Bitcoin Forum
December 11, 2017, 03:37:11 AM *
News: Latest stable version of Bitcoin Core: 0.15.1  [Torrent].
 
   Home   Help Search Donate Login Register  
Pages: « 1 [2] 3 4 5 6 7 8 9 10 11 12 »  All
  Print  
Author Topic: *old* BitShare Economic Theory 10 BTC bounty to prove me wrong... paid.  (Read 9772 times)
thezerg
Legendary
*
Offline Offline

Activity: 1246


View Profile
May 26, 2013, 04:03:05 AM
 #21

I am working on just such a paper and explanation.  All of your questions are exactly what I need to do.  Thanks. 

I'm happy to help; personally I think multi-currency is a key feature in the next generation blockchain (and sub-chains, described in several postings recently, but much earlier here: https://bitcointalk.org/index.php?topic=92398.msg1019392#msg1019392) .  PM me a google doc link or something if you want to co-author.
1512963431
Hero Member
*
Offline Offline

Posts: 1512963431

View Profile Personal Message (Offline)

Ignore
1512963431
Reply with quote  #2

1512963431
Report to moderator
1512963431
Hero Member
*
Offline Offline

Posts: 1512963431

View Profile Personal Message (Offline)

Ignore
1512963431
Reply with quote  #2

1512963431
Report to moderator
1512963431
Hero Member
*
Offline Offline

Posts: 1512963431

View Profile Personal Message (Offline)

Ignore
1512963431
Reply with quote  #2

1512963431
Report to moderator
Advertised sites are not endorsed by the Bitcoin Forum. They may be unsafe, untrustworthy, or illegal in your jurisdiction. Advertise here.
1512963431
Hero Member
*
Offline Offline

Posts: 1512963431

View Profile Personal Message (Offline)

Ignore
1512963431
Reply with quote  #2

1512963431
Report to moderator
1512963431
Hero Member
*
Offline Offline

Posts: 1512963431

View Profile Personal Message (Offline)

Ignore
1512963431
Reply with quote  #2

1512963431
Report to moderator
bytemaster
Hero Member
*****
Offline Offline

Activity: 770

BitShares


View Profile WWW
May 26, 2013, 08:09:54 AM
 #22

I have a much improved white paper published on google-doc available for viewing:

https://docs.google.com/document/d/1FqDgA7J_O2hufetbNY51xue7yE57Euk2_nTa5IOhnJA/edit?usp=sharing

Granted it is still in draft, unformatted form but it takes a lot of effort to explain complex economic relationships in understandable and 'provable' terms.  The reality is it gets simpler the more I explain it.  


Proposal:


In this paper I present a new crypto-currency with aim of supporting the creation of many sub-currencies that closely track the value of any other item in the market without the need to any issuers.  An analogy can be made to a distributed peer-to-peer bank that accepts and pays interest on deposits in any currency.  This bank operates without counterparty-risk or IOUs.

This currency will have the following Properties:

  • The native currency will be called a share and is mined into existence on the same schedule as Bitcoin.
  • Shares will pay dividends from half of the mining fees and rewards
  • Users may issue new sub-currencies by ‘shorting the sub currency’ and backing the short position with dividend payments from a defined number of their Shares.
  • Owners of sub-currencies will receive the dividends from the all Shares used to create them proportional to their balances.
  • Short positions can only be redeemed by the issuer.
  • Users will be able to trade among all shares and currencies and via a built-in exchange.
  • All shares and sub-currencies will have the same transaction properties as bitcoins.  

Economic Effects of this new Currency:
      1.  Shares derive their value from the same sources as Bitcoins.
       2.  Because shares pay dividends the shorts effectively pay interest to the longs.  This interest payment is what regulates the supply and demand for deposits and withdraws and ultimately maintains price parity.  

How does crypto-USD get created?
 
 Someone must go short crypto-USD and back their short position with interest bearing BitShares.

Does it cost them anything to maintain a short position?
  Yes, the act of going short causes the interest rate of crypto-USD to go up relative to the interest rate of  Bitshares  AND the individual who is short crypto-USD forgoes interest payments on their Bitshares.  

Why does the interest rate of crypto-USD go up relative to the interest rate of Bitshares when someone shorts?

