Author Topic: Thought Experiment  (Read 5938 times)

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Offline Empirical1.2

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OK, next thought experiment.

How much of a (properly used) investment would it take to drive the market cap of BitShares to equal Bitcoin?
(I don't think it would take 6 billion in new cash to get there.  What do you think it would take?)

How much actual investment did it take to drive ETH to 1 Billion?



Step 1: Acquire 100 million BTS, currently valued at $650 000 but probably end up costing $1 million.

Step 2: Stagger 50 million BTS in SmartCoin yield in year 1

In the first year 10% interest on SmartCoins will conservatively be very attractive, so 50 million BTS could create 500 million of SmartCoin demand and tie up 1 billion in BTS. That BTS for SmartCoin demand will raise the price of BTS. (Given how little BTS is tied up in SmartCoins ATM, the reward should be staggered in over a few months to create more even demand and to determine the impact on the peg/shorts/other.)

Step 3: Between a $1-200 million valuation sell 25 million BTS so you have $1.5 million that can be used as an incentive if needed which is independent of the BTS price.

Step 4: 25 Million BTS to yield in year 2.

Our goal is probably for SmartCoins not to be worth much more than 20-25% of BTS so that even when BTS falls significantly in price, BTS has a valuation which could conceivably support them.

By year 2 when SmartCoins are more established, 5% interest may be appealing so only 25 million BTS per year will attract 500 million BTS worth of SmartCoin demand and tie up 1 billion worth of SmartCoins.

So a virtuous cycle is created where BTS for SmartCoin yield, creates new SmartCoin demand, raises the BTS price which creates even more SmartCoin demand & less & less BTS is required to do it as SmartCoins become established, liquid and with greater utility.

Step 5: Pattern Interrupted

If the pattern was working well and BTS had $40 million worth of SmartCoins & a valuation of $200 million which temporarily spiked to $400 million and then halved again to $200 million the growth cycle would be unaffected because few new SmartCoins would have been created during a short temporary spike.

However let's say the process was going well and $40 million worth of SmartCoins had been created and BTS had a valuation of $200 million. If BTS lost 60% of its value due to some really bad news and fell to $80 million then the virtuous pattern would be interrupted. The 50 million BTS would be just 4% yield not 10% that was driving new SmartCoin demand in year 1. People would likely still hold their SmartCoins knowing the yield is variable but there may start be concerns about under-collaterilization. So there would not be a lot of new SmartCoin demand driving up the price and it would probably not be in our interests to encourage SmartCoin creation when they are such a large % of BTS value.

Here Company Z may take some of the $1.5 million it gained by selling 25 million and create some sort of temporary additional short/collateral incentive. This has the same impact as a SmartCoin incentive but on collateral. It drives up the demand to provide SmartCoin collateral and this demand drives up BTS price. At an increased BTS price with higher levels of collateral, the BTS to SmartCoin yield growth pattern would reassert itself more rapidly. The $1.5 million would probably be sufficient to provide a temporary 3 month collateral incentives a few times if required in the goal was a rapid fairly uninterrupted ascent to a Bitcoinesque valuation.

In a few years SmartCoins should be fully bootstrapped, established, liquid and with great utility. Traditional banks may be well into negative interest territory. So at that stage extremely low/no yield would be attractive on SmartCoins especially combined with their other advantages like privacy etc. At that stage SmartCoin demand and BTS's valuation can start to grow more organically. During this time many many businesses will have been attracted to the BTS blockchain & the bustling SmartCoin economy, to the point they will have a large, positive and independent impact on BTS valuation.
« Last Edit: March 14, 2016, 10:51:56 am by Empirical1.2 »
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Offline Empirical1.2

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Real quick...what if we can buy bonds with smartcoins and when we do that, we receive a % of interest paid to them.  that way you essentially have to lock those funds up to get the % interest.  at this point, smartcoins would be held by risk averse people and unable to be sold.

Imo you want to offer a % interest so that you have an incentive to purchase & continually hold SmartCoins but at the same time we also want to bootstrap a SmartCoin economy with businesses accepting SmartCoins for products and services because they are attracted by the size of the SmartCoin market and the number of SmartCoin holding potential customers. This requires us to have easy access to our SmartCoins so that we can easily spend them, the same way you may frequently make/receive payments from a regular savings account. (Increased utility will make SmartCoins more attractive & liquid thereby increasing demand.)
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chryspano

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OK, next thought experiment.

How much of a (properly used) investment would it take to drive the market cap of BitShares to equal Bitcoin?
(I don't think it would take 6 billion in new cash to get there.  What do you think it would take?)

How much actual investment did it take to drive ETH to 1 Billion?

