demand, then the shorts will stay unfilled in the order book, preventing new bitUSD creation. But shorts still have to cover each month. That means that if demands drop and everybody want to get rid of their bitUSD, there will be a bitUSD supply contraction as shorts cover their position and new shorts stay unfilled in the order book.

One could speculate on the reasons why there's more demand than supply right now, but my understanding is that somehow shorters are waiting on 2.0, or they're not bullish enough about Bitshares prospects.

a reasonable explanation for the imbalance of supply and demand at current prices is that we're still in a prolonged (for crypto standards) bear market and the pool of potential short speculators is still shell shocked from the seemingly nonstop beatings. i'm at least starting to feel some of this pain, but still have a rather substantial set of short positions open.

[Chuckone]

Demand is currently higher than supply, that's why there's an almost 50k bitUSD wall at feed price. It's people waiting to be able to cover their expired short.

The money supply is either controlled by the demand or the supply, whichever is more restrictive. As shorts need to cover, they need to acquire bitUSD on the market. If none is for sale in the order book at parity, they either let their short expire and let it stand unfulfilled at feed price, waiting for someone else to short or sell in the wall, or they buy bitUSD at market price (a few % higher than parity), or they short to themselves (again at a % little higher than parity).

If there's not enough demand, then the shorts will stay unfilled in the order book, preventing new bitUSD creation. But shorts still have to cover each month. That means that if demands drop and everybody want to get rid of their bitUSD, there will be a bitUSD supply contraction as shorts cover their position and new shorts stay unfilled in the order book.

One could speculate on the reasons why there's more demand than supply right now, but my understanding is that somehow shorters are waiting on 2.0, or they're not bullish enough about Bitshares prospects.

[devlux]

But it wasn't done that way, and now there are plans to make a fundamental change to the social contract. 
Change is scary, even if it's as you believe "for the better good", it's going to scare the hell out of people and they will avoid getting into an uncertain position.  This will further reduce demand.
It might not kill it, but it's going to cripple it.

I'll make sure this topic is addressed in the next mumble session.

Or someone please feel free to tear this posting apart and show me every place I'm wrong.  This is not meant to start a flamewar or be a troll.  You look at my posting history, I am doing what I can to increase bitUSD utility and acceptance, but it's a hard as hell sell already.  Make my job easier, prove me wrong, please.

There is a long thread which explains how the decision about removing the yield in 2.0 was reached:
https://bitsharestalk.org/index.php/topic,16143.msg208676.html

But if you haven't got time to read it all here is a short summary by bytemaster:

I would summarize it like this:  does cash pay interest?   do checking accounts ever pay meaningful interest?    There are many people here claiming that the "longs should pay the shorts" well, that is happening naturally by the longs *not charging interest* to the shorts.    This will increase supply of BitUSD and reduce the premium above the feed.   Any interest payments will only add to the risk profile the shorts face and create larger premiums above the feed.   No one ever pays meaningful interest for "on demand instant liquidity investments". 

To get high interest bonds usually requires locking up your funds for a period of time in some kind of bond.   It normally entails some kind of risk. 

If the blockchain mirrors the real world then BitUSD can ben lent at interest for fixed terms in the bond market to shorts who want the guarantee of not being called or who want extra leverage.   There will be a huge market to borrow BitUSD against other, more-stable, collateral.  IE: Borrow BitUSD using BitGold as collateral.   Here is a market that has minimal BTS exposure and will likely have large demand.   

So those who need liquidity can stay in BitUSD, those who want yield can offer their BitUSD to the bond market.    The existence of the Bond market creates arbitrage opportunities where you can buy BitUSD and then lend it at X% interest.  This is just like banking / cash where you have the option to get yield, but not everyone takes it.   

Thanks for that.  I was afraid that this was the logic used to come to the conclusion.  The error in the thought process is that this is NOT a checking account.  bitUSD tracks USD, but it is in no way actual USD and it is not fungible for USD.

This does not mean it is useless and I would posit that as time goes on bitUSD will become the most useful of all cryptos, regardless of the yield issue.

There are on and off ramps being worked on.
These ramps will increase the fungibility of bitUSD dramatically and in fact all market pegged assets will benefit. 

But it would be a serious mistake to consider bitUSD to be a demand draft account even if you can walk up to an ATM and put it in/ pull it out. 

When I can hand you exactly 1 dollar and know that you'll hand me a 1 bitUSD, or vice versa then it can be treated as a demand draft, but even then it still is not demand draft.

So what is bitUSD?  bitUSD is a derivative of BTS that locks up an amount of BTS that is guaranteed to always be 1:1 pegged to the US Dollar rate.  It is a quantity of BTS to be delivered in the future.  It sheds the forex risk of crypto by swapping that risk for the "future funds" risk.