    Because the individual short-selling crypto-USD is taking an exchange rate risk, he is unlikely to do so at the current market price.   After all, he will have to buy back crypto-USD in order to recover his bitshares (which he expects to go up in value).   So, he only goes short at a strike-price below the current exchange rate with enough margin to cover his risks.   If USD goes up then it will be more costly to cover his short position and he will lose money.  The risk of USD going up is equal to the risk of BitShares going down.

     Because the exchange occurred at below market rates, the dividend payments which are in Bitshares are necessarily valued at ‘above market rates’.  In other words, the percent gain in interest rates is proportional to the margin built into the short position.

What impact does the change in relative interest rates have on the market?

    Higher interest rates always attract more depositors which will drive up the price of crypto-USD.  This works against the short-seller who needs the price of crypto-USD to go down relative to Bitshares or else he will make a loss.  This is part of the reason the individual short crypto-USD must maintain margin.

    Higher interest rates also trigger other Bitshare holders to consider selling their Bitshares for crypto-USD.  By swapping their savings they may yield a higher return.  This also serves to drive up the price of crypto-USD (and discourage the short-seller and necessitates caution when issuing new crypto-USD).

If the change in interest rates brings in more depositors AND causes existing bitshare holders to switch to crypto-USD for savings, what market forces bring the price of crypto-USD back down?

    Holders of crypto-USD may see the potential for equity gains in bitshares outweigh the difference in interest rate.   In this case they would take the same position as the short-seller in believing bitshares will appreciate.

    Holders of crypto-USD may wish to withdraw their money into paper-USD.  


What happens if there is a run on the bank and everyone wants to redeem their crypto-USD?

If Bitshares lose all value, then crypto-USD no longer pays interest of any value whatsoever and the short-seller has nothing to gain.  Everyone involved would lose everything they deposited with the bank.  This scenario is unlikely so long as bitshares continue to provide a valuable service as a medium of exchange and the underlying cryptography, internet, and power systems remain available *somewhere* in the world.  Thus any depositor who puts money into crypto-USD is implicitly trusting that the underlying Backing of crypto-USD (bitshare dividends) will not go to 0.  

Assuming bitshare do to not go to 0, then crypto-USD will have value to all short-sellers.     crypto-USD will also have value to anyone who expects the bank-run to pass and for depositors to return at some point in the future.   In this case, speculators will start buying up crypto-USD at below face value prices and short-sellers will start covering their positions taking crypto-USD out of circulation.  These factors will conspire to provide support to the crypto-USD price.

In a panic the rush to withdraw will push the paper-USD to crypto-USD price down which is economically identical to increasing the interest rate paid to new depositors in crypto-USD.  The increased interest rate will cause cash to flood into the system to meet the demand for withdrawals.  

The depressed paper-USD to crypto-USD price will also discourage many people from trying to withdraw during the run.  They decided to ride out the storm rather than take a loss in a panic.

So the question becomes what would trigger a run on the bank?  Because there are no IOUs involved and all crypto-USD are backed by real value that does not have counterparty-risk (bitshares) then it is unclear what could cause such a rush short of something threatening the very infrastructure (internet/power) that the system is built on.  

What happens if someone dies before they close out a short position?

Then there will be a permanent bias in interest rate in favor of owning crypto-USD over bitshares.

What happens if Bitshares fall in value by 99%?

Assuming the 99% fall in value is not part of a complete crash to 0 which I have already covered, then I will assume that the Bitshares found support at 1% of their high.

Then the value of interest payments paid to holders of crypto-USD will fall by 99% while the interest rate paid to holders of Bitshares will remain at 10%.   As a result those who are seeking a 10% return will sell their crypto-USD and buy bitshares.  This will depress the price of crypto-USD and help support the price of Bitshares.   Short-sellers (crypto-USD issuers) would be taking it in the shorts so they would be actively redeeming as much crypto-USD as possible as soon as possible to cut their losses.  

Some short sellers may not be able to redeem their positions.  In which case the effect would be the same as if the short seller had died and there would be a permanent interest rate bias in favor of owning crypto-USD vs owning bitshares.   Once Bitshares reach a new equilibrium after the market adjustment, then this interest-rate bias will encourage others to redeem the crypto-USD for paper-USD.

How will the block-chain algorithm determine what exchange rates to use when issuing Crypto-USD?

