Author Topic: Will bitassets in 2.0 Still Earn Interest?  (Read 12557 times)

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Offline cylonmaker2053

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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.

Offline speedy

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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.

Offline 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?
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Offline cylonmaker2053

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@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...

Offline cylonmaker2053

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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.

Offline devlux

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@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.

Offline starspirit

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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.

Offline cylonmaker2053

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@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.

Offline cylonmaker2053

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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.

Offline Chuckone

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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.

Offline devlux

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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).

Offline cylonmaker2053

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Quote
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.

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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.   
« Last Edit: July 20, 2015, 02:42:25 pm by jakub »

Offline cylonmaker2053

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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.

Offline sittingduck

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


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Offline cylonmaker2053

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Don't give up on yield. I believe its possible in 2.0 (with some adjustment) to have at-call interest bearing deposits, that you can draw on at any time - it just requires to operate a different way to 1.0. Having said that, with external USD interest rates so low, there would be little scope for interest on bitUSD right at this point in the cycle.

at-call and short maturity interest bearing instruments should be absolutely possible in 2.0, just a matter of drumming up the demand for both sides of the trade. interest rates may be low in the non-crypto economy, but i imagine our assets will require a hefty risk premium to justify holding them over traditional assets. if i had to make a guess, it'd be that the real rate (net of cost of buying bitUSD) will be somewhere around the current yield on bitUSD.

Offline starspirit

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Don't give up on yield. I believe its possible in 2.0 (with some adjustment) to have at-call interest bearing deposits, that you can draw on at any time - it just requires to operate a different way to 1.0. Having said that, with external USD interest rates so low, there would be little scope for interest on bitUSD right at this point in the cycle.

Offline devlux

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I thought the privatized bitassets market would leave it to the market to determine if there would be a yield or not? Perhaps I got something mixed up while the whole conversation was going on.

Terminology problem on my end.  User Issued Asset vs Market Pegged Asset.

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I thought the privatized bitassets market would leave it to the market to determine if there would be a yield or not? Perhaps I got something mixed up while the whole conversation was going on.
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Offline devlux

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-snip-

You are certainly right about "change scares people" and also the reduced incentive to accept and hold bitAssets. But I think we are still early enough in the process to change some mechanics and get things right. I rather have some changes now than later; or even worse a competing chain with a superior system.

Now I'm not generally opposed to the yield system, but I don't get what you are trying to say with the whole supply and demand thing. Yes, there is a higher incentive to short bitUSD but ONLY above the feed as you can get forced to settle at the price feed. So there will probably be a short wall just above the feed but if there isn't enough demand the shorts don't get filled and no bitUSD are created.

Or did I completely misunderstand that and your concerns are regarding BTS and not bitAsset supply/demand?

No sounds like I misunderstood the mechanism.

Quote
...if there isn't enough demand the shorts don't get filled and no bitUSD are created.
Sounds like a strong counterpoint.  I'll rethink my base assumptions and comeback to piss and moan about something else later.
BTS flooding the market at the current rates of production still seems like a major problem to me though.

Offline Frodo

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-snip-

You are certainly right about "change scares people" and also the reduced incentive to accept and hold bitAssets. But I think we are still early enough in the process to change some mechanics and get things right. I rather have some changes now than later; or even worse a competing chain with a superior system.

Now I'm not generally opposed to the yield system, but I don't get what you are trying to say with the whole supply and demand thing. Yes, there is a higher incentive to short bitUSD but ONLY above the feed as you can get forced to settle at the price feed. So there will probably be a short wall just above the feed but if there isn't enough demand the shorts don't get filled and no bitUSD are created.

Or did I completely misunderstand that and your concerns are regarding BTS and not bitAsset supply/demand?

Offline devlux

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You see this is something that bothers me.

Sure if you want to separate out the yield from the instrument fine it's your prerogative.  I don't get a say here, but I'm going to say my peace on the matter.

