Author Topic: Interest on BitUSD - A Proposal for Review  (Read 45943 times)

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Offline Agent86

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Maybe I'm the only one who disagrees with all this, but I really don't like it.

I don't like making money off the spread by matching shorts that are below the feed with bids that are above it.  I think this reduces liquidity in the market and hurts the peg.

I would much rather see shorts prioritized by amount of collateral.

How I would fine tune the market:
I would create a small delay from the time that new feeds are posted and the time they are active, maybe a few minutes.  That way traders can know the exact median feed price a little before it takes effect so all traders are on even ground.  Aggressive shorts can then enter their orders at the exact feed price and compete on who posts the most collateral to be first in line to be matched.  This allows traders to profit by shorting at $1 and quickly buying back at $.99 when they can.

If you do it the way proposed in this thread then you artificially increase transaction costs which hurts liquidity and only attract long term shorts who will be reluctant to cover (they can't turn around and cover at $.99 to make a profit because they may have only got $.95 or less worth of BTSX from their short).

Aside from fact that  this is not the right thread that you disagree with. I also I have my doubts that the actual market will play as described.- i.e. demand for shorting resulting in offering up to 10% discount. I would expect shorts entering very near the 'peg price' and waiting the order to be filled (even if it means days).

If you talk about the interest proposal here, the (rather raw) calculations are not taking into an account this 'shorting pressure discount' so we must be safe in that regard.

I felt like most of the money that was expected to be paid in "interest" was due to taking advantage of this spread.  That's why I feel it was relevant.  As far as paying out the collected bitUSD as "interest"...  I hadn't considered this but it seems overly complicated and does not appeal to me.

Offline Empirical1.1

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I don't like the word 'rewards' - sounds like a cheap marketing ploy that I ignore from my brick and mortar banks. I like the expression 'dividends through profit sharing' or something along those lines.  It subconsciously emphasizes the fact that DACs are companies that are designed to earn profits, and that those profits are being returned to the user. It also implies that the size of the dividends are dependent on the profitability of the company.  +5%

 +5% That sounds perfect to me.

I also feel the same about 'rewards' but I think apparently describing it using the words 'dividends', 'interest' or a derivative of them is a no go.

"dividends" and "interest" are difficult words to legally market.

Offline tonyk

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Maybe I'm the only one who disagrees with all this, but I really don't like it.

I don't like making money off the spread by matching shorts that are below the feed with bids that are above it.  I think this reduces liquidity in the market and hurts the peg.

I would much rather see shorts prioritized by amount of collateral.

How I would fine tune the market:
I would create a small delay from the time that new feeds are posted and the time they are active, maybe a few minutes.  That way traders can know the exact median feed price a little before it takes effect so all traders are on even ground.  Aggressive shorts can then enter their orders at the exact feed price and compete on who posts the most collateral to be first in line to be matched.  This allows traders to profit by shorting at $1 and quickly buying back at $.99 when they can.

If you do it the way proposed in this thread then you artificially increase transaction costs which hurts liquidity and only attract long term shorts who will be reluctant to cover (they can't turn around and cover at $.99 to make a profit because they may have only got $.95 or less worth of BTSX from their short).

Aside from fact that  this is not the right thread that you disagree with. I also I have my doubts that the actual market will play as described.- i.e. demand for shorting resulting in offering up to 10% discount. I would expect shorts entering very near the 'peg price' and waiting the order to be filled (even if it means days).

If you talk about the interest proposal here, the (rather raw) calculations are not taking into an account this 'shorting pressure discount' so we must be safe in that regard.
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline arhag

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BitUSD is incredibly useful as a trading instrument but the "sales pitch" for the average Joe is something like this:

1) Buy BitUSD today and you will be able to sell it back for 98% of what you paid for it (due to the spread)
2) Once you have BitUSD you get all of the benefits of Bitcoin, instant transfers, privacy, security.
3) As a merchant the "cost" of accepting BitUSD (at parity) is currently equal to the cost of a credit card (a few percent)

Initially demand from traders will to hedge against BTSX volatility will help the market grow, but what we *REALLY WANT* is for people to store their wealth in the system, not just their trading account.  To do this BitUSD needs to offer a return that is explicit.  IE: it shouldn't be done via the value deviating from the peg.

Right now the network earns USD via the market and via transaction fees (yes transaction fees can be paid in USD).  This income is saved for a "rainy day" which we don't actually expect to happen, but could.  The value as an insurance system could be better used to pay interest to USD holders.   If BitUSD were an interest bearing asset, then the interest would compensate for the risk of black swans in the same way that the insurance fund does today.