The blockchain will not have to decide, market participants will estimate the risks of going short to acquire crypto-USD.  Therefore the price will be decided by the user in an intentional act to issue Crypto-USD.    Likewise, these same participants will decide at what price it makes sense to cover their position.

How do you prevent abusing short positions to manipulate the market?

Taking out a short position requires capital of equal value and incurs opportunity cost in foregone interest payments.  These forgone interest payments are what back the value of the short position.  Therefore there are no naked shorts and the shorts have no more power in the market than the longs.  

What prevents people from creating a million different currency types?

First of all, creating a currency type means taking out a short position in that currency which means it incurs a transaction cost.  Second, others must understand and have consensus about the meaning / relationship of that currency type to Bitshares for it to have any value.   Third, the short position must accurately reflect market prices or the issuer will take losses.  If the price too low, the the market will push the price up causing them to lose money on the short position.  If they price it too high, then they will only ever be able to redeem it with themselves and thus would incur 2 transaction fees for wasting everyone’s time.

https://steemit.com  Blogging is the new Mining
marcus_of_augustus
Legendary
*
Offline Offline

Activity: 2464



View Profile
May 26, 2013, 08:31:04 AM
 #23

You shouldn't do this because ANY blockchain currencies with only pseudo-anonymity will be made obsolete by crypto-coin technologies that allow for strong anonymity.

PM for btc address to send the "why not to do this" 10 btc bounty.

domob
Legendary
*
Offline Offline

Activity: 983


View Profile WWW
May 26, 2013, 09:19:24 AM
 #24

You shouldn't do this because ANY blockchain currencies with only pseudo-anonymity will be made obsolete by crypto-coin technologies that allow for strong anonymity.

I believe that is not so big an issue - in fact, things like Zerocoin could be layered on top of Bitcoin (or a comparable currency).  Or one could implement things like a p2p mixing service based on multisig transactions.  In any case, I believe while there's no really usable p2p anonymisation technology for Bitcoin here yet, it will be possible to upgrade Bitcoin rather than going through the pains of bootstrapping a new currency when that is not strictly necessary.

Use your Namecoin identity as OpenID: https://nameid.org/
Donations: 1domobKsPZ5cWk2kXssD8p8ES1qffGUCm | NMC: NCdomobcmcmVdxC5yxMitojQ4tvAtv99pY
BM-GtQnWM3vcdorfqpKXsmfHQ4rVYPG5pKS | GPG 0xA7330737
bytemaster
Hero Member
*****
Offline Offline

Activity: 770

BitShares


View Profile WWW
May 26, 2013, 09:28:15 AM
 #25

You shouldn't do this because ANY blockchain currencies with only pseudo-anonymity will be made obsolete by crypto-coin technologies that allow for strong anonymity.

PM for btc address to send the "why not to do this" 10 btc bounty.

I didn't say you would get the bounty for providing a reason... it has to be convincing.  You have not convinced me not to spend $20,000 on making this a reality.  Furthermore, just because something else may have extra features does not prove that my features do not work.

Given that my idea is tied more to economics than the exact crypto algorithm, it could easily work with strong anonymity.  In fact, I would be very interested in using a strong anonymity crypto-currency as a 'base' unless it had other usability issues. 

That said, I believe that using an Open Transactions server operating on Tor or BitMessage and using my system to move value into and out of the server would be the preferred solution for anonymous P2P. 

https://steemit.com  Blogging is the new Mining
domob
Legendary
*
Offline Offline

Activity: 983


View Profile WWW
May 26, 2013, 09:34:47 AM
 #26

Thanks for supplying more details to your idea, this finally cleared some more things up for me.  In particular if I understand your latest proposal correctly, anyone can issue crypto-USDs (or whatever he/she likes) at <b>any</b> exchange rate they want.  I somehow see how you think that the expected return from dividens on the bitshares backing the issuance regulates the rate they will choose.

However, with my current understanding (I may still be wrong about your idea) I see the following situation:

Assume we have a current exchange rate on the market of 1 $/BitShare, and assume further that currently already 1 crypto-USD has been created in exchange for 1 BitShare by someone else (in accordance to the market rate).  For simplicity assume that we look at a certain time-frame such that BitShares get 100% return over that time in dividends.  Thus currently 1 crypto-USD also returns 1 BitShare in dividends, because it is backed by 1 BitShare as collateral.

