[ANN][DGC][FBD] Free Bank of Digitalcoin ~ Risk Averse DGC Investments

[krasnyoktyabr]

There's no reason for him to go bankrupt. He just ceases making money on gold, which is why he wouldn't do it.

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[fenican]

There's no reason for him to go bankrupt. He just ceases making money on gold, which is why he wouldn't do it.

The pawn shop can't mint gold.  He has to buy it at market and, with that scheme, he would be guaranteed to lose money every time someone returns it.

Simple economics.  If you guarantee a counter-party will always break even or make a USD profit, you incur the USD loss if the asset goes down in value.

If Gold goes from $1400 an ounce to $1 an ounce, admittedly an extreme example, the pawn shop owner ends up buying back a near worthless asset with hard currency.  He didn't acquire that asset for free - he had to buy it (!!!)

The error in assumption everyone is making here is they assume DGC is free for the bank.  That is NOT the case the bank needs to acquire DGC on an exchange for USD or BTC

[krasnyoktyabr]

There's no reason for him to go bankrupt. He just ceases making money on gold, which is why he wouldn't do it.

The pawn shop can't mint gold.  He has to buy it at market and, with that scheme, he would be guaranteed to lose money every time someone returns it.

Simple economics.  If you guarantee a counter-party will always break even or make a USD profit, you incur the USD loss if the asset goes down in value.

This is only true if he buys gold to meet the demand of everyone who wants to buy gold from him. If he only sells the gold he owns he won't lose any money at all.

What would happen is:

1. Pawn shop offers to sell gold, but buy it back for 1 month at the price you paid.

2a. The person brings the gold back because the market price decreases, the pawn shop breaks even.

2b. The price of gold rises, the person does not sell the gold back and lets the option expire. The pawn dealer keeps the money from the purchase.

EDIT: Since, you changed the post while I was typing. Baritus said the bank will be funded initially by purchase of shares with DGC. The bank will only sell what it owns, they will sell it as an option with an expiration, and the shareholders will receive dividends based on the premium the the purchaser pays for the initial DGC.

[fenican]

So highlighting the error.  Everyone assumes that the bank can simply "mint" $1,000 of DGC out of thin air while holding onto the $1,000 in deposits as an escrow.

Hence, they assume the bank incurs no loss since it can just return the $1,000.

What people ignore is how the bank gets the DGC.  They can't just mint it.  The bank needs to buy a large quantity of DGC at market value or, more likely, it would need to buy the DGC using the capital provided by the buyer.

Hence, the bank NO LONGER HAS THE $1,000 since it HAD TO BUY THE DGC WITH IT.

Hence, when DGC crashes and the buyer comes back for his refund the bank has to come up with $1,000 out of pocket.  If the DGC they buy with it is only worth $1, admittedly an extreme case, the bank just lose $999

[krasnyoktyabr]

So highlighting the error.  Everyone assumes that the bank can simply "mint" $1,000 of DGC out of thin air while holding onto the $1,000 in deposits as an escrow.

Hence, they assume the bank incurs no loss since it can just return the $1,000.

What people ignore is how the bank gets the DGC.  They can't just mint it.  The bank needs to buy a large quantity of DGC at market value or, more likely, it would need to buy the DGC using the capital provided by the buyer.

Hence, the bank NO LONGER HAS THE $1,000 since it HAD TO BUY THE DGC WITH IT.

Hence, when DGC crashes and the buyer comes back for his refund the bank has to come up with $1,000 out of pocket.  If the DGC they buy with it is only worth $1, admittedly an extreme case, the bank just lose $999

I edited my post to explain this.

[fenican]

let me be more clear - the pawn shop owner is assuming 100% of the risk if the asset declines in value while, in exchange, getting NONE OF THE UPSIDE.

That has enormous negative value.  It is like selling a call option to someone with no premium.  Every investor on the planet would be lined up around the block to take the free option.

[fenican]

Look I trade options very regularly.  I cannot express in words how bad of a value proposition this is for the bank.  They are guaranteeing speculators a profit.

I'll buy all the DGC they have FOR THE LIMIT please.  Put me first in line.

