Author Topic: What R3 think of our bitassets / smartcoins  (Read 2722 times)

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Offline JonnyB

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What R3 think of our bitassets / smartcoins
« on: November 26, 2016, 11:52:53 pm »
R3 say our smartcoin design could maybe work but suggest pooled collateral instead of individual collateral for the smart contract.
 they also say that using an altcoin as collateral won't be good enough due to inherent volatility and liquidity.
 
worth a read     http://www.r3cev.com/blog/2016/8/24/stablecoins

I tend to agree that altcoins are a shitty form of collateral and only something with the depth and liquidity of bitcoin make sense.
This is why the having a bitcoin sidechain will be such a huge step forward.
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Offline yvv

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Re: What R3 think of our bitassets / smartcoins
« Reply #1 on: November 27, 2016, 04:08:53 am »
They are not talking about altcoins. They are talking about a risk associated with using any crypto-currency as collateral. Margin calls, which are caused by drop in price of collateral token, put further downward pressure on token price. This is a system with positive feedback. Using bitcoin as collateral does not solve this problem. Another approach would be to use an IOU issued by reputable institution as collateral. This would make the system stable, but introduce a counter party risk.

Offline JonnyB

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Re: What R3 think of our bitassets / smartcoins
« Reply #2 on: November 27, 2016, 05:04:31 am »
You're right they said cryptocurrency not altcoin.
However I still think bitcoin would be good collateral for a stablecoin.

Why would you use an IOU from a bank as collateral when you could just use an IOU from the bank directly?
« Last Edit: November 27, 2016, 05:06:29 am by JonnyBitcoin »
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Offline yvv

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Re: What R3 think of our bitassets / smartcoins
« Reply #3 on: November 27, 2016, 01:53:41 pm »
You're right they said cryptocurrency not altcoin.
However I still think bitcoin would be good collateral for a stablecoin.

Why would you use an IOU from a bank as collateral when you could just use an IOU from the bank directly?

It would make little sense  for bitAssets, because they are invented to remove counter-party risk, which you bring back by using bank IOU. It would probably make sense for other types of assets, like index tracking ETF.

Being able to use bitcoin as collateral without introducing a counter-party risk would be nice, but probably this is not so trivial to implement.

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Re: What R3 think of our bitassets / smartcoins
« Reply #4 on: November 27, 2016, 02:06:11 pm »
R3 is slowly falling apart, whatever they think should be taken with a grain of salt

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Re: What R3 think of our bitassets / smartcoins
« Reply #5 on: November 27, 2016, 03:11:51 pm »
R3 is slowly falling apart...

HA!!!


...
R3 and its cast of characters are attempting to optimize & preserve obsolete business paradigms, a business model that justifies consulting revenues based on saying what the client wants to hear but ultimately their work will prove to be little more than a costly experiment
...

Offline BldSwtTrs

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Re: What R3 think of our bitassets / smartcoins
« Reply #6 on: November 28, 2016, 10:58:30 pm »
Is the peg working currently with smartcoins? For example what is the range of price in USD within which a bitUSD fluctuate over a week?

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Re: What R3 think of our bitassets / smartcoins
« Reply #7 on: November 29, 2016, 07:12:31 am »
Is the peg working currently with smartcoins? For example what is the range of price in USD within which a bitUSD fluctuate over a week?
It, ofc, depends on the liquidity but I would say that the $-price for bitUSD hasn't gone away from parity for more than 5% for ages ..
you can take a look at
http://coinmarketcap.com/assets/bitusd/  or
http://coinmarketcap.com/assets/bitcny/
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Offline Chris4210

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Re: What R3 think of our bitassets / smartcoins
« Reply #8 on: November 29, 2016, 02:43:41 pm »
Right, using Bitcoin as collateral would not solve the problem of volatility.  Bitshares would work the same way. Managing the collateral is a simple business risk that can be professionally managed by experts. As long as one does not replace the Bitcoin nor the USD both sides are fine.