Now, what if I issue myself now <b>2</b> crypto-USD in exchange for 1 BitShare?  Then we have 3 crypto-USDs and 2 BitShares backing them, thus each crypto-USD earns a dividend of 2/3 BitShares.  I acknowledge that this is of course less than what it would earn I had taken out also only 1 crypto-USD.  <b>However</b>, because I now have <b>2</b> crypto-USDs, I would earn 2 * 2/3 = 4/3 > 1 BitShares in dividends!  Because the more crypto-USDs I issue for my collateral of 1 BitShare, the higher the fraction of the crypto-USD balance I get, and the more I can "parasite" on the dividends of other crypto-USD issuers.

Wouldn't that lead to people issuing more and more crypto-USDs for ever higher (in terms of USD/BitShare) rates instead of approaching the rate that someone holding <b>real</b> USDs is willing to pay for BitShares?  Can you please tell me what part of your proposal I still misunderstand?

Use your Namecoin identity as OpenID: https://nameid.org/
Donations: 1domobKsPZ5cWk2kXssD8p8ES1qffGUCm | NMC: NCdomobcmcmVdxC5yxMitojQ4tvAtv99pY
BM-GtQnWM3vcdorfqpKXsmfHQ4rVYPG5pKS | GPG 0xA7330737
bytemaster
Hero Member
*****
Offline Offline

Activity: 770

BitShares


View Profile WWW
May 26, 2013, 10:10:00 AM
 #27

Thanks for supplying more details to your idea, this finally cleared some more things up for me.  In particular if I understand your latest proposal correctly, anyone can issue crypto-USDs (or whatever he/she likes) at <b>any</b> exchange rate they want.  I somehow see how you think that the expected return from dividens on the bitshares backing the issuance regulates the rate they will choose.

However, with my current understanding (I may still be wrong about your idea) I see the following situation:

Assume we have a current exchange rate on the market of 1 $/BitShare, and assume further that currently already 1 crypto-USD has been created in exchange for 1 BitShare by someone else (in accordance to the market rate).  For simplicity assume that we look at a certain time-frame such that BitShares get 100% return over that time in dividends.  Thus currently 1 crypto-USD also returns 1 BitShare in dividends, because it is backed by 1 BitShare as collateral.

Now, what if I issue myself now <b>2</b> crypto-USD in exchange for 1 BitShare?  Then we have 3 crypto-USDs and 2 BitShares backing them, thus each crypto-USD earns a dividend of 2/3 BitShares.  I acknowledge that this is of course less than what it would earn I had taken out also only 1 crypto-USD.  <b>However</b>, because I now have <b>2</b> crypto-USDs, I would earn 2 * 2/3 = 4/3 > 1 BitShares in dividends!  Because the more crypto-USDs I issue for my collateral of 1 BitShare, the higher the fraction of the crypto-USD balance I get, and the more I can "parasite" on the dividends of other crypto-USD issuers.

Wouldn't that lead to people issuing more and more crypto-USDs for ever higher (in terms of USD/BitShare) rates instead of approaching the rate that someone holding <b>real</b> USDs is willing to pay for BitShares?  Can you please tell me what part of your proposal I still misunderstand?

The first crypto-USD is issued in response to a BID in bitshares.    Thus someone has to say, "I want to buy 1 crypto-USD for 1 bitshare" and then if and only if there are no takers with existing crypto-USD can someone choose to issue.    Thus all issuance will only occur *after* all current holders have gone no-bid. 

So while someone may choose to issue at what ever price they want, they are still restricted to issuing only when there is a no-bid from current holders of crypto-USD.

So to pull off your proposed attack (which is very insightful) would require the issuer to place a bid to buy more crypto-USD.  That bid would have to be higher than all other bids to buy which means you would be pushing up the crypto-USD price.  Pushing the price of crypto-USD above market value will encourage people to sell their existing crypto-USD for shares.  Once they start selling then you will no longer be able to issue until they stop selling.   The end result is that in your attempt to increase the supply by artificially placing a bid just so you could issue against it you would end up COVERING your existing short instead when someone else jumped on the opportunity to sell an existing crypto-USD for a profit!



https://steemit.com  Blogging is the new Mining
greBit
Hero Member
*****
Offline Offline

Activity: 714


View Profile
May 26, 2013, 10:49:55 AM
 #28

Im still trying to get my head around your proposal, but for now I was just curious since you mentioned investing $20k+ in it.