Simply put this is NOT how it was done before and it's going to kill the market at a fundamental level.

Any new campfire will take some time to smolder, then kindle before fully igniting.
bitUSD was smoldering a long time, there were real technical problems with the built in exchange mechanism that were preventing it from kindling properly. But now it's kindled, we're suddenly talking about pissing on the fire so we can put it out and move camp.

I think that the campfire should be the goal here, not the campsite.  If we extinguish what is there now, we will not be able to restart it.  Put another way.  If we piss on the fire we do have, the wood will be wet and much harder to start burning again.

I'm in a position where I've spent months building a business around the entire bitUSD model.  Now that model changes.  I'm not happy about it and I don't see an upside for anyone here.  I can't bolt and even if I could, the market pegging mechanism used here is fundamentally more important than the yield. 

I've done the math, it's very hard for bitUSD to fail as long as people continue using it. 
BTS has issues because they're printing WAY too much of it, but bitUSD is what I'm building my business around.

If they are going to do something to change the economy, adding a way to shrink the currency supply of BTS might be the best thing.  Instead it looks like they're coming at the problem sideways by deconstructing the thing that drives adoption (market pegged assets), and killing off the incentive hold them.  The incentive now slips to the supply side while killing the demand side.

Let's put fires and everything else aside for a minute and look at this from an economics 101 perspective.

An economy is nothing more than a system of value transfers.  In the real world US Dollars are brought into and out of circulation by the Federal Reserve and the US Treasury dept who's job is to prevent deflation while keeping inflation in check and yet still leaving the economy enough breathing room that the USA is currently the worlds most powerful economic engine.

Every decision that these 2 entities make have repercussions that filter out globally because the US Dollar is the worlds choice for both value transfer and wealth storage.  The climb of the dollar against other currencies makes products Made in America more expensive in other countries, which causes a trade deficit.  It also makes foreign made products cheaper. 

US Dollars flow out of the economy and only return when the countries who are trying to keep their currency low (in order to support their export driven economy), give those dollars back to the US by purchasing T-Bills.  This is why China is the biggest holder of US "Debt".  But the interest on that debt doesn't match real inflation. 
It is effectively the same thing as negative interest rates.
The Chinese government is paying for part of your Chinese made products.

The US Dollar does not have a built in yield mechanism.  No currency does.  Yet it does have a shrinking mechanism.
The yield on TBills are tied to decision based on fundamental market forces and this yield is a money sink that sucks the US Dollar out of international circulation and filters it back into the economy via government run projects and services.

This means that the only thing the dollar really has going for it, is that it is a currency that everyone accepts in exchange for goods and services.  There is an effective yield, because the dollar generally rises against other currencies as long as the US economy is the major economic engine of the world. (Also a negative effective yield when their economy takes a dump)

bitUSD is a derivative.  It is a derivative of BTS that pegs a certain number of BTS against the US Dollar.  If BTS rises or falls against the US Dollar then the quantity of BTS that a single bitUSD represents also rises or falls.

This is genius.  Except it misses something.  BTS and bitUSD are effectively illiquid.  I cannot get into and out of bitUSD without paying some kind of fee.  That fee can range from as low a 1% to as high as 10%.  But when I want to buy bitUSD or spend bitUSD then there are fees that must be paid.  This is a complete disincentive to, acquisition, holding and of course acceptance.

The act of creating bitUSD has previously required a yield.  Why?  Because bitUSD is effectively illiquid or at least semi-illiquid.

Paying a interest was a disincentive to creating the derivative. 
It kept the supply low while demand was relatively fixed. 
This means bitUSD is an effective mop for excess BTS liquidity.

Now there is no more disincentive to creation.  In fact, quite the opposite there is now an incentive to creation. 
If there is no interest paid, why not just convert every BTS in circulation directly to bitUSD and derive all assets from that?