According to the order chart on Poloniex,  with 1,668 bitcoins you can instantly buy up the Poloniex sales book all the way until you are paying .006 per BTS making BitShares worth $2.50... since there are 2.5 billion BTS the market cap would be about the value of Bitcoins'. Probably have to do the same to the other exchange at the same time since CoinMarketCap is figuring in both... so ballpark 3,000 bitcoins...at $420 each then 1.2 million dollars ought to do it.

I doubt it, as the price rises more people will start to sell in even larger quantities, we would need some really good news to minimize the increased sells, but even if Microsoft and apple "adopted" bitshares we would need much more than 1m. I have no idea what I'm talking about here and probably  I should't make this post but my guess is more than 100m

Offline mint chocolate chip

OK, next thought experiment.

How much of a (properly used) investment would it take to drive the market cap of BitShares to equal Bitcoin?
(I don't think it would take 6 billion in new cash to get there.  What do you think it would take?)

How much actual investment did it take to drive ETH to 1 Billion?

According to the order chart on Poloniex,  with 1,668 bitcoins you can instantly buy up the Poloniex sales book all the way until you are paying .006 per BTS making BitShares worth $2.50... since there are 2.5 billion BTS the market cap would be about the value of Bitcoins'. Probably have to do the same to the other exchange at the same time since CoinMarketCap is figuring in both... so ballpark 3,000 bitcoins...at $420 each then 1.2 million dollars ought to do it.

Offline fuzzy

Real quick...what if we can buy bonds with smartcoins and when we do that, we receive a % of interest paid to them.  that way you essentially have to lock those funds up to get the % interest.  at this point, smartcoins would be held by risk averse people and unable to be sold.
« Last Edit: March 13, 2016, 05:23:46 am by fuzzy »
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Offline chono

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OK, next thought experiment.

How much of a (properly used) investment would it take to drive the market cap of BitShares to equal Bitcoin?
(I don't think it would take 6 billion in new cash to get there.  What do you think it would take?)

How much actual investment did it take to drive ETH to 1 Billion?
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Offline Stan

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OK, next thought experiment.

How much of a (properly used) investment would it take to drive the market cap of BitShares to equal Bitcoin?
(I don't think it would take 6 billion in new cash to get there.  What do you think it would take?)

How much actual investment did it take to drive ETH to 1 Billion?
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 Stan

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Egad, brains, Brilliant!

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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Two rules i think solve this problem nicely:

#1 the company should consider this a marketing experiment and A/B test it repeatedly with different mixes, evolve the solution to what seems to be working, keep evolving, never settle on a fixed bundle unless it's just wildly successful and can't be improved (as determined by limited continuous testing).

#2 Use a liquidity-weighted choice mechanism. the seed test case can start with the top 5 most liquid smartcoins/assets, but consider the number and types of assets in that bundle to be up for experimentation. Maybe the firm considers its UIA as a fixed element of that bundle, but that doesn't even have to be the case, and i'd recommend they experiment with and without it.

No one knows a priorit what the best mix would be, and i imagine it's different for each customer. this type of learning algorithm can evolve to segment customers by types and generate bundles best for each type. Also of importance is that the firm and its analysts will learn from experience the effects of each of these giveaways on the markets.

Offline Empirical1.2

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They should buy BTS and pay it out as SmartCoin interest including on their own IOU.USD.

Example Basket: IOU.USD, BitUSD, BitGold, BitSilver

Current BTS valuation $20 million

Company Z purchase 24 million BTS. Cost $200 000

They put the BTS in fund which directs 2 million BTS per month as yield possibly with a taper at the end.

Assuming the market is attracted by 10% p.a. on SmartCoins This will stimulate the rapid demand for 240 million BTS worth of the basket, tying up 500 million BTS. Including up to 60 million BTS, $500 000 worth of demand for their product. (though possibly less depending on their credibility if it's an uncollateralized IOU)

Increased SmartCoin demand increases BTS demand which raises the price of BTS so that the BTS they are directing to yield is able to incentivise an even higher $ amount of SmartCoins and IOU.USD creation.

Whereas if for example they offered a $50 sign up bonus for buying $100 IOU.USD it would cost them $200 000 to have customers create just $400 000 of their own product and have no impact on bootstrapping themselves or SmartCoins as people would claim the bonus and then sell their IOU.USD back. (This bonus would also have a positive impact on BTS price when they initially funded it but a negative price effect once people started dumping.)

Negative consequences of SmartCoin interest

1. SmartCoins would trade above the peg.

- Lower forced settlement to 95%.
- Introduce the liquidity subsidy already proposed. (let the subsidy stimulate  the weak side of the order book around the peg, this will probably be the short side. Though it's possible the rapid increase in BTS value could balance out short and long demand.)
- Possibly direct some of the 2 million per month BTS to short yield.