The current bitUSD system is genius level stuff, I cannot express my admiration for this and the other market pegged assets.
Yet holding it, is nowhere near the same level of risk as holding cash in a checking account at a bank.

Even if you get past the FDIC insurance and assume that each bank is responsible for their own deposits as it still is in certain smaller countries that do not have a deposit insurance system.  There is still a major risk on the future of funds as compared to a bank in a traditional fractional reserve system.

If BTS drops in value relative to the dollar, the bitUSD is a form of asset protection, but is not complete protection. 

Should the instrument be called, it would be called with a fixed quantity of BTS. 

I would then be in the unenviable position of either attempting to cut my losses and exit with the herd, or wait with my BTS and pray that the price picks back up.  What I would be unable to do is convert 1:1 for USD and exit with any guarantee of value.

There will always be a loss involved, because people and companies have costs associated with playing in the BTS market including the cost of acquisition and disposal itself.

This is why the yield is crucial to long term ownership.  No yield means no one willing to hold it long term.  The idea of a bond market is nice, but you're doubling the risk it will need to be priced in if you want any buyers. 

There is a the future funds risk +  risk of non-payment in general.

To be fair, I do not hold any crypto at all beyond what I need for each day's budget.  I am currently holding a quantity of bitUSD because the market pegging mechanism has shown to work in most cases. 

Yet as the market price of BTS drops, it will become easier and easier for someone to do major damage to the ecosystem, including buying a bunch for the purposes of crashing the price through the floor.  This is your dreaded black swan event.  It will eventually occur if the price continues to slide and the price continues to slide because demand is flat but supplies are rising.

If BTS was trading closer to a dollar I would feel more comfortable about the proposal.  But nothing I've read indicates anything that will drive demand.  It seems to me to be change for change sake. 

It's a forced change and I believe it will spook the hell out of the market when it does occur.  If they're going to do this, then at least allow the liquidity to be mopped up, by adding a way of shrinking the money supply (there may be already, but if there is I'm unaware of it).

[cylonmaker2053]

So those who need liquidity can stay in BitUSD, those who want yield can offer their BitUSD to the bond market.

if we do the bond market right, there's no reason it shouldn't be nearly as liquid as the cash market. we should definitely have very short duration issues, possibly even something akin to an overnight money market, and certainly a 30-day bill market. also, independent of maturity is the fact that healthy, liquid secondary markets ought to be roughly equivalent to cash anyway if people can readily exchange their notes/bonds for bitUSD. that's at least my vision and i think shared by many in this community.

[jakub]

But it wasn't done that way, and now there are plans to make a fundamental change to the social contract. 
Change is scary, even if it's as you believe "for the better good", it's going to scare the hell out of people and they will avoid getting into an uncertain position.  This will further reduce demand.
It might not kill it, but it's going to cripple it.

I'll make sure this topic is addressed in the next mumble session.

Or someone please feel free to tear this posting apart and show me every place I'm wrong.  This is not meant to start a flamewar or be a troll.  You look at my posting history, I am doing what I can to increase bitUSD utility and acceptance, but it's a hard as hell sell already.  Make my job easier, prove me wrong, please.

There is a long thread which explains how the decision about removing the yield in 2.0 was reached:
https://bitsharestalk.org/index.php/topic,16143.msg208676.html

But if you haven't got time to read it all here is a short summary by bytemaster:

I would summarize it like this:  does cash pay interest?   do checking accounts ever pay meaningful interest?    There are many people here claiming that the "longs should pay the shorts" well, that is happening naturally by the longs *not charging interest* to the shorts.    This will increase supply of BitUSD and reduce the premium above the feed.   Any interest payments will only add to the risk profile the shorts face and create larger premiums above the feed.   No one ever pays meaningful interest for "on demand instant liquidity investments". 

To get high interest bonds usually requires locking up your funds for a period of time in some kind of bond.   It normally entails some kind of risk. 

If the blockchain mirrors the real world then BitUSD can ben lent at interest for fixed terms in the bond market to shorts who want the guarantee of not being called or who want extra leverage.   There will be a huge market to borrow BitUSD against other, more-stable, collateral.  IE: Borrow BitUSD using BitGold as collateral.   Here is a market that has minimal BTS exposure and will likely have large demand.   

So those who need liquidity can stay in BitUSD, those who want yield can offer their BitUSD to the bond market.    The existence of the Bond market creates arbitrage opportunities where you can buy BitUSD and then lend it at X% interest.  This is just like banking / cash where you have the option to get yield, but not everyone takes it.   

[cylonmaker2053]

Current yield on bitusd is preventing the market from settling as no one wants to sell their bitusd


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is that a bad thing? i'd love to see demand for bitUSD sore and never go down.

[sittingduck]

Current yield on bitusd is preventing the market from settling as no one wants to sell their bitusd


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