Will bitassets in 2.0 Still Earn Interest?

[devlux]

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.

[cylonmaker2053]

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...

[starspirit]

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.

[cylonmaker2053]

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.

[cylonmaker2053]

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.

[Erlich Bachman]

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

[Bitcoinfan]

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.   

[Ander]

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. 

[cylonmaker2053]

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.

[Erlich Bachman]

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.

[cylonmaker2053]

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.

[fav]

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

[cylonmaker2053]

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?

[cylonmaker2053]

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.

[cylonmaker2053]

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.