ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?

[bytemaster]

BitUSD requires a liquid market...... right now BitUSD is the best hedge against a falling BTSX because it is cheaper than $1 USD due to all the demand to short.   

What we need are tools that show the arbitrage opportunities... and people willing to accept profits from arbitrage as more reliable than gains in BTSX.

So if I understand this correctly to protect the market peg we need both BTSX/bitUSD and BTSX/USD markets set up on the third party exchange (like bter). Because this will open up the arbitrage opportunities.
In other words, what we need is to enable both bitUSD and USD to be competing ways to purchase BTSX. This will create arbitrage and arbitrage will guard the market peg. Is it correct?

BitBTC may be needed... then we can have BitUSD vs BitBTC on chain.   This will also help with arb. ops.

[jakub]

BitUSD requires a liquid market...... right now BitUSD is the best hedge against a falling BTSX because it is cheaper than $1 USD due to all the demand to short.   

What we need are tools that show the arbitrage opportunities... and people willing to accept profits from arbitrage as more reliable than gains in BTSX.

So if I understand this correctly to protect the market peg we need both BTSX/bitUSD and BTSX/USD markets set up on the third party exchange (like bter). Because this will open up the arbitrage opportunities.
In other words, what we need is to enable both bitUSD and USD to be competing ways to purchase BTSX. This will create arbitrage and arbitrage will guard the market peg. Is it correct?

[nakaone]

BitUSD requires a liquid market...... right now BitUSD is the best hedge against a falling BTSX because it is cheaper than $1 USD due to all the demand to short.   

What we need are tools that show the arbitrage opportunities... and people willing to accept profits from arbitrage as more reliable than gains in BTSX.

to be fair it will be arbitrageurs paradise. maybe it is best to sit out the dump now, wait for a somewhat stabilisation, talk to the exchanges that they set bitusd/altcoin markets and let it emerge more organically.

btsx is on a pump since the 0.00004 region 

[bytemaster]

BitUSD requires a liquid market...... right now BitUSD is the best hedge against a falling BTSX because it is cheaper than $1 USD due to all the demand to short.   

What we need are tools that show the arbitrage opportunities... and people willing to accept profits from arbitrage as more reliable than gains in BTSX. 

[jakub]

to me the easiest way to explain to someone why bitsud = usd is that you can buy bitusd and exchange them for btsx, then exchange btsx to external platforms for bitcoins, then exchange your bitcoin for usd.

I guess that's a very similar conclusion to the one I've arrived at.

[mf-tzo]

to me the easiest way to explain to someone why bitsud = usd is that you can buy bitusd and exchange them for btsx, then exchange btsx to external platforms for bitcoins, then exchange your bitcoin for usd.

[jakub]

I think I've come up with an alternative view on the market peg explanation.
I look at it from this perspective:
1. who is the one who creates supply of bitUSD
2. who is the one who creates demand for bitUSD
And then I consider what the alternative ways to reach their goals for these people are.
And once you've got that the market peg looks like an obvious outcome.

You'll find more details in Chapter 7 in this thread:
https://bitsharestalk.org/index.php?topic=7628.msg101320#msg101320

[Ggozzo]

You guys miss the whole point of the post. Explain like you are talking to a 5 year old. A kid. If a kid asks you what the sun is and how it works, telling him about the intricacies of Fussion and thermal energy will not help his understanding.  You are going to say something like, "it's a super huge ball of gas with a heavy center that creates heat and light when it's gas smash together."

Using terms like Nash equilibrium and game theory for simple explanations defeats the purpose of a simple explanation.

A market works because two people agree on the exact value of something. One of those people is a buyer, the other is a seller. Something is only worth as much as someone is willing to pay, and something is only worth as little as someone is willing to sell.


I think if we relate BTSX/bitUSD to Copper/USpenny a clearer picture begins to arise. One thing with value births another with equal value. As long as BTSX has a liquid value outside of the Bitshares platform, bitUSD will equal 1 dollars worth of that BTSX within Bitshares. Traditionally, As long as copper has liquid value outside the US economy, a Penny will equal 1 cent within the US economy. (Copper has subsequently raised in value which is the exact reason why old Pennies with 95% copper or 100% copper are worth more than 1 cent) Just like pennies, BTSX's value changes depending on outside market influences.