Would this end up being a community project that would benefit everyone, or is there some monetization strategy for those developing/investing in your value-tracking-currency?
domob
Legendary
*
Offline Offline

Activity: 983


View Profile WWW
May 26, 2013, 10:56:40 AM
 #29

Thanks for supplying more details to your idea, this finally cleared some more things up for me.  In particular if I understand your latest proposal correctly, anyone can issue crypto-USDs (or whatever he/she likes) at <b>any</b> exchange rate they want.  I somehow see how you think that the expected return from dividens on the bitshares backing the issuance regulates the rate they will choose.

However, with my current understanding (I may still be wrong about your idea) I see the following situation:

Assume we have a current exchange rate on the market of 1 $/BitShare, and assume further that currently already 1 crypto-USD has been created in exchange for 1 BitShare by someone else (in accordance to the market rate).  For simplicity assume that we look at a certain time-frame such that BitShares get 100% return over that time in dividends.  Thus currently 1 crypto-USD also returns 1 BitShare in dividends, because it is backed by 1 BitShare as collateral.

Now, what if I issue myself now <b>2</b> crypto-USD in exchange for 1 BitShare?  Then we have 3 crypto-USDs and 2 BitShares backing them, thus each crypto-USD earns a dividend of 2/3 BitShares.  I acknowledge that this is of course less than what it would earn I had taken out also only 1 crypto-USD.  <b>However</b>, because I now have <b>2</b> crypto-USDs, I would earn 2 * 2/3 = 4/3 > 1 BitShares in dividends!  Because the more crypto-USDs I issue for my collateral of 1 BitShare, the higher the fraction of the crypto-USD balance I get, and the more I can "parasite" on the dividends of other crypto-USD issuers.

Wouldn't that lead to people issuing more and more crypto-USDs for ever higher (in terms of USD/BitShare) rates instead of approaching the rate that someone holding <b>real</b> USDs is willing to pay for BitShares?  Can you please tell me what part of your proposal I still misunderstand?

The first crypto-USD is issued in response to a BID in bitshares.    Thus someone has to say, "I want to buy 1 crypto-USD for 1 bitshare" and then if and only if there are no takers with existing crypto-USD can someone choose to issue.    Thus all issuance will only occur *after* all current holders have gone no-bid.

Ok thanks for clearing that up.  This (that bids would be filled first) was my understanding of a previous version, but I could not find that rule in your current proposal thus I thought you had dropped it.  So basically the collateral-short with the network is only done and possible at the very bootstrap phase of a new crypto-currency, when there's not yet a market inside of the system to create initial balances?

I have not thought the following through, but naively this still leads to a very counterintuitive situation for me:  Namely that "usually" from a market you would expect that there are *always* bid (and ask) orders.  Thus that should be the case also for your system, if there should be a functioning BitShare / crypto-USD market (which is the whole point of the exercise).  But in that case, it would never be possible to issue any more crypto-USDs ever (until there are no more bids and thus basically BitShares have gone down to zero value in terms of crypto-USD).  Wouldn't that mean that after some initial bootstrap we have no practical possibility to increase the amount of crypto-USD in response to growing adoption of BitShares?  (On the other hand, *if* there is growing demand for some currently existing amount of crypto-USD, this would drive the price up / the price of BitShares down, until we reach the point of no more bid offers.  But I'm not sure if you really want that because it would lead to a very strange market, wouldn't it?)

Disclaimer:  I'm no economist (mathematician / physician instead), and just intuitively think about markets.  So I'm probably not always good at thinking such scenarios through, I guess.

Use your Namecoin identity as OpenID: https://nameid.org/
Donations: 1domobKsPZ5cWk2kXssD8p8ES1qffGUCm | NMC: NCdomobcmcmVdxC5yxMitojQ4tvAtv99pY
BM-GtQnWM3vcdorfqpKXsmfHQ4rVYPG5pKS | GPG 0xA7330737
mmeijeri
Hero Member
*****
Offline Offline

Activity: 714

Martijn Meijering


View Profile
May 26, 2013, 11:16:23 AM
 #30

What are the mechanics of redeeming Q? I won't call it crypto-USD, because I'm not yet persuaded it will track the USD. Is the initial amount of bitshare put up really a collateral, so that you get back your original amount, or do you get a prorated amount of the total amount backing Q? Under what circumstances is the original owner permitted to redeem Q he bought back on the internal market?