The reason is that it would kill demand.  Yet this is what will happen.  If people no longer have to pay interest to create it they will create more.  If they have an incentive to create it (by getting paid interest), they will make as much as they possibly can.  This will push supplies skyward faster than demand could reasonably be expected to increase.

Furthermore if there is no interest paid to holders, they have a disincentive to accept bitUSD.

You guys are counting on people deciding to park their funds in a bond market in leui of receiving a yield payment. 
That won't work.  People aren't savvy enough to even understand what that means.  What they will do is see that they can acquire 1 bitUSD for 1.10 USD and say to themselves, "Time to break out the Visa Card" when it comes down to figuring out how to pay for their purchases.

If you guys had done this from the beginning it wouldn't be so bad. 

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.

Please for the love of God.  Turn off the BTS spigot or at least turn it way, way down. 

What is killing the BTS currency is supply and demand.  There is almost no demand as it is, the fundamental demand drivers that do exist are getting changed and demand will suffer if for no other reason than "change is scary". 

Yet supplies continue to increase.

Go buy an economics 101 textbook, open the page to supply and demand fundamentals and look at what happens when this occurs. Then decide if you really want to kill demand while continuing to increase supply.

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.
« Last Edit: July 19, 2015, 07:05:07 pm by devlux »

Offline cylonmaker2053

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Kills off half the value proposition for me. 
The yield is the thing guys.  I want my money to grow, not sit there depreciating or barely treading water.

I shouldn't have to babysit a bond market and hit sell if the borrower defaults or whatever and hope I caught it in enough time to extract my value back.

My god someone has to create it and as far as I knew the yield thing was the reason we allowed them to.  How does the coming change fix any of the problems?  I'm sorry maybe I'm stupid, but I really just don't get it.

If I want a random dollar pegged crypto I can get tetherUSD or one of the other feed coins.

The dollar peg is nice don't get me wrong, but until bitUSD acceptance is ubiquitous I'll need a reason to hold it and a superior interest rate IS that reason.  Or at least it WAS the reason.

I'm doing what I can to increase acceptance, by integrating it into the new ATMs.  But that will take time to grow.  Also there are fees for changing into and out of fiat, without a yield it makes almost no sense to even acquire it since the yield is the thing people use to offset the cost of acquisition and also the reason for mopping up the liquidity by holding.

Can someone tell me where I'm wrong here?  Alternatively is there a crypto that functions like bitUSD used to?  I have some cash I'd like to just park and watch grow again.

Thanks!

hey @devlux, i was going through the same pained thought process this past week, which is why i posted the thread for clarification. i was putting together plans for a USD<-->bitUSD local gateway business with the basic value proposition offered to bitUSD buyers being the way above market interest yield simply by holding the asset. learning that in 2.0 bitUSD wouldn't earn an organic yield freaked me out and almost made me scrap the plan, which i was prepping to take to a legal group to make sure there weren't any issues prior to capitalizing it.

anyway, after this back and forth in the forum i realized my panic was for naught and i'm still a big fan of bitUSD. all 2.0 is doing is segmenting the currency market from the yield market, so there's the additional step of buying bitUSD and then parking the funds in the bond market. what i think people like us who are planning businesses around the asset need to do is make sure we're focusing all our efforts on creating a viable bond market! my plan is to support 30-day, 90-day, and 1-year bond offerings, likely in that order.

there are no guarantees that 2.0 will successfully pull this off; in fact, i think there's a lot of risk and we're almost starting from scratch with its launch. all of the prior market dynamics that build around bitUSD and bitCNY will be moot with the new markets...kind of disappointing to some extent, but also exciting in another bc i think this new implementation will be a cleaner experience. we'll see!