[krasnyoktyabr]

Look I trade options very regularly.  I cannot express in words how bad of a value proposition this is for the bank.  They are guaranteeing speculators a profit.

I'll buy all the DGC they have FOR THE LIMIT please.  Put me first in line.

Have you read the rest of this thread where it was explained?

Let's say I buy 10,000 at 1,000 DGC/BTC.  I pay 10.5 BTC with 0.5 BTC fees to the shareholders. At the end, you can sell your DGC back for 10 BTC. It isn't entirely free, the bank just provides risk averse trading (as is mentioned in the title).

What does the bank gain from this? DGC liquidity. The ability to purchase DGC for USD. That's the only part the devs care about.

[e521]

fenican, I will try to explain it again, anybody feel free to correct me please.

10 shareholders give 100DGC each so the bank has now 100*10=1000DGC to borrow
You pay 1BTC+0.05BTC fee for 1000DGC and you can have it back 1BTC for 100DGC for let's say, 1 week

DGC rate goes up:
You sell it on exchange because you can now get more than 1BTC

DGC rate does down within 1 week:
You can get 1BTC back from the bank

Now please explain how shareholders lose because I cannot see it, they still have 1000DGC (initial investment) + 0.05BTC

[everybodyclapyohands]

Look I trade options very regularly.  I cannot express in words how bad of a value proposition this is for the bank.  They are guaranteeing speculators a profit.

I'll buy all the DGC they have FOR THE LIMIT please.  Put me first in line.

Have you read the rest of this thread where it was explained?

Let's say I buy 10,000 at 1,000 DGC/BTC.  I pay 10.5 BTC with 0.5 BTC fees to the shareholders. At the end, you can sell your DGC back for 10 BTC. It isn't entirely free, the bank just provides risk averse trading (as is mentioned in the title).

What does the bank gain from this? DGC liquidity. The ability to purchase DGC for USD. That's the only part the devs care about.

fenican, I will try to explain it again, anybody feel free to correct me please.

10 shareholders give 100DGC each so the bank has now 100*10=1000DGC to borrow
You pay 1BTC+0.05BTC fee for 1000DGC and you can have it back 1BTC for 100DGC for let's say, 1 week

DGC rate goes up:
You sell it on exchange because you can now get more than 1BTC

DGC rate does down within 1 week:
You can get 1BTC back from the bank

Now please explain how shareholders lose because I cannot see it, they still have 1000DGC (initial investment) + 0.05BTC

+1. It can be hard to grasp at first but it's not a scam or a horrible idea like many are suggesting. This is another really innovative service from the DGC dev team.

[fenican]

fenican, I will try to explain it again, anybody feel free to correct me please.

10 shareholders give 100DGC each so the bank has now 100*10=1000DGC to borrow
You pay 1BTC+0.05BTC fee for 1000DGC and you can have it back 1BTC for 100DGC for let's say, 1 week

DGC rate goes up:
You sell it on exchange because you can now get more than 1BTC

DGC rate does down within 1 week:
You can get 1BTC back from the bank

Now please explain how shareholders lose because I cannot see it, they still have 1000DGC (initial investment) + 0.05BTC

If DGC goes up, the buyer will NOT be returning any DGC to the bank.  To make shareholders whole, the bank will then need to acquire additional DGC at a higher rate incurring a loss to the bank or the bank will need to return less DGC to the shareholder.

This is a zero sum game.  A bank and its shareholders cannot guarantee a speculator a profit without incurring counter-party risk.  

This is a proof by inspection problem that, absent some profoundly huge fees (an option premium), the bank and its shareholders will lose money over time

They are essentially writing a call option with no option premium.  Nobody in the investment community does that because it is a money losing proposition.  Why do you think there are no similar services for Gold or Silver?  Except for an outright scam, a company would be out of its mind to guarantee cash refunds on purchase of a highly speculative investment.

If this goes live, just buy 100% of the bank's DGC and then dump it on an exchange if the price goes up.  Free money for you.  Bad day for someone else.

[krasnyoktyabr]

Let's play out the two different scenarios, because it's really quite simple. In both scenarios, the investor purchases 10,000 DGC for 10 BTC with a 5% fee, making the total purchase 10.5 BTC. THe contract expires 30 days from purchase, and the investor can return the DGC at that time for 10 BTC.