ROI is not a verb, the term you're looking for is 'to break even'.
bytemaster
Hero Member
*****
Offline Offline

Activity: 770

BitShares


View Profile WWW
May 26, 2013, 03:36:32 PM
 #31

Im still trying to get my head around your proposal, but for now I was just curious since you mentioned investing $20k+ in it.

Would this end up being a community project that would benefit everyone, or is there some monetization strategy for those developing/investing in your value-tracking-currency?

I monetize it by mining from day 1.   Everyone who helps make this a reality can start mining on day 1.  Community project 100%.  I don't want to 'own', I just want to see it work.

Still haven't gotten anyone familiar with Bitcoin express interest in the Job.... but I may just quit my day job instead and live off of savings.   I have gotten lots of offers to help support the idea which is great.

https://steemit.com  Blogging is the new Mining
Rampion
Legendary
*
Offline Offline

Activity: 1120


View Profile
May 26, 2013, 03:54:58 PM
 #32

Im still trying to get my head around your proposal, but for now I was just curious since you mentioned investing $20k+ in it.

Would this end up being a community project that would benefit everyone, or is there some monetization strategy for those developing/investing in your value-tracking-currency?

I monetize it by mining from day 1.   Everyone who helps make this a reality can start mining on day 1.  

So you would premine and then release to the public?

nomailing
Full Member
***
Offline Offline

Activity: 126


View Profile
May 26, 2013, 04:07:04 PM
 #33

I am trying to understand your white paper. And there are definitely some interesting ideas.


If the change in interest rates brings in more depositors AND causes existing bitshare holders to switch to crypto-USD for savings, what market forces bring the price of crypto-USD back down?

    Holders of crypto-USD may see the potential for equity gains in bitshares outweigh the difference in interest rate.   In this case they would take the same position as the short-seller in believing bitshares will appreciate.

    Holders of crypto-USD may wish to withdraw their money into paper-USD.  

here is my reason, why the idea will not work:
Isn't your key argument, why the crypto-USD will be on parity with fiat-USD, based on circular reasoning ("paradoxical thinking")? So it is false.
In the white paper you answer the question of "what market forces bring the price of crypto-USD back down?" with two arguments which are only true if the individuals assume that in the future the price will be on parity. So it is circular reasoning.

More specifically you give these two reasons:
1) "Holders of crypto-USD may see the potential for equity gains in bitshares". But this potential for equity gains in bitshares is only true if you assume that in the future the price will be on parity. So you use your argument to prove your argument.
2) "Holders of crypto-USD may wish to withdraw their money into paper-USD." Why would they withdraw it. Only if they assume that in the future the price will be on parity, then it would make sense to withdraw. So here again you use circular reasoning.

in the end it doesn't matter if you have bitshares or you issue them to yourself as crypto-USD, because the interest is paid in proportion to your balance.

Please correct me if I am wrong...
Btw, your ideas are indeed very interesing and I very much appreciate your work done here...

BM-2D9KqQQ9Fg864YKia8Yz2VTtcUPYFnHVBR
bytemaster
Hero Member
*****
Offline Offline

Activity: 770

BitShares


View Profile WWW
May 26, 2013, 04:23:39 PM
 #34

What are the mechanics of redeeming Q? I won't call it crypto-USD, because I'm not yet persuaded it will track the USD. Is the initial amount of bitshare put up really a collateral, so that you get back your original amount, or do you get a prorated amount of the total amount backing Q? Under what circumstances is the original owner permitted to redeem Q he bought back on the internal market?

The person who goes short can cover their position at any time by buying Q on the market.

You have N shares(S) that pay P% dividends where the dividends = N*P.   If the exchange rate between S and Q is  X  then  what is backing Q is X*P*S / year.  

The collateral is redeemable 'in general' by selling Q for S at the current exchange rate. which may be slightly more or slightly less than the original exchange rate.