the economics of 2.0 will be much different IMO. short sellers will now be paid a premium instead of bitUSD buyers bc they will be selling the shorted instruments above par and can always redeem them at par (sell high, buy low). bitUSD buyers are paying the upfront premium to get the crypto assets and then they can roll them into a bond with their desired duration. who knows what the actual market rates will be, but right now we're seeing about 5.5% yield on bitUSD, so if there's a 3% premium to buying bitUSD to begin with, then the adjusted bond market yields should accommodate by moving slightly upward from where they are now, ceteris parabis. we'll see.

there's still hope for our business models, just an new layer of risk we'll have to wait out before reacting appropriately on our ends. another thing that concerns me is the migration to 2.0 and how the devs will roll over open positions. what will happen to people who hold bitUSD right now that pay a yield? will that position just roll over into an equiv bond market position? and what is equivalent? an infinite horizon bond would match maturity, or will the devs change the contract terms and roll it into a fixed duration bond, say a 30-day instrument? again, we'll see...
« Last Edit: July 19, 2015, 05:08:27 pm by cylonmaker2053 »

Offline Pheonike


The swap could be the default for any account holding BitUSD. The daily interest rate paid could be a fraction of the 30-day average of the traders actively participating in the swap market.

Offline topcandle


Could set up a swap market like bitfinex that loans to traders and and settles interest payments daily.

I like this idea.  What do we need to make it happen?

Yeah I said bond market because that is what we have been using.  It's actually a swap market rather than a bond market you are thinking of.  It should function like bitfinex, but bytemaster hasn't made this evidently clear.  Unless someone else could confiem
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Offline devlux

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Could set up a swap market like bitfinex that loans to traders and and settles interest payments daily.

I like this idea.  What do we need to make it happen?

Offline Pheonike


Could set up a swap market like bitfinex that loans to traders and and settles interest payments daily.

Offline devlux

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Shortly after posting my question, I found this...
https://bitshares.org/technology/price-stable-cryptocurrencies/

Is it current?

Yes siree,
Does it disrupt your business model significantly?  I suppose when released, you can use an exchange usd like ccdek, or even create your own bitasset.  There will probably be a common one that everyone gravitates to.  Yeah so no more interest until a bond market is created.

Kills off half the value proposition for me. 
The yield is the thing guys.  I want my money to grow, not sit there depreciating or barely treading water.

I shouldn't have to babysit a bond market and hit sell if the borrower defaults or whatever and hope I caught it in enough time to extract my value back.

My god someone has to create it and as far as I knew the yield thing was the reason we allowed them to.  How does the coming change fix any of the problems?  I'm sorry maybe I'm stupid, but I really just don't get it.

If I want a random dollar pegged crypto I can get tetherUSD or one of the other feed coins.

The dollar peg is nice don't get me wrong, but until bitUSD acceptance is ubiquitous I'll need a reason to hold it and a superior interest rate IS that reason.  Or at least it WAS the reason.

I'm doing what I can to increase acceptance, by integrating it into the new ATMs.  But that will take time to grow.  Also there are fees for changing into and out of fiat, without a yield it makes almost no sense to even acquire it since the yield is the thing people use to offset the cost of acquisition and also the reason for mopping up the liquidity by holding.

Can someone tell me where I'm wrong here?  Alternatively is there a crypto that functions like bitUSD used to?  I have some cash I'd like to just park and watch grow again.

Thanks!

Offline topcandle

Shortly after posting my question, I found this...
https://bitshares.org/technology/price-stable-cryptocurrencies/

Is it current?

Yes siree,
Does it disrupt your business model significantly?  I suppose when released, you can use an exchange usd like ccdek, or even create your own bitasset.  There will probably be a common one that everyone gravitates to.  Yeah so no more interest until a bond market is created.
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Crap I'm lost, I was only away a couple of months, but it looks like the world may have shifted.
Please tell me in simple terms what the heck is happening with bitUSD.

