Running a CryptoCurrency Fund as a Privatized BitAsset

[Belgarath]

Maybe I don't understand clearly how it works so apologise if this does not make sense...

But if a user settles more than 5% I will have some time to fill in my BTS collateral? Since I have the offsetting portfolio (which if I don't want ruin risk I can keep identical to the calculating feed (see below)), I can just liquidate 5% of that portfolio within the allowed time (is it 24h?) change it to BTS and settle, would it work?

For the price feed it would be the weighted average price of the underlying securities, as an actively managed portfolio such a weights will change at regular interval (say 1d but to make it simpler 1 month) and the weights will be left to the portfolio manager to decide. Ideally the PM will have some rules (like a prospectus in traditional funds) and should he move outside the boundaries pre-agreed the investor can simply settle and remove the funds.

I agree that with a UIA the process would be much simpler, the UIA is just a IOU to the investor (and will work a simple accounting measure). But in this case they will have full credit risk on the manager of the portfolio.

With a customized Smart Contract there will be a suitable level of collateral that will make the investor comfortable enough to invest (maybe we don't need 105% but say 60% is sufficient)... I would let the market settle that.

But as long as the manager:
- keeps the offsetting portfolio he has in line with the price feed
- monitor the inflows and outflows and liquidate/invest assets accordingly
- change the portfolio weights regularly

The manager should not face much ruin risk and hence the investor should be happy because its collateralised...

[paliboy]

I still don't fully understand your proposal but it seems that user issued asset would be more suitable for your use case.

In your proposal, what would happen if users settle more than 5% of assets? You would go bankrupt. How would be the price feed defined/calculated?

[Belgarath]

I would not issue it as fully decentralised. But as a privatized actively managed cryptofund.

The idea would be to have a collateral of only 105%, if we were to charge 5% entry fee say then:
- an investor could invest say 1050 BTS worth of investment and send these to the manager
- the manager issues 1000 BTS worth of BitAsset and give them to the investor
- the manager then publishes the composition, uses the raised BTS to buy the composition and hedge the manager
- he will also commit to leave the 5% entry fee there for the overcollateralization

Subscription will happen as above

Redemption will be a settlement where the investors destroys the BitAsset, the manager will sell the portfolio of assets and settle with BTS

Rebalancing will happen by changing simultaneously the composition of the cryptofund and the hedging portfolio

Would this work?

Granted there is less trust in this system as it's not fully collateralised but it could be quite interesting.

An alternative would be to have a smartcoin that does not settle only n BTS but settles on cryptocurrencies, in this way the requirements of overcollaterilsation is less useful... but I'm not sure it can work?

Thanks for any comment!!

[paliboy]

set overcollateralizations lower than standard smartcoins, hedge the fund's positions on Bitshares themselves so that the BTS holding will always balance.

Can you explain this part?

The biggest risk I see is that your asset might get "black-swanned" quite easily. In order to prevent it, you would have to bootstrap it with relatively big amount of collateral - something like in millions of USD (depending on minimum collateral ratio)

[Belgarath]

Dear All,

I'm thinking to explore the concept of a Fund managed on the Bitshares platform.

The idea would be to issue Privatized BitAssets, set overcollateralizations lower than standard smartcoins, hedge the fund's positions on Bitshares themselves so that the BTS holding will always balance.

Anyone tried this? Do we already know that is not possible?

Otherwise I think it would be an interesting concept, in case is there anyone who can guide me on how to issue such a coin? I played with the issue of smart coins on the testnet but have not yet been able to fully figure out how it works.

Thank you very much!