[jakub]

I appreciate your effort, a simple explanation of Bitshares X is badly needed.

You might find some elements in this post useful:
https://bitsharestalk.org/index.php?topic=7278.msg99599#msg99599

[santaclause102]

Hi i'm a new poster on the forum and i'm not a tech guy so please bare with me. I maybe completely wrong with some of my thoughts so please excuse my ignorance and put me right. The way i'v read bitUSD is-

People want exposure to the USD because they figure it is less volatile than even the most stable cryptocurrancy.
BitUSD is decentralised on the block chain the government cant touch it or tax it, and bitUSD guarantees a 5% interest rate return. Most high street rates are around 0% so its a great store of value. Sounds very promising

The market dictates whether bitUSD is worth 1:1 for a dollar, its not set by any institution (NXT/XRP) its a question of decentralised concensus.

'Toast'
''It works because everyone else thinks it works. If you don't think it will work, you will lose money by trading the wrong way, because you disagree with the majority. So the only people that stay in and make money are those that agree''

Are we talking game theory here along the lines of the ''prisoner's dilemma''

rational cooperative bitUSD           

vs


unrational uncoperative bitUSD

Maybe we could have separate markets?

Is it the greedy ''pump and dump'' blag artists who are going to wreck this experiment?
Greedy people looking for a quick return?

Nash equilibrium.............pardon the pun but maybe most people don't have such a ''Beautiful Mind''?

Iv studied logic and bizarrely i'm tempted to bet it will fail, even though it will cost me money??? will short term greed & pessimism kill bitUSD?

Your thoughts please, i'm new posting on the forum even though i have followed it for a number of months. I'm really enjoying watching the Bitshares project pan out.

You migth want to try to ask precise questions if you want a reply that helps. I would say reading this http://wiki.bitshares.org/index.php/Main_Page and this http://wiki.bitshares.org/index.php/Bitshares_X in sprticular is the fastest way to understand.

[room0.00000101]

https://www.youtube.com/watch?v=cx-xb6be-ug

[room0.00000101]

Hi i'm a new poster on the forum and i'm not a tech guy so please bare with me. I maybe completely wrong with some of my thoughts so please excuse my ignorance and put me right. The way i'v read bitUSD is-

People want exposure to the USD because they figure it is less volatile than even the most stable cryptocurrancy.
BitUSD is decentralised on the block chain the government cant touch it or tax it, and bitUSD guarantees a 5% interest rate return. Most high street rates are around 0% so its a great store of value. Sounds very promising

The market dictates whether bitUSD is worth 1:1 for a dollar, its not set by any institution (NXT/XRP) its a question of decentralised concensus.

'Toast'
''It works because everyone else thinks it works. If you don't think it will work, you will lose money by trading the wrong way, because you disagree with the majority. So the only people that stay in and make money are those that agree''

Are we talking game theory here along the lines of the ''prisoner's dilemma''

rational cooperative bitUSD           

vs


unrational uncoperative bitUSD

Maybe we could have separate markets?

Is it the greedy ''pump and dump'' blag artists who are going to wreck this experiment?
Greedy people looking for a quick return?

Nash equilibrium.............pardon the pun but maybe most people don't have such a ''Beautiful Mind''?

Iv studied logic and bizarrely i'm tempted to bet it will fail, even though it will cost me money??? will short term greed & pessimism kill bitUSD?

Your thoughts please, i'm new posting on the forum even though i have followed it for a number of months. I'm really enjoying watching the Bitshares project pan out.

[liondani]

lol

[xeroc]

Very nice Xeroc. I bet someone could put together one of those animated videos explaining the market peg using the water control system graphic animations.

If such a video could be made so that a non finance guy like myself would have a light bulb go off then this thread will have accomplished its mission.

I am sure some random NXT guy will come with a toilet example

Yhea, but shit always goes one direction ... ever tried pumping it back into clean water pipes?

[liondani]

Very nice Xeroc. I bet someone could put together one of those animated videos explaining the market peg using the water control system graphic animations.

If such a video could be made so that a non finance guy like myself would have a light bulb go off then this thread will have accomplished its mission.

I am sure some random NXT guy will come with a toilet example