Here is my previous understanding of the instrument.  Please call out where I am wrong now or was wrong in the past, thank you!

bitUSD is a contract.  1 bitUSD is always guaranteed to be worth exactly $1 USD worth of BTS.
In exchange for holding the instrument, and thus mopping up liquidity, I am paid a yield.
This yield can vary depending on how many people want bitUSD vs how much bitUSD is actually available.

If more people want bitUSD the yield goes down.  If less people want bitUSD the yield goes up.

The act of creating bitUSD is done through the act of shorting. 

In essence to make bitUSD you are locking up 2x the amount of bts that would be required to settle the contract.  You are gambling that the price of BTS will rise relative to the US Dollar, before contract expiry. 

You are gambling that the price of BTS will fall or stay the same relative to the US Dollar when you buy it.
These are maker and taker respectively.

bitUSD can be used as a commodity currency and functions in a way like a money market account or high yield interest bearing checking account.  Holding it will pay some amount of interest, and this interest is your incentive for holding it.  There is no need to hold for a specific amount of time, it is liquid.  At worst if you don't hold, you simply miss out on the interest payment at expiry.

At expiry the market automatically buys back in, so that 1 USD invested retains a value of 1 USD or higher (due to yield).

You can move it around from person to person and trade it with others who would like a stable fixed price instrument that happens to have all the strengths of a cryptocurrency.

Thanks for helping me out guys.  I've been out of the loop awhile, but I need to explain this stuff to people who may have NEVER heard of bitcoin even, let alone crypto-currency, BTS or bitUSD.
« Last Edit: July 18, 2015, 10:27:25 pm by devlux »

Offline cylonmaker2053

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Right now, yield on USD and some other major currencies does not matter, and we can get away with it for the other benefits of crypto, only because the external interest rate environment is extremely low due to financial repression. This is not a usual state of affairs economically.

Ultimately, users will need an equivalent of an at-call deposit market where they can deposit their currency to earn interest, and withdraw at their discretion to make transactions. Otherwise it will be a financial disadvantage to hold SmartCurrency for transactional purposes rather than holding the real currency, especially for currencies in higher interest rate regimes, or when financial repression is eventually terminated.

The bond market as proposed does not meet this particular need well because it forces the user to lock away their money. Although this might be a neat way to earn investment return, this takes SmartCurrency out of the transactional system, and disincentivises use for commerce.

If external interest rates are high enough, it is IMPLEMENTABLE to have an at-call deposit market that pays users a yield (although less a percentage to incentivise shorts), combined with the ability to convert to and from non-interest bearing SmartCurrency at will if desired. I have a design for this, although it is not feasible in 2.0 without added flexibility in the parameterisation (which I aim to write a more detailed post on, and possibly submit as a project proposal in 2.0). It is simply not true what many people say that yield cannot be implemented. It's only that the version of yield that was put in place was flawed and failed, leading to philosophical rejection of the idea.

if we can pile enough liquidity into the bond market, specifically into short duration instruments, like a 30-day note, then we could potentially create a viable money market. and also like you said, there could develop at-call deposit markets...that would be interesting without centrally planned fractional reserve banking with implicit/explicit taxpayer guarantees on losses...maybe economists could actually see what real free market reserves would look like...

Offline starspirit

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Right now, yield on USD and some other major currencies does not matter, and we can get away with it for the other benefits of crypto, only because the external interest rate environment is extremely low due to financial repression. This is not a usual state of affairs economically.

Ultimately, users will need an equivalent of an at-call deposit market where they can deposit their currency to earn interest, and withdraw at their discretion to make transactions. Otherwise it will be a financial disadvantage to hold SmartCurrency for transactional purposes rather than holding the real currency, especially for currencies in higher interest rate regimes, or when financial repression is eventually terminated.

The bond market as proposed does not meet this particular need well because it forces the user to lock away their money. Although this might be a neat way to earn investment return, this takes SmartCurrency out of the transactional system, and disincentivises use for commerce.

