Discussing the problems with bitUSD (smart coins)

[Empirical1.2]

NuBits have been relatively successful even though there is no redeemability onchain.

The fact that their market makers have provided liquidity for over a year through all of BTC's fluctuations give the market confidence that they are worth the short term risk especially during BTC downturns/high volatility.

Uphold (formerly BitReserve) has it's assets in a traditional bank but it too has been successful and is supposedly the fastest growing money platform in the world.

They've demonstrated that providing BitAsset backing is secondary to providing liquidity.

Ergo BitAssets have failed primarily due to not having a mechanism for providing reasonable liquidity around the peg.

[bitcrab]

Your statements are absolutely correct and have been communicated that way for quite some time .. it's called 'floor or parity' ...
It's not really a "flaw" in the system .. it is how it designed and supposed to be working ..

In order to be safe against falling prices you will always need to have more then 1x collateral ..
The only thing that you can do differently is .. also allow other kinds of assets to be used as collateral ... much like what MAKER is doing with the DAI on ethereum ..

I always considered whether Bitshares can introduce BTC as mgwBTC in NXT and use it as collateral to generate other bitassets such as BitUSD, BitCNY.

[bitcrab]

as there is no  redeemability, users regard bitUSD as an anti-vulnerability asset, not an currency that has equal value as USD, this lead to all the results.

 

[xeroc]

Your statements are absolutely correct and have been communicated that way for quite some time .. it's called 'floor or parity' ...
It's not really a "flaw" in the system .. it is how it designed and supposed to be working ..

In order to be safe against falling prices you will always need to have more then 1x collateral ..
The only thing that you can do differently is .. also allow other kinds of assets to be used as collateral ... much like what MAKER is doing with the DAI on ethereum ..

[monsterer]

Q) Why is there a problem implementing pegged assets?

A) The primary answer is that there can be no redeemability to the real asset on chain, for obvious reasons (since fiat/gold/silver/oil are not digital in the first place).

Q) Why is bitshare's current solution inadequate?

A) Those who borrow bitUSD from the system are at much higher risk than those who buy it from the market because the borrower must actively maintain his collateral and can get margin called by the system if the feed price moves enough

Q) What effect does this have on the price?

A) The borrower is forced to price his risk into the sale price of the bitUSD he borrows from the system - this leads to a situation where the price of bitUSD will always trade at a premium compared to the feed price, this damages the viability of the product as a whole.

Q) Is there another design which doesn't have the same biased risk profile, or is this just a natural consequence of not having redeemability?

A) Discuss