Author Topic: Fractional Reserve Smartcoins  (Read 555 times)

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Offline Empirical1.2

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Fractional Reserve Smartcoins
« on: January 19, 2016, 10:48:12 am »
The DEX should be able to offer BitLTC^ in exchange for LTC and vice-versa via a bridge like Metaexchange

NuBits shows that there is market demand for fractional reserve but liquid Smartcoin offerings.

Fractional Reserve Smartcoins^

(I'm not suggesting removing the current Smartcoins but am suggesting introducing a new seperate set of Fractional Reserve Smartcoins^.)

The DEX can issue BitLTC^ up to a certain daily quota at LTC feed price + X% if there is demand above the feed.
BitLTC^ can be force settled at feed price - Y% from the collateral pool.

There are two situations that could make the BitLTC^ collateral pool under-collateralised.

- LTC could rise in current value including vs. BTS
- BTS could fall in current value, including vs. LTC.


Smartcoins^ rising in current value, including vs. BTS

The first problem is partly solved by putting all Smartcoin^ collateral into a common pool. So if LTC rises vs. BTS, BitLTC^ won't be under-collateralized because it will be drawing from a common pool that would have remained fairly stable in such an event.

Such an event is negative to the collateral pool, as a result the cost to issue new BitLTC^ could be increased to reduce demand.

BTS falling in current value against the majority of Smartcoins^

In this case BTS would want to encourage new Smartcoins^ to be created at the new level and discourage forced settlements.

So BTS could increase the available daily quota for Smartcoins^ and issue them very close to the feed price, thereby increasing demand. 

Smartcoin^ Interest

Smartcoins^ could then pay interest if you were willing to lock them up. (SImilar to NuBits parking rates which haven't been needed. )

Example:

BTC38 for example does about $50 000 volume of BTS a day, with a 0.2% trading fee that could generate $100 a day, $35-40k a year.

They have circa 300 million BTS I believe, with a market value of $900 000?

If the trading fee rewarded those willing to lock up BTC38-BTS for a year, then 40% of BTC38-BTS could be locked up and receive 10% per annum.
What percentage of BitUSD^ holders would lock up for  +5% +5% per annum? 

The Smartcoins^ that are locked up for an extended period reduce the pressure on the collateral pool and may make at it over-collateralized in most market conditions.

Other:

Over time due to loss of private keys/death/other a percentage of Smartcoins^ will never be redeemed thus also reducing pressure on the collateral pool.

Conclusion

A good Fractional Reserve Smartcoin^ System would allow BTS to be a decentralized alt-coin, currency and stock exchange where users could deposit USD for BitUSD^ and DASH for BitDASH^ and vice versa for a reasonable cost.

Good liquidity and a well managed collateral pool, could make Smartcoins^ much more popular and useful than the current over-collateralized Smartcoins.

Thoughts? 
« Last Edit: January 19, 2016, 11:04:14 am by Empirical1.2 »
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Re: Fractional Reserve Smartcoins
« Reply #1 on: January 19, 2016, 11:14:13 am »
I have not read the entire proposal .. but what you can do already today is this:

Issue a new privatized bitasset that uses the price fee of LTC and have people deposit LTC to an address that is used to back the bitLTC privatized bitasset ..
You could then (depending on the amount of real LTC you have) reduce the maintenance collateral ratio .. but I am not sure if you can reduce it to below 100% (but it may be) [member=5]bytemaster[/member]
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Offline Empirical1.2

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Re: Fractional Reserve Smartcoins
« Reply #2 on: January 19, 2016, 11:20:05 am »
I have not read the entire proposal .. but what you can do already today is this:

Issue a new privatized bitasset that uses the price fee of LTC and have people deposit LTC to an address that is used to back the bitLTC privatized bitasset ..
You could then (depending on the amount of real LTC you have) reduce the maintenance collateral ratio .. but I am not sure if you can reduce it to below 100% (but it may be) [member=5]bytemaster[/member]

 +5% That's good, the problem I see with that is, a privatized BitAsset has the same trust problems as a centralized exchange, whoever controls that LTC, even if it's multi-sig could take the money.

In my example the BTS used to buy the BitLTC goes into a collateral pool. There is a risk the pool becomes under-collateralized but as NuBits has shown this isn't necessarily a problem. I don't think they've even had to use their parking rate feature much yet.
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