Scenario 1: The price of DGC doubles.

The investor removes the money from the bank and sells the DGC on the exchange for 20 BTC, netting himself a 9.5 BTC profit. The shareholders split the 0.5 BTC fee as a dividend. The bank purchases 5,000 DGC with the money from the expired contract, and sells those 5,000 DGC to a new investor for 10.5 BTC.

As you can see, even if the price increases, the shareholders keep getting dividends from fees and the bank always keeps the exact same capital that it had to begin with.


Scenario 2: The price of DGC drops in half

The investor sells back the 10,000 DGC for 10 BTC, losing 0.5 BTC for the initial fee (the bank covered 95% of the losses). The bank then resells the 10,000 DGC for 5.25 BTC to a new investor at 2,000 DGC per BTC.

The situation is not ideal, but the shareholders continue to see dividends, the bank has the same capital, just in a different form (DGC vs BTC).

You are correct that no trading firm would do this with gold or silver, because it leads to the possibility of 100% net loss. What you are not seeing is that the bank and the shareholders only have DGC invested in the process. If DGC goes to zero, they just end up with the same DGC they started with, plus a little bonus from fees in the form of dividends. Without the bank, they would have just had a bunch of DGC that is worth nothing.

If the bank goes under it is because DGC failed. If the price of DGC increases, the bank will always maintain the exact same profit margin, just on smaller and smaller portions of DGC that it can buy back with the money from expired contracts.

Please find a loophole in this, because if there is one, it's better to get it now rather than waiting until later.

[everybodyclapyohands]

Let's play out the two different scenarios, because it's really quite simple. In both scenarios, the investor purchases 10,000 DGC for 10 BTC with a 5% fee, making the total purchase 10.5 BTC. THe contract expires 30 days from purchase, and the investor can return the DGC at that time for 10 BTC.

Scenario 1: The price of DGC doubles.

The investor removes the money from the bank and sells the DGC on the exchange for 20 BTC, netting himself a 9.5 BTC profit. The shareholders split the 0.5 BTC fee as a dividend. The bank purchases 5,000 DGC with the money from the expired contract, and sells those 5,000 DGC to a new investor for 10.5 BTC.

As you can see, even if the price increases, the shareholders keep getting dividends from fees and the bank always keeps the exact same capital that it had to begin with.


Scenario 2: The price of DGC drops in half

The investor sells back the 10,000 DGC for 10 BTC, losing 0.5 BTC for the initial fee (the bank covered 95% of the losses). The bank then resells the 10,000 DGC for 5.25 BTC to a new investor at 2,000 DGC per BTC.

The situation is not ideal, but the shareholders continue to see dividends, the bank has the same capital, just in a different form (DGC vs BTC).

You are correct that no trading firm would do this with gold or silver, because it leads to the possibility of 100% net loss. What you are not seeing is that the bank and the shareholders only have DGC invested in the process. If DGC goes to zero, they just end up with the same DGC they started with, plus a little bonus from fees in the form of dividends. Without the bank, they would have just had a bunch of DGC that is worth nothing.

If the bank goes under it is because DGC failed. If the price of DGC increases, the bank will always maintain the exact same profit margin, just on smaller and smaller portions of DGC that it can buy back with the money from expired contracts.

Please find a loophole in this, because if there is one, it's better to get it now rather than waiting until later.

Excellent explanation, and what also needs to be understood is that the bank offers the ability to trade your contract with other people. This is another source of income because of the fees to the bank.  You also own the contract even if you sell your DGC.

If I buy from the bank at 00026 and it goes up to 0005 and I sell, the bank made money off my fees and I made money off my sale (more than covering the fee I paid the bank for the contract)

Now the price collapses to 00015 and my contract hasn't expired yet. I sell my contract to Joe Blow through the bank. The bank makes more money on fees, I make more money on the sale, and Joe Blow gets to sell his DGC to the bank at 00026 which means he makes more than on the open market, the bank now has its original DGC back (plus more fees).  So even though the bank gave up the original BTC or USD or whatever, it got back the same amount of DGC it had originally plus made out on fees. Everyone's happy.