So far BitUSD has earned $1800 on $485,000 issuance in just 2 weeks of light trading.  This is about .4% yield every 2 weeks or about 10% per year.   I have no idea how this will play out over time, but I suspect that it will result in a significant yield for BitUSD holders.   The more people hold BitUSD the more BTSX is worth.   So it is in the best interest (No pun intended) of BTSX holders to pay interest on BitUSD from the fees collected.

I would like to implement it as follows:
1) If you hold a balance for less than 1 month, you earn nothing.
2) If you hold a balance for one year or more then you earn (YOURUSD / TOTAL_USD) * COLLECTED_FEES_BALANCE
3) If you hold a balance for less than one year then you earn a pro-rated amount.     (YOURUSD / TOTAL_USD) * COLLECTED_FEES_BALANCE * FRACTION_OF_YEAR_HELD^2

The result is that long-term holders of BitUSD earn much higher yields than short-term holders.  The yield should more than cover the cost of the spread and thus your pitch to the average Joe is much stronger:

1) Buy BitUSD and earn more (much more) on your dollars than you do at your bank.
2) Enjoy all the other benefits of crypto.

This feature would have a greater impact on adoption than just about anything else being discussed. 

Discuss.

Why require a minimum of a month and why have a quadratic dependence on FRACTION_OF_YEAR_HELD? What is the purpose in creating incentives for BitUSD holders to hold BitUSD balances for long periods of time? The fact that they have the money as BitUSD in the first place already adds value to BTSX.

And are the rewards claimed at the time of transaction? Do those rewards get immediately deducted from COLLECTED_FEES_BALANCE when that transaction occurs? How do I know when I have officially locked in the specific nominal rewards (in BitUSD)?

I like the general idea, but I worry that your implementation makes things unnecessarily complicated for the user in figuring out the rewards they will receive. It will probably also force extra complications in the client implementations for the purpose of maximizing the interest the user receives from their balance.

For example, what is the best way to maximize my return on some fixed initial sum of BitUSD? Let's define X = (COLLECTED_FEES_BALANCE / TOTAL_USD). Do I want to hold for 11 months and 29 days and then make the transaction right before the inactivity fee deadline, so that FRACTION_OF_YEAR_HELD^2 is as large as possible? In that case my annual reward is approximately P*(1+X), where P is the principal, or a annual return of (X*100)%. Or do I want to break that up into (12/k) k-month intervals to take advantage of compound interest? In that case my annual reward is P*(1 + X*(k/12)^2)^(12/k) assuming X remains constant over the year throughout the entire compounding process, giving an annual return of (((1 + X*(k/12)^2)^(12/k) - 1)*100)%.  Since X has to be less than 1 (if I understand COLLECTED_FEES_BALANCE and TOTAL_USD correctly), this means holding it for a year would always be better than compounding with k-month intervals for any k. But this was assuming X is fixed. In reality, X will fluctuate as COLLECTED_FEES_BALANCE changes (increasing as more fees are collected and decreasing as people claim the the reward). I would hope reward claims would be randomly distributed so that COLLECTED_FEES_BALANCE only has small deviations around a relatively stable value over time. If it wasn't random however, there would be an advantage to the people who claim first. Let's say nearly all BitUSD holders initiated their balance in September and intended to hold for a year to maximize returns. Over the course of a year, the COLLECTED_FEES_BALANCE grew to a large sum S, and in next September, all the BitUSD holders suddenly claimed nearly 100% of COLLECTED_FEES_BALANCE. But the first guy who owns f1 fraction of TOTAL_USD gets f1*S, the guy with fraction f2 gets f2*S*(1-f1), the guy after that gets f3*S*(1-f1-f2), until the last guy gets a tiny fraction of what he could have gotten had he claimed first (again assuming I understand your proposed implementation and calculation of COLLECTED_FEES_BALANCE correctly).

Why create all of this complication for users? The implementation should not have users receive different returns depending on when they move their balances. I don't see why it should withhold rewards for people who held the BitUSD for less than a month either. Why not take a portion of the fees collected in a given block, put it in a fund, and divide the money added to that fund during the block by the total BitUSD held by users (the existing BitUSD not collected by the network) at the time of that block to calculate the interest rate for that block. When a BitUSD balance is moved, the sum of the interest rates for each block on which that balance existed (called the ACCUMULATED_INTEREST_RATE) is used to determine the reward on that balance (ACCUMULATED_INTEREST_RATE*BALANCE). The rewards on these BitUSD balances act as extra BitUSD (effectively coming from the fund) on the input of the transaction that can be claimed by the outputs. This way all of the money in fund can be considered consumed at every block, and the interest payment on balances is continuous over time and cannot be strategically manipulated by timing when to move the BitUSD.
« Last Edit: September 06, 2014, 12:10:45 am by arhag »

Offline Agent86

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Maybe I'm the only one who disagrees with all this, but I really don't like it.