The reason why Q fetches a market price close to where you bought it over time is because there is PROFIT to be made by redeeming Q for S anytime Q is slightly below what you paid for it.  The reason why you can sometimes sell Q for more S than you paid originally is because the creation of Q made it more profitable to hold Q than S because Q pays 10.1% and S pays 9.9% and thus anyone who owns Q and expects Q to appreciate against S by less than .2% over some time period would sell their S and buy your Q.  

Here is another way to think about how the prices stay near parity:

If you have two bonds, A = $100 @ 10% and B = $100 at 5% then the net-present-value of A = 2x the net-present-value of B.

Therefore, the reason people who value S are willing to pay more (or less) for a Q BOND is because how they really see a Q BOND is an opportunity to buy a bond that pays more (or less) interest (in S) in as a percent of the Q bond price Y.  If the value of S doubles then the value of the interest paid on Q bonds doubles from the perspective of people who want to own S.   Therefore Q BONDS  become 2x as valuable to owners of S simply because by selling their S for a Q BOND they could earn 2x the S in interest.    Thus on a net-present-value basis the value of Q BONDS tracks the original exchange VALUE because the interest rate changes on Q cause the net-present-value as measured in S of a Q BOND to be about equal to the original VALUE.

Now that was hard for me to follow, but I am hoping someone can take a hint at what I am getting at and explain it even better.
 

 

https://steemit.com  Blogging is the new Mining
bytemaster
Hero Member
*****
Offline Offline

Activity: 770

BitShares


View Profile WWW
May 26, 2013, 04:24:16 PM
 #35

Im still trying to get my head around your proposal, but for now I was just curious since you mentioned investing $20k+ in it.

Would this end up being a community project that would benefit everyone, or is there some monetization strategy for those developing/investing in your value-tracking-currency?

I monetize it by mining from day 1.   Everyone who helps make this a reality can start mining on day 1.  

So you would premine and then release to the public?

No pre-mining, it would be public the very first day. 

https://steemit.com  Blogging is the new Mining
bytemaster
Hero Member
*****
Offline Offline

Activity: 770

BitShares


View Profile WWW
May 26, 2013, 04:44:43 PM
 #36

here is my reason, why the idea will not work:
Isn't your key argument, why the crypto-USD will be on parity with fiat-USD, based on circular reasoning ("paradoxical thinking")? So it is false.
In the white paper you answer the question of "what market forces bring the price of crypto-USD back down?" with two arguments which are only true if the individuals assume that in the future the price will be on parity. So it is circular reasoning.

More specifically you give these two reasons:
1) "Holders of crypto-USD may see the potential for equity gains in bitshares". But this potential for equity gains in bitshares is only true if you assume that in the future the price will be on parity. So you use your argument to prove your argument.
2) "Holders of crypto-USD may wish to withdraw their money into paper-USD." Why would they withdraw it. Only if they assume that in the future the price will be on parity, then it would make sense to withdraw. So here again you use circular reasoning.

in the end it doesn't matter if you have bitshares or you issue them to yourself as crypto-USD, because the interest is paid in proportion to your balance.

Please correct me if I am wrong...
Btw, your ideas are indeed very interesing and I very much appreciate your work done here...

I think you misunderstand the nature of motive 2.  Someone who wants to convert crypto-USD to USD is doing so because they *FEAR* that crypto-USD will fall in value.  Therefore, they become SELLERS of crypto-USD which pushes the price of crypto-USD down.

Also, if the price of crypto-USD is above face value then that effectively means they can make a profit by selling 100 crypto-USD for 101 paper-USD assuming they bought 100-crypto USD for $99 paper-USD the last time their was an imbalance of withdrawals and deposits.

Therefore when there is a high demand to convert paper-USD to crypto-USD the crypto-USD price rises in paper-USD terms.  When the withdraws take over it falls in paper-USD terms.   

https://steemit.com  Blogging is the new Mining
nomailing
Full Member
***
Offline Offline

Activity: 126


View Profile
May 26, 2013, 05:03:14 PM
 #37

I think you misunderstand the nature of motive 2.  Someone who wants to convert crypto-USD to USD is doing so because they *FEAR* that crypto-USD will fall in value.  Therefore, they become SELLERS of crypto-USD which pushes the price of crypto-USD down. 