If external interest rates are high enough, it is IMPLEMENTABLE to have an at-call deposit market that pays users a yield (although less a percentage to incentivise shorts), combined with the ability to convert to and from non-interest bearing SmartCurrency at will if desired. I have a design for this, although it is not feasible in 2.0 without added flexibility in the parameterisation (which I aim to write a more detailed post on, and possibly submit as a project proposal in 2.0). It is simply not true what many people say that yield cannot be implemented. It's only that the version of yield that was put in place was flawed and failed, leading to philosophical rejection of the idea.

Offline cylonmaker2053

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Dude, how many threads u got?

The smartcoin holder gets to hold real world value (of any asset/commodity they choose) on the chain (meaning that nobody can take these from you but you).  You don't lose investment value unless the real asset does.  Say it with me:  "woooaaaah"  ....  Who on planet earth is doing this?? is that not "first time in human history" enough for you or something?  What did you expect?  fusion?  time travel? free energy? light speed? free pussy?  Dude, there's thermodynamic laws to contend with here.  Throwing yield into the mix is unnatural.  The bond market takes care of this more elegantly.  What else do you want to do? 


don't worry man, I'll pay you 4% interest annually on your crappy bitUSD at today's prices for three years and then sell that worthless bitFIAT on the DEX (to purchase more BTS, rinse, repeat) , then buy it back on the open market 3 years later when it is worthless, and give you back your chump change. It's more of a guaranteed long term short (that can't get called in due to low collateral), so I can party for a year straight without ever feeling the itch to check the share price.  The sucker who initially shorted bitUSD originally would have to deal with any arbitration at the feed price in a forced liquidation sale....

The bond market is black swan protection for the shorter like me.  The rest of the shorters will think they made money the day BTS moons, but will be in for a surprise when they open their wallets (short position liquidated)

chop chop Danny Boy

so there is the incentive for you to buy bitUSD

LOL hey if you can throw in those freebies, then wonderful!

who knows dude, maybe BTS will end up funding the group that makes cold fusion :)

i'm definitely warming up to the 2.0 concepts now that i'm learning more about them. i've just spent so much time learning the old system and was putting together plans for a bitUSD-based venture, so when i heard in another thread that interest was going away i freaked out; the ability to earn interest was one of my top selling points to non-crypto peeps. of course i know there are benefits simply to parking capital on a secure blockchain + benefits to those assets being pegged to something familiar to people, but that's not the easiest sell to the sheeple who should ultimately start migrating their savings over to our network!

the bond market seems legit, though...i'd like to learn more about how it's intended to function, but it should fit the bill for putting bitUSD to good use with a yield.

Offline cylonmaker2053

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I will really miss the YIELD. was easy to understand and easy to explain. :<

There is still yield from the bond market.

The difference is that there is actually a valid reason to get yield.

yeah i'm starting to come around to the idea of segmenting the bitasset from the yield mechanism. the fact that a bond market will exist should justify paying a premium over par for bitassets since they can be rolling right into the bond market.

once this gets going i'd like to push hard on the 30-day bitUSD bonds to basically replicate the current bitUSD instruments. i think this market will be the most useful and readily adopted by firm cash management practices. longer duration bonds (i'm envisioning 90-day and 1-year) could replicate bank CDs.

Offline Erlich Bachman

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Dude, how many threads u got?

The smartcoin holder gets to hold real world value (of any asset/commodity they choose) on the chain (meaning that nobody can take these from you but you).  You don't lose investment value unless the real asset does.  Say it with me:  "woooaaaah"  ....  Who on planet earth is doing this?? is that not "first time in human history" enough for you or something?  What did you expect?  fusion?  time travel? free energy? light speed? free pussy?  Dude, there's thermodynamic laws to contend with here.  Throwing yield into the mix is unnatural.  The bond market takes care of this more elegantly.  What else do you want to do? 


don't worry man, I'll pay you 4% interest annually on your crappy bitUSD at today's prices for three years and then sell that worthless bitFIAT on the DEX (to purchase more BTS, rinse, repeat) , then buy it back on the open market 3 years later when it is worthless, and give you back your chump change. It's more of a guaranteed long term short (that can't get called in due to low collateral), so I can party for a year straight without ever feeling the itch to check the share price.  The sucker who initially shorted bitUSD originally would have to deal with any arbitration at the feed price in a forced liquidation sale....

