A case for Demurrage bitUSD (dUSD)

[Empirical1.2]

We should just buy  1/Google of the "solar and nonsense" token and live our lives, pretending it makes any sense.

I was polite in their thread but personally I think it's deliberate nonsense. If you didn't do your research/understand bonds, which most don't, & just looked at OP, you'd think it was a regular DAC with a total of 10 million official tokens not an unlimited amount of price stable tokens.

[tonyk]

I would prefer a way to favour shorts/covering shorts at the point of sale, but as I can't think of one, even though I don't like demurrage, I think you make a good a case for dUSD.

well I think you bother too much with stuff that makes sense.... initiatives for shorts; interest for longs...all in an attempt to make smart coins work.

We should just buy  1/Google of the "solar and nonsense" token and live our lives, pretending it makes any sense.

[Empirical1.2]

I would prefer a way to favour shorts/covering shorts at the point of sale, but as I can't think of one, even though I don't like demurrage, I think you make a good a case for dUSD.

[abit]

Isn't it the bond market?

[cube]

This essentially changes the 'business model' of bitassets - from a shorters-versus-longs trading/betting on future value of the collaterised bitassets (via game theory)  to a service provider one.  The service provider being the shorters who would be charging a commission for securing the value of the depositors' fiat.  Whether it will success or not depends on how much value the users see in securing their fiat in a decentralised way.

[Empirical1.2]

So I think I would be more in favour of competing solely on negative fees....shorts would need a larger upfront fee to be motivated?

Actually one of the most important issues this is trying to address is the one time-ness of the fee at the moment of the sale.
My thinking is this stepping in the shorters shoes - "OK I got 7% premium for selling my bitUSD, and what difference does it makes when I have to buy the bitUSD, in order to close my position, at about the same 7% premium ?"

Good point.

[tonyk]

So I think I would be more in favour of competing solely on negative fees....shorts would need a larger upfront fee to be motivated?

Actually one of the most important issues this is trying to address is the one time-ness of the fee at the moment of the sale.
My thinking is this stepping in the shorters shoes - "OK I got 7% premium for selling my bitUSD, and what difference does it makes when I have to buy the bitUSD, in order to close my position, at about the same 7% premium ?"

[Empirical1.2]

So as a BitUSD buyer competing at 1-1, if I offer 2% on 100 BitUSD that means I am willing to pay $102 of BTS for $100 BitUSD. (The extra $2 going specifically to the person who sold/shorted me the 100 BitUSD)

Correct!

...]&[/u] I'll pay 2% per annum in interest for the duration I hold dUSD, gradually reducing my dUSD, which will be distributed proportionally among all shorts?

Partially correct .This is a bit more complicated.
You will pay the weighted interest determined by all trades.
So for example if:
- there is another trade say at month #6 for another 100 dUSD at 1% you will be paying from that moment on:
1.5% annually  = (100 dUSD @ 2% + 100 dUSD @ 1%)/ 200 dUSD

additionally if 50 dUSD short is closed, we will start removing amounts from the highest interest first going to lower ones (i.e. start with the 2% in this case) and you will pay from then on:
 (50 dUSD @ 2% + 100 dUSD @ 1%) / 150 dUSD

Thanks for that simple example, I understand much better now 

I will think about it more but atm, my thinking is that the interest part is a little more complicated for the average BitUSD buyer to understand and because BTS is so volatile, low interest paid to shorts may not be a strong incentive but could be a negative/barrier to BitUSD adoption. So I think I would be more in favour of competing solely on negative fees.

Though I guess the negative of a fee only approach at 1-1 is that longer term BitUSD holders would be favoured over traders and shorts would need a larger upfront fee to be motivated?

[tonyk]

So as a BitUSD buyer competing at 1-1, if I offer 2% on 100 BitUSD that means I am willing to pay $102 of BTS for $100 BitUSD. (The extra $2 going specifically to the person who sold/shorted me the 100 BitUSD)

Correct!

...]&[/u] I'll pay 2% per annum in interest for the duration I hold dUSD, gradually reducing my dUSD, which will be distributed proportionally among all shorts?

Partially correct .This is a bit more complicated.
You will pay the weighted interest determined by all trades.
So for example if:
- there is another trade say at month #6 for another 100 dUSD at 1% you will be paying from that moment on:
1.5% annually  = (100 dUSD @ 2% + 100 dUSD @ 1%)/ 200 dUSD

additionally if 50 dUSD short is closed, we will start removing amounts from the highest interest first going to lower ones (i.e. start with the 2% in this case) and you will pay from then on:
 (50 dUSD @ 2% + 100 dUSD @ 1%) / 150 dUSD

[Empirical1.2]

In this system can people short to themselves (Yield Harvest) and earn interest thereby driving the dUSD yield down & make it less effective?

When you short to yourself you neither gain nor lose anything. THe money collected as a negative interest on your dUSD go imidiatly into reducing your short dUSD position.

Thanks for the reply. Next question. Does this favour short term traders?

For example, person A might want 1000 BitUSD intending to hold it for a few months and be willing to pay 5% per annum to shorters.  Person B might want 1000 BitUSD because BTC is crashing but he intends to hold it only for a few hours or a few days so can offer 30% interest per annum but that is effectively only $1 or a 0.1% fee. It seems this would always favour the person intending to hold for the shortest time even though they are less valuable?