But your assumtion that they *FEAR* that crypto-USD will fall in value is based on the assumption that they assume that the price will reach parity in the future. You haven't proven that this is the case.

For example you could do the same reasoning for BTC by just renaming it to crypto-USD. Just by naming it USD you could argue that people want to sell it for paper-USD if the price is 101$. But nobody can guaranty that the price will be on parity. In reality the price could diverge to some arbitrary number (like with the BTC-USD exchange rate). So I still think that you use circular reasoning... But probably I just miss some important point... Would be nice if you could point me to the correct reasoning if I made an error. thanks a lot..

BM-2D9KqQQ9Fg864YKia8Yz2VTtcUPYFnHVBR
usscfounder
Member
**
Offline Offline

Activity: 84


View Profile
May 26, 2013, 05:38:13 PM
 #38

Have you looked at this Post?:

https://bitcointalk.org/index.php?topic=209269.0


I think this would be a better way to go.
mmeijeri
Hero Member
*****
Offline Offline

Activity: 714

Martijn Meijering


View Profile
May 26, 2013, 05:45:52 PM
 #39

The person who goes short can cover their position at any time by buying Q on the market.

I'm not sure I understand the shorting terminology. The person creating the Q "out of thin air" is figuratively borrowing the Q from a non-existent central bank and has to post a collateral that helps ensure he can eventually buy them back for the still non-existent central bank to destroy?

Quote
You have N shares(S) that pay P% dividends where the dividends = N*P.   If the exchange rate between S and Q is  X  then  what is backing Q is X*P*S / year.  

I thought it was the collateral that was backing the value of Q, with the interest rate differential somehow causing the exchange rate to remain near parity with the USD. I still don't understand the latter part, and like nomailing I think I'm seeing some circular reasoning.

Quote
The collateral is redeemable 'in general' by selling Q for S at the current exchange rate. which may be slightly more or slightly less than the original exchange rate.

Does this mean that in your scheme there is no way to destroy the Q again?

I have to ponder the rest of your post.

In general, I can see you could have a currency tracking the USD inside a BTC-based system, provided the crypto-USD is always automatically redeemable for BTC from the collateral and the total amount of crypto-USD outstanding equals the USD value of the BTC collateral. I generally understand how differing interest rates could induce people to convert between BTC and crypto-USD, but not how your present proposal does this. And because of the fact that the system doesn't know about exchange rates, I'm skeptical it could even work in principle.

ROI is not a verb, the term you're looking for is 'to break even'.
domob
Legendary
*
Offline Offline

Activity: 983


View Profile WWW
May 26, 2013, 05:49:44 PM
 #40

I think you misunderstand the nature of motive 2.  Someone who wants to convert crypto-USD to USD is doing so because they *FEAR* that crypto-USD will fall in value.  Therefore, they become SELLERS of crypto-USD which pushes the price of crypto-USD down. 

But your assumtion that they *FEAR* that crypto-USD will fall in value is based on the assumption that they assume that the price will reach parity in the future. You haven't proven that this is the case.

For example you could do the same reasoning for BTC by just renaming it to crypto-USD. Just by naming it USD you could argue that people want to sell it for paper-USD if the price is 101$. But nobody can guaranty that the price will be on parity. In reality the price could diverge to some arbitrary number (like with the BTC-USD exchange rate). So I still think that you use circular reasoning... But probably I just miss some important point... Would be nice if you could point me to the correct reasoning if I made an error. thanks a lot..

Yep, this is the crucial point.  I would also be interested in how that is achieved.  (I haven't yet understood that fully, neither.)

Use your Namecoin identity as OpenID: https://nameid.org/
Donations: 1domobKsPZ5cWk2kXssD8p8ES1qffGUCm | NMC: NCdomobcmcmVdxC5yxMitojQ4tvAtv99pY
BM-GtQnWM3vcdorfqpKXsmfHQ4rVYPG5pKS | GPG 0xA7330737
Pages: « 1 [2] 3 4 5 6 7 8 9 10 11 12 »  All
  Print  
 
Jump to:  

Sponsored by , a Bitcoin-accepting VPN.
Powered by MySQL Powered by PHP Powered by SMF 1.1.19 | SMF © 2006-2009, Simple Machines Valid XHTML 1.0! Valid CSS!