The bond market is black swan protection for the shorter like me.  The rest of the shorters will think they made money the day BTS moons, but will be in for a surprise when they open their wallets (short position liquidated)

chop chop Danny Boy

so there is the incentive for you to buy bitUSD
« Last Edit: July 15, 2015, 06:33:37 pm by Erlich Bachman »
You own the network, but who pays for development?

Offline Bitcoinfan

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OP,  currently, there is no yield on smartcoins, however, if and when competitors enter this space, then we will hold a vote to see if there is enough interest around here to pay interest.

There are currently enough benefits to owning bitUSD that we don't need to add/offer more...yet.

what are the benefits of owning bitUSD? what are the costs and risks? i think we're dismantling the mechanism that tipped the balance in favor of owning bitassets. it also opens the space wide open to a competitor that sees this mistake and offers interest.

Then you come up with a way to do interest that can't be attacked and propose here.  The community is all ears.   

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I will really miss the YIELD. was easy to understand and easy to explain. :<

There is still yield from the bond market.

The difference is that there is actually a valid reason to get yield. 
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OP,  currently, there is no yield on smartcoins, however, if and when competitors enter this space, then we will hold a vote to see if there is enough interest around here to pay interest.

There are currently enough benefits to owning bitUSD that we don't need to add/offer more...yet.

what are the benefits of owning bitUSD? what are the costs and risks? i think we're dismantling the mechanism that tipped the balance in favor of owning bitassets. it also opens the space wide open to a competitor that sees this mistake and offers interest.

Offline Erlich Bachman

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OP,  currently, there is no yield on smartcoins, however, if and when competitors enter this space, then we will hold a vote to see if there is enough interest around here to pay interest.

There are currently enough benefits to owning bitUSD that we don't need to add/offer more...yet.
« Last Edit: July 15, 2015, 04:50:44 pm by Erlich Bachman »
You own the network, but who pays for development?

Offline cylonmaker2053

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I will really miss the YIELD. was easy to understand and easy to explain. :<

yup...i really liked the business model naturally giving incentive to park funds in bitUSD. that was an easier sell than what i understand 2.0 to produce.

unless i've completely misinterpreted the 2.0 SmartCoin model, i highly recommend this decision be pulled last minute and maintain the incentive structure such that buyers are bitassets are rewarded with yield. we want capital to flow into BTS and there's no better way than to offer yield.

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I will really miss the YIELD. was easy to understand and easy to explain. :<

Offline cylonmaker2053

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Just read the new SmartCoin page:

https://bitshares.org/technology/price-stable-cryptocurrencies/

looks like there'll be a yield implied by the price over par. maybe this would actually look more like a traditional money market than the previous/current model. i still need to learn more, but i'm still left thinking that one of the biggest reasons to go long bitUSD is gone. in fact, going long bitUSD in 2.0 is now risky bc you buy at a premium over par and are only guaranteed liquidation at par, while receiving no interest to bear that risk.

i retract my comment about there being a yield over par ...this will be true for short sellers and long buyers will be paying the yield. this is essentially telling buyers 'hey come buy bitUSD bc it has a price floor, you won't lose any more money than the difference between the premium we want you to pay now and the floor at which you can liquidate.'  ...how will that attract serious investment? where's the upside to those willing to park capital in our system?