Whereas if they competed on negative fees at 1-1, the one who was really willing to pay the most to the short would win?

This is a part that is indeed poorly explained in the OP.

So in a  matched trade 1)the dUSD buyer do pays directly the interest [here as a fee of say 1.5% to this exact dUSD seller] and 2) the 'interest' paid and the amount of the tx is included in the calculation of the actual interest rate for the future.

Example:
There is one and only trade at 2% interest for 1 dUSD
-The dUSD buyer pays 1.02 worth of BTS for 1 dUSD at the time of the transaction
-If the buyer holds this 1 dUSD for one year it will be gradually reduced to 0.98 dUSD [while at the same time all short positions [proportionally] will be reduced by 0.02 dUSD].

Thanks, so to be crystal clear, the system is advocating a negative fee & interest?

So as a BitUSD buyer competing at 1-1, if I offer 2% on 100 BitUSD that means I am willing to pay $102 of BTS for $100 BitUSD. (The extra $2 going specifically to the person who sold/shorted me the 100 BitUSD) & I'll pay 2% per annum in interest for the duration I hold dUSD, gradually reducing my dUSD, which will be distributed proportionally among all shorts?

[tonyk]

In this system can people short to themselves (Yield Harvest) and earn interest thereby driving the dUSD yield down & make it less effective?

When you short to yourself you neither gain nor lose anything. THe money collected as a negative interest on your dUSD go imidiatly into reducing your short dUSD position.

Thanks for the reply. Next question. Does this favour short term traders?

For example, person A might want 1000 BitUSD intending to hold it for a few months and be willing to pay 5% per annum to shorters.  Person B might want 1000 BitUSD because BTC is crashing but he intends to hold it only for a few hours or a few days so can offer 30% interest per annum but that is effectively only $1 or a 0.1% fee. It seems this would always favour the person intending to hold for the shortest time even though they are less valuable?

Whereas if they competed on negative fees at 1-1, the one who was really willing to pay the most to the short would win?

This is a part that is indeed poorly explained in the OP.

So in a  matched trade 1)the dUSD buyer do pays directly the interest [here as a fee of say 1.5% to this exact dUSD seller] and 2) the 'interest' paid and the amount of the tx is included in the calculation of the actual interest rate for the future.

Example:
There is one and only trade at 2% interest for 1 dUSD
-The dUSD buyer pays 1.02 worth of BTS for 1 dUSD at the time of the transaction
-If the buyer holds this 1 dUSD for one year it will be gradually reduced to 0.98 dUSD [while at the same time all short positions [proportionally] will be reduced by 0.02 dUSD].

[yvv]

In the design of the current bitUSD a believe exists that the shorter is the one taking a loan. This is a very arguable hypothesis.

This is not a hypothesis, this is the fact. Interest or demurrage (negative interest) could really be useful for regulating emission of bitAssets. It is definitely worth to create a test asset and play with it, imo.

PS OMG, with bitETFs coming, what a wonderful world of finance does bitshares open to us! I am going to stop using my bank soon 

[Empirical1.2]

In this system can people short to themselves (Yield Harvest) and earn interest thereby driving the dUSD yield down & make it less effective?

When you short to yourself you neither gain nor lose anything. THe money collected as a negative interest on your dUSD go imidiatly into reducing your short dUSD position.

Thanks for the reply. Next question. Does this favour short term traders?

For example, person A might want 1000 BitUSD intending to hold it for a few months and be willing to pay 5% per annum to shorters.  Person B might want 1000 BitUSD because BTC is crashing but he intends to hold it only for a few hours or a few days so can offer 30% interest per annum but that is effectively only $1 or a 0.1% fee. But the one offering 30% would win. It seems this would always favour the person intending to hold for the shortest time even though they are less valuable?

Whereas if they competed on negative fees at 1-1, the one who was really willing to pay the most to the short for the BitUSD would win?

[tonyk]

In this system can people short to themselves (Yield Harvest) and earn interest thereby driving the dUSD yield down & make it less effective?

When you short to yourself you neither gain nor lose anything. THe money collected as a negative interest on your dUSD go imidiatly into reducing your short dUSD position.

BTS has been in a fairly long general downtrend/flat so there is not a lot of shorting demand, dUSD interest paid to shorts would help this, however... When BitUSD started, BTSX enjoyed a good uptrend and the reverse was true. What happens in the scenario when there is excesss demand to short BitAssets, how is BitAsset demand incentivized? 

Glad you asked. The system easily/smoothly goes into paying interest on dUSD when the short demand is less than short supply (more people willing to  short dUSD than people wanting to have dUSD). Effectively paying interest on dUSD.
 

[Empirical1.2]

I don't understand everything here but...

In this system can people short to themselves (Yield Harvest) and earn interest thereby driving the dUSD yield down & make it less effective?

BTS has been in a fairly long general downtrend/flat so there is not a lot of shorting demand, dUSD interest paid to shorts would help this, however... When BitUSD started, BTSX enjoyed a good uptrend and the reverse was true. What happens in the scenario when there is excesss demand to short BitAssets, how is BitAsset demand incentivized?