Author Topic: I just created a credit default swap on the BTS blockchain  (Read 4552 times)

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Offline JonnyB

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I just created a credit default swap on the BTS blockchain
« on: March 05, 2017, 01:29:19 am »
https://bitshares.org/wallet/#/market/USDTETHERDEFAULT_USD

This is essentially a CDS (credit default swap)

1 USDT is an IOU for 1 real dollar in a bank account, this Omni asset token is provided by www.tether.to

Because it is an IOU theres always a chance that they could default. This default may happen due to Hacking, theft, incompetence, law, regulation, omni flaws, bitcoin blockchain flaws, unknown reasons.

If you hold a lot of USDT you may want to insure yourself against this risk of default and thats what my prediction market asset allows you to do.

The insurance premium is set by the market.
I have made a bid at 2 % of the payout value as thats what I'm willing to pay for this type of insurance.

I believe this is a good use case for prediction market assets and will offer default insurance on OPEN.BTC if there's a demand for it.
I run the @bitshares twitter handle
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Offline 沂蒙小调

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Re: I just created a credit default swap on the BTS blockchain
« Reply #1 on: March 05, 2017, 07:42:38 am »
Well Done +5%

Offline Permie

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Re: I just created a credit default swap on the BTS blockchain
« Reply #2 on: March 06, 2017, 08:45:30 pm »
This sounds really interesting!

Could you give us a ELI5 explanation of the mechanics of what you are enabling?
Some instructions or pointers as to why someone would want to use your service would be really helpful I think :)
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Offline JonnyB

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Re: I just created a credit default swap on the BTS blockchain
« Reply #3 on: March 08, 2017, 06:46:45 pm »
This sounds really interesting!

Could you give us a ELI5 explanation of the mechanics of what you are enabling?
Some instructions or pointers as to why someone would want to use your service would be really helpful I think :)

It basically just insurance incase someone doesn't pay you back, in this case Tether who issue tokens for USD.

It is a binary bet, which by definition can only have 2 outcomes. The token has an expiry date jan 1st 2018.

Think of normal car insurance as a bet that you will crash your car.  You are betting your premium each year yet you still don't want to crash.
I run the @bitshares twitter handle
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Offline Permie

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Re: I just created a credit default swap on the BTS blockchain
« Reply #4 on: March 08, 2017, 09:13:02 pm »
Excellent, thanks very much :)
JonnyBitcoin votes for liquidity and simplicity. Make him your proxy?
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Offline fractalnode

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Re: I just created a credit default swap on the BTS blockchain
« Reply #5 on: March 09, 2017, 12:53:21 am »
Thanks for that example!
This is very good news!
This gives a lot of new opportunities.

Offline JonnyB

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Re: I just created a credit default swap on the BTS blockchain
« Reply #6 on: March 29, 2017, 03:03:53 pm »
I have handed over ownership of the asset: USDTETHERDEFAULT

The new owner is: LIN9UXIS

That account is controlled by respected community member [member=42020]Valentin | Lin9uxis[/member] who will be responsible for settling the outcome on Jan 1st or sooner.

Valentin and [member=41672]kingscrown[/member] are building a selection of prediction market assets under the banner of Bitsbetsgroup and I think they are more suited to be the owner than me.

their latest proposed PMA details can be found here  https://steemit.com/bitshares/[member=41672]kingscrown[/member]/would-you-trade-prediction-market-of-bitcoinunlimited-hardfork-on-bitshares-dex-with-steem

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Offline George_Bitspark

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Re: I just created a credit default swap on the BTS blockchain
« Reply #7 on: April 01, 2017, 06:22:33 am »
I have a few questions, just trying to understand this more clearly. So in buying this asset it will redeem at date X 1:1 with the tether you hold elsewhere? Who will determine you own tether and that it has defaulted? Is this a UIA? It will only redeem the amount of USDTETHERDEFAULT that you buy, correct? So how will it cover Tether which you hold which has defaulted because amount of Tether will always be > this asset? Thanks!
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Offline nmywn

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Re: I just created a credit default swap on the BTS blockchain
« Reply #8 on: April 01, 2017, 09:24:07 am »
http://docs.bitshares.org/bitshares/user/pm.html
It is covered by collateral in bitUSD, which means borrowers taking the risk of Tether failure.
You don't have to own any Tether. If market is resolved to true 1USDTETHERDEFAULT = bitUSD.