I don't like making money off the spread by matching shorts that are below the feed with bids that are above it.  I think this reduces liquidity in the market and hurts the peg.

I would much rather see shorts prioritized by amount of collateral.

How I would fine tune the market:
I would create a small delay from the time that new feeds are posted and the time they are active, maybe a few minutes.  That way traders can know the exact median feed price a little before it takes effect so all traders are on even ground.  Aggressive shorts can then enter their orders at the exact feed price and compete on who posts the most collateral to be first in line to be matched.  This allows traders to profit by shorting at $1 and quickly buying back at $.99 when they can.

If you do it the way proposed in this thread then you artificially increase transaction costs which hurts liquidity and only attract long term shorts who will be reluctant to cover (they can't turn around and cover at $.99 to make a profit because they may have only got $.95 or less worth of BTSX from their short).

Offline Riverhead

Where can you store long term BitUSD can this be stored in wallet/vault ?
Yes. Your vault holds the private keys. As long as you don't lose your wallet export (the .json file) or forget your password your bit USD is safely recorded on the block chain.

Offline LiquidStorm

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Where can you store long term BitUSD can this be stored in wallet/vault ?
BTSX: liquid

Offline cygnify

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I don't like the word 'rewards' - sounds like a cheap marketing ploy that I ignore from my brick and mortar banks. I like the expression 'dividends through profit sharing' or something along those lines.  It subconsciously emphasizes the fact that DACs are companies that are designed to earn profits, and that those profits are being returned to the user. It also implies that the size of the dividends are dependent on the profitability of the company.  +5%

 +5% That sounds perfect to me.

Offline Empirical1.1

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The general outline of this proposal sounds perfect to me.

I can't even think what else to write, I'm speechless, the impact of this is huge imo.

Quote
This feature would have a greater impact on adoption than just about anything else being discussed.     

Yes.

FYI... I have already implemented the rewards program :)  at the blockchain level.  I just need to add a few wallet operations and do some testing on a test-net, but it should be ready to go next week.

Anybody else get the feeling BM is changing the world with every stroke of the keyboard?

It's amazing really.

Offline sschechter

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I don't like the word 'rewards' - sounds like a cheap marketing ploy that I ignore from my brick and mortar banks. I like the expression 'dividends through profit sharing' or something along those lines.  It subconsciously emphasizes the fact that DACs are companies that are designed to earn profits, and that those profits are being returned to the user. It also implies that the size of the dividends are dependent on the profitability of the company.  +5%
« Last Edit: September 05, 2014, 10:59:12 pm by sschechter »
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Offline Method-X

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We're taking the fees that would normally be given to wasteful miners and creating a financial product out of it.

Game changer.

Offline BldSwtTrs

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That is a good, brilliant idea. I am quite excited right know.

The possibilities seem vertiginous.
« Last Edit: September 05, 2014, 10:07:29 pm by BldSwtTrs »

Offline cygnify

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This is awesome. Why would you hold bitcoin over bitbtc if this gets implemented for that asset as well? So cool!!

Just don't call it rewards anything but that!

Edit: dividends makes sense to me, it's essentially what you are getting, can't see why that would cause legal concern.
« Last Edit: September 05, 2014, 10:01:50 pm by cygnify »

Offline tonyk

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SO THIS WHAT THE  +5% IS ABOUT! I just got it. You guys were originally positioning the 5% to BTSX holders, not BitAsset holders.

Moving the 5% incentive to BitAsset holders is strategically much better. People who invest in crypto are growth investors, they don't care much about stability or 5% interest. Moving the 5% incentive to BitAsset holders attracts an entirely new demographic.

As demand for BitAssets grow, the value of BTSX will grow as well. It's a perfect win-win.

This is genius!

The plan has always been 5% for the USD (bitUSD) holder. I just have never heard of a workable solution how this can be done...
until today.
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline GaltReport

"dividends" and "interest" are difficult words to legally market.

dividends and interest sound like money to me. Rewards could be anything.  Points, tokens, mileage, coupons etc...

I want money!
« Last Edit: September 05, 2014, 09:41:46 pm by GaltReport »