Offline cylonmaker2053

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Just read the new SmartCoin page:

https://bitshares.org/technology/price-stable-cryptocurrencies/

looks like there'll be a yield implied by the price over par. maybe this would actually look more like a traditional money market than the previous/current model. i still need to learn more, but i'm still left thinking that one of the biggest reasons to go long bitUSD is gone. in fact, going long bitUSD in 2.0 is now risky bc you buy at a premium over par and are only guaranteed liquidation at par, while receiving no interest to bear that risk.

the 2.0 model is actually shifting interest/costs from short sellers to long buyers of bitassets. at first glance this seems like a huge mistake. our system should be providing incentive to buy bitUSD ...we win if capital flows into bitassets on the long side. we need demand for bitUSD, which will mean people buying up BTS to buy bitUSD, and short sellers who are paying the incentive to attract that demand, end up making a killing on the back end with BTS shooting up in value.

Offline cylonmaker2053

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Just read the new SmartCoin page:

https://bitshares.org/technology/price-stable-cryptocurrencies/

looks like there'll be a yield implied by the price over par. maybe this would actually look more like a traditional money market than the previous/current model. i still need to learn more, but i'm still left thinking that one of the biggest reasons to go long bitUSD is gone. in fact, going long bitUSD in 2.0 is now risky bc you buy at a premium over par and are only guaranteed liquidation at par, while receiving no interest to bear that risk.

Offline cylonmaker2053

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Can someone please provide a definitive answer?
in short: no .. not directly on just being long on an MPA ..
there is an alternative though which was highlighted by stan

will we still be offering bitUSD? if so, how will it be created? same process of matching long and short traders?

Offline cylonmaker2053

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One of the biggest reasons to own bitassets, like bitUSD, is because they earn higher than typical banking interest rates. Is this feature going away in 2.0??? If so, this is a big mistake and kills a venture concept i've been developing that'd market bitUSD to the public as a savings alternative.

Can someone please provide a definitive answer?

This is the more flexible alternative in 2.1 
https://bitshares.org/technology/collateralized-bond-market/

Will this fit your business model?

honestly, not sure. the key to scale in financial markets is standardized contracts, which is what we have right now with bitUSD, for instance. each contract is the same in structure, just diff in interest rate, which is basically the price of the contract. are these bond instruments going to be individually offered wrt size, interest rate, maturity date, or other terms?

i'm also skeptical of the collateral arrangement. instead of mechanically locking up fixed collateral on the blockchain with simple settlement rules, we're now going to be dealing with options to buy collateral--like put options--at a fixed strike? what if the counterparty can't deliver at the higher price in the event of collateral asset meltdown?

i loved the bitUSD concept as being akin to a money market that could have broad uses as savings instruments, cash management for firms, potential commercial paper instruments, etc.

forgive my skepticism here, i was just getting excited about the soon-to-be-retired products. hopefully the 2.0 stuff is better, but i'm not yet convinced. i thought 2.0 was about a tech upgrade to the platform, not a fundamental restructure to core products.

Offline xeroc

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Can someone please provide a definitive answer?
in short: no .. not directly on just being long on an MPA ..
there is an alternative though which was highlighted by stan

Offline Stan

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One of the biggest reasons to own bitassets, like bitUSD, is because they earn higher than typical banking interest rates. Is this feature going away in 2.0??? If so, this is a big mistake and kills a venture concept i've been developing that'd market bitUSD to the public as a savings alternative.

Can someone please provide a definitive answer?

This is the more flexible alternative in 2.1 
https://bitshares.org/technology/collateralized-bond-market/

Will this fit your business model?
Anything said on these forums does not constitute an intent to create a legal obligation or contract of any kind.   These are merely my opinions which I reserve the right to change at any time.

Offline cylonmaker2053

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One of the biggest reasons to own bitassets, like bitUSD, is because they earn higher than typical banking interest rates. Is this feature going away in 2.0??? If so, this is a big mistake and kills a venture concept i've been developing that'd market bitUSD to the public as a savings alternative.

Can someone please provide a definitive answer?