Please note that power of how market is resolved lays in hand of issuer, rest is guaranteed by blockchain contract.
http://cryptofresh.com/u/bigbetsgroup

Offline JonnyB

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Re: I just created a credit default swap on the BTS blockchain
« Reply #9 on: April 01, 2017, 05:30:15 pm »
I have a few questions, just trying to understand this more clearly. So in buying this asset it will redeem at date X 1:1 with the tether you hold elsewhere? Who will determine you own tether and that it has defaulted? Is this a UIA? It will only redeem the amount of USDTETHERDEFAULT that you buy, correct? So how will it cover Tether which you hold which has defaulted because amount of Tether will always be > this asset? Thanks!

Not a UIA. It is a special type of Smartcoin called a prediction market asset(PMA) this is a binary bet on the outcome of an event.
USDTETHERDEFAULT is borrowed into existence much like bitUSD. On Jan 1st it will either be worth 1 BitUSD or zero.
There are no tether tokens involved.

Think of it as insurance with a premium of 2% a year that only pays out if tether has problems and stops redemptions.

my guess would be that USDTETHERDEFAULT has a 98% chance of expiring and being worth 0.
I run the @bitshares twitter handle
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Offline paliboy

Re: I just created a credit default swap on the BTS blockchain
« Reply #10 on: November 21, 2017, 08:32:44 am »
30 million of USDT stolen :) https://www.coindesk.com/tether-claims-30-million-stable-token-stolen-attacker/

Only 41 days remaining to default :P

Offline mostar

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Re: I just created a credit default swap on the BTS blockchain
« Reply #11 on: November 22, 2017, 10:53:26 am »
The existence of this CDS need to be publish and spread out site the bitshares community.
Here we use BitUSD etc...

Offline paliboy

Re: I just created a credit default swap on the BTS blockchain
« Reply #12 on: January 03, 2018, 01:24:37 pm »
Unfortunately Tether didn't default in 2017, what happens now with USDTETHERDEFAULT?

Offline Gleepower

Re: I just created a credit default swap on the BTS blockchain
« Reply #13 on: January 03, 2018, 03:42:39 pm »
What is the definition of a default here? Legally, a default is when a firm cannot pay a due payment which it is legally obligated to pay. Tether LTD. has no obligation to redeem tethers, and owners of Tether have no claim on Tether Ltd as they say in their legal page:

"Purchase and Redemption of Tethers: The Site is an environment for the purchase and redemption of Tethers. Once you have Tethers, you can trade them, keep them, or use them to pay persons that will accept your Tethers. However, Tethers are not money and are not monetary instruments. They are also not stored value or currency.
There is no contractual right or other right or legal claim against us to redeem or exchange your Tethers for money. We do not guarantee any right of redemption or exchange of Tethers by us for money. There is no guarantee against losses when you buy, trade, sell, or redeem Tethers."

So by the legal definition of default, it doesn't look like it's possible for a tether token to default, since it's not a claim on anything. Tethers are not I.O.Us.
« Last Edit: January 03, 2018, 04:30:52 pm by Gleepower »

Offline paliboy

Re: I just created a credit default swap on the BTS blockchain
« Reply #14 on: January 07, 2018, 01:57:25 pm »
[member=46770]Gleepower[/member] I completely agree that it's unclear if the Tether did/didn't/can/cannot default as defined in this contract. I couldn't care less if I won or lost my bet worth 2 USD :)

What I care though is why I still see this contract in my account dashboard and what happens after it's expired. If nothing forces the creator of a prediction market to close it properly, I consider it a bug in architecture of BitShares.