The idea of pooled collateral is an interesting perspective. Would that reduce the individual loss and spread it among all issuers? In the Bitshares blockchain today everybody has to manage their risk level themselves. A bigger BTS buffer helps in volatile times.
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Offline BunkerChainLabs-DataSecurityNode

Re: What R3 think of our bitassets / smartcoins
« Reply #9 on: November 29, 2016, 03:15:41 pm »
Right, using Bitcoin as collateral would not solve the problem of volatility.  Bitshares would work the same way. Managing the collateral is a simple business risk that can be professionally managed by experts. As long as one does not replace the Bitcoin nor the USD both sides are fine.

The idea of pooled collateral is an interesting perspective. Would that reduce the individual loss and spread it among all issuers? In the Bitshares blockchain today everybody has to manage their risk level themselves. A bigger BTS buffer helps in volatile times.

Yes.. it essentially 'should' make the movements less drastic. It is easier to bet on something that moves only 1-5 points vs something like BTS that overnight can go up or down by as much as 30-50 points. Bitcoin likewise can move outside of that space perhaps not overnight but certainly over even a week. We have seen 20% gains just recently.
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Offline yvv

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Re: What R3 think of our bitassets / smartcoins
« Reply #10 on: November 29, 2016, 03:32:36 pm »
The problem here is that bitAsset contract works to amplify any fluctuation in price of collateral token. BTC price is harder to move than BTS price, but they both have same inherent problem when used as collateral. This does not mean that the system is fundamentally broken, it just has it's pros and cons.

Offline JonnyB

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Re: What R3 think of our bitassets / smartcoins
« Reply #11 on: November 29, 2016, 03:57:53 pm »
Another reason why Bitcoin would make much more sense as collateral is that many people trust and understand bitcoin so they know they can force settle at any time and get their bitcoin back.

With bit.usd if you force settle you get BTS back. Not many people care or understand what BTS is.
If btc was collateral your force settle of bit.usd would just be a purchase of bitcoin.
Also BTC price is much harder to manipulate.
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Offline Chronos

Re: What R3 think of our bitassets / smartcoins
« Reply #12 on: November 29, 2016, 09:22:54 pm »
Great discussion. I've done my own thinking about this over the years, as well.

Another reason why Bitcoin would make much more sense as collateral is that many people trust and understand bitcoin so they know they can force settle at any time and get their bitcoin back.

That's exactly right, IMO. Bitcoin has always been the crypto to rule them all. But the point of Bitshares is to reward BTS holders, so BTS loses its investment potential if you sidechain BTC into it to use as a backing asset. In fact, I don't know why you wouldn't just drop BTS entirely and run the entire chain as a bitcoin sidechain, with BTC instead of BTS as the core token.

And this is (one reason) why it hasn't happened. It leaves BTS holders with nothing. But sidechains also have security challenges of their own.

That said, I actually think that BTS makes for very good backing collateral, and the criticism from R3 can't really be fixed "inside the system" at all, so to speak. It will just gradually diminish as the market and stability for BTS grows.

Offline JonnyB

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Re: What R3 think of our bitassets / smartcoins
« Reply #13 on: November 30, 2016, 10:54:55 am »
I agree that all proposed sidechains have some sort of security concerns.

If BTC was used as collateral for smartcoins, BTS would still have value because it is the only currency that trade fees can be paid in.

Right now trade fees going the reserve pool are pathetic but in the future trade fees being paid into the reserve pool could be enough to shrink the available supply.

This is why BTS would still be valuable if BTC was used as collateral.
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Offline Chronos

Re: What R3 think of our bitassets / smartcoins
« Reply #14 on: November 30, 2016, 05:58:31 pm »
Interesting. It would be technically possible to use BTC as collateral on the BTS chain, while keeping BTS for fees. But it would have the same sidechain security challenges: BTC miners could collude to steal the collateral out from the asset. Today, BTS witnesses can't do this, so it's a step down in security.

I actually think that BTS can become a better and better collateral token as its market cap grows. Considering that, and the security implications, this line of inquiry doesn't excite me as much as it could. Honestly, if I were going to sidechain it up like this, I would be tempted to just clone Graphene and not use the BTS token at all.

Good discussion. After reading the R3 article, I like the Bitshares model more than ever.  :)