2. Offering Yield on an IOU.USD could create up to $500 000 worth of IOU.USD demand even in a 4 SmartCoin basket that they only put $200 000 of BTS yield towards. Them selling this BTS or a larger amount as they expand could be a threat which is why I think given the benefits BTS should fund it itself.

Other:

They could increase/extend the promotion based on it's success &/or try something else.

Some form of unique identification may be necessary if you wanted to maximise the amount of unique individuals.Then you could also just pay yield for the first year and mimic teaser rate on savings accounts marketing strategy.

You could also stagger it so it starts at 500 000 BTS a month in yield and then slowly rises to 3 million a month, this could make the demand for SmartCoins increase more steadily over the period as opposed to creating a large % of the new demand very early on.

My traditional bank recently sent me two $50 Visa gift cards at 3 months and 1 year (if memory serves accurate) to keep a higher balance in savings with them.  Further, I had to set an auto deposit to fund the account on an increasing basis.

Takeaway: Today I have a higher balance in savings with this bank and continue to utilize an auto deposit monthly to increase my savings.  They rewarded me for learning how to save in their bank.

Perhaps this model can be adopted/modified by a partner willing to invest in BitShares users.

This is similar to the yield promotion. This got you to create an account and keep it with them for at least a year probably with >$1000.

Customers are fairly sticky & first year bonuses are very successful at creating long term account holders for a very low cost.  In the UK it is/was controversial but very successful...

Quote
The Fair Banking Foundation reckons that 3.78 million savers over the past five years had money in accounts paying attractive short-term bonuses, but who failed to move their cash once the deal ended.

Hopefully we could keep ours going for many years during the growth phase and once it's fully tapered traditional banks will be well into negative territory and zero yield would actually be attractive especially once SmartCoins had greater utility and combined with all their other great features as well.



« Last Edit: March 12, 2016, 11:10:43 am by Empirical1.2 »
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Offline Thom

That's a great pic for your reply to my post :)

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Offline Stan

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Sheesh.  What do I need to do to start an argument around here? :)

Perhaps ask economists or traders to participate?

At least someone with confidence in their ability to predict the movement / trends of a free market.

What do you hope to gain from a thought experiment where argumentation is seen as a positive result?

Are we lab rats in some kind of Milgram experiment ?


I'm trying to figure out what could go right or wrong with various approaches where steady influx of outside capital might be plausibly able to induce sustained positive feedback in a cost effective way.
« Last Edit: March 12, 2016, 01:18:25 am by Stan »
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 Thom

Sheesh.  What do I need to do to start an argument around here? :)

Perhaps ask economists or traders to participate?

At least someone with confidence in their ability to predict the movement / trends of a free market.

What do you hope to gain from a thought experiment where argumentation is seen as a positive result?

Are we lab rats in some kind of Milgram experiment ?
Injustice anywhere is a threat to justice everywhere - MLK |  Verbaltech2 Witness Reports: https://bitsharestalk.org/index.php/topic,23902.0.html

Offline Stan

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I'm really asking about what feedback loops are set up between giving money to one side or the other of the shorts and longs.

Given an unending supply of new users receiving $50 worth of our digital assets, which would double in price first:  BitShares or Bitcoin?

Some assert that the only effect would be immediate dumping the less popular coin for the more popular coin.

"Not so fast!", others say.  "Knowing of the announced intent to continue buying and awarding BTS, speculators would reason that the smaller coin would grow faster so they would stay with the smaller coin until it became equal to the larger coin.  Moving to the bigger coin would be giving up the growth caused by the immediate buying pressure on a small coin for the watered down growth if the money moved out into ocean of all other coins."

"No, no, no!", respond the first.  "The effect on price of BTS would be quickly priced in and once it slowed down the holders would start dumping again."

"You fool!", the others scoff... "<ad hominem rant deleted>"  ...



What are the foreseeable unforeseen consequences of this process in the steady state?

I guess the institution could put up a bitUSD buy wall at some premium to prime the demand for bitUSD and then reduce the premium as the rising value of BTS and the promise of an insatiable market for bitUSD induces more and more others to create bitAssets, tying up more and more of other peoples BTS in a virtuous spiral up!

No!  Demand for bitUSD exceeds supply already - you must buy BTS and lock it up in vesting escrow - its the only way!

(Tying up your own BTS to make bitUSD to give away would be much less cost effective than inducing others to do so, no?)

Do we need a market maker to gain bitUSD liquidity or just steady influx of new money from someone seeking to prime the pump?

Sheesh.  What do I need to do to start an argument around here?

:)
« Last Edit: March 12, 2016, 12:48:11 am by Stan »
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.