[digitalindustry]

There's no reason for him to go bankrupt. He just ceases making money on gold, which is why he wouldn't do it.

The pawn shop can't mint gold.  He has to buy it at market and, with that scheme, he would be guaranteed to lose money every time someone returns it.

Simple economics.  If you guarantee a counter-party will always break even or make a USD profit, you incur the USD loss if the asset goes down in value.

If Gold goes from $1400 an ounce to $1 an ounce, admittedly an extreme example, the pawn shop owner ends up buying back a near worthless asset with hard currency.  He didn't acquire that asset for free - he had to buy it (!!!)

The error in assumption everyone is making here is they assume DGC is free for the bank.  That is NOT the case the bank needs to acquire DGC on an exchange for USD or BTC

or mine it - or get it from fees from the Cryptsy exchange -

[digitalindustry]

Let's play out the two different scenarios, because it's really quite simple. In both scenarios, the investor purchases 10,000 DGC for 10 BTC with a 5% fee, making the total purchase 10.5 BTC. THe contract expires 30 days from purchase, and the investor can return the DGC at that time for 10 BTC.

Scenario 1: The price of DGC doubles.

The investor removes the money from the bank and sells the DGC on the exchange for 20 BTC, netting himself a 9.5 BTC profit. The shareholders split the 0.5 BTC fee as a dividend. The bank purchases 5,000 DGC with the money from the expired contract, and sells those 5,000 DGC to a new investor for 10.5 BTC.

As you can see, even if the price increases, the shareholders keep getting dividends from fees and the bank always keeps the exact same capital that it had to begin with.


Scenario 2: The price of DGC drops in half

The investor sells back the 10,000 DGC for 10 BTC, losing 0.5 BTC for the initial fee (the bank covered 95% of the losses). The bank then resells the 10,000 DGC for 5.25 BTC to a new investor at 2,000 DGC per BTC.

The situation is not ideal, but the shareholders continue to see dividends, the bank has the same capital, just in a different form (DGC vs BTC).

You are correct that no trading firm would do this with gold or silver, because it leads to the possibility of 100% net loss. What you are not seeing is that the bank and the shareholders only have DGC invested in the process. If DGC goes to zero, they just end up with the same DGC they started with, plus a little bonus from fees in the form of dividends. Without the bank, they would have just had a bunch of DGC that is worth nothing.

If the bank goes under it is because DGC failed. If the price of DGC increases, the bank will always maintain the exact same profit margin, just on smaller and smaller portions of DGC that it can buy back with the money from expired contracts.

Please find a loophole in this, because if there is one, it's better to get it now rather than waiting until later.

Excellent explanation, and what also needs to be understood is that the bank offers the ability to trade your contract with other people. This is another source of income because of the fees to the bank.  You also own the contract even if you sell your DGC.

If I buy from the bank at 00026 and it goes up to 0005 and I sell, the bank made money off my fees and I made money off my sale (more than covering the fee I paid the bank for the contract)

Now the price collapses to 00015 and my contract hasn't expired yet. I sell my contract to Joe Blow through the bank. The bank makes more money on fees, I make more money on the sale, and Joe Blow gets to sell his DGC to the bank at 00026 which means he makes more than on the open market, the bank now has its original DGC back (plus more fees).  So even though the bank gave up the original BTC or USD or whatever, it got back the same amount of DGC it had originally plus made out on fees. Everyone's happy.

seems legit - the devil is in the detail - so the bank gets more fees on the re-sale of the contract ?

[krasnyoktyabr]

Let's play out the two different scenarios, because it's really quite simple. In both scenarios, the investor purchases 10,000 DGC for 10 BTC with a 5% fee, making the total purchase 10.5 BTC. THe contract expires 30 days from purchase, and the investor can return the DGC at that time for 10 BTC.

Scenario 1: The price of DGC doubles.

The investor removes the money from the bank and sells the DGC on the exchange for 20 BTC, netting himself a 9.5 BTC profit. The shareholders split the 0.5 BTC fee as a dividend. The bank purchases 5,000 DGC with the money from the expired contract, and sells those 5,000 DGC to a new investor for 10.5 BTC.

As you can see, even if the price increases, the shareholders keep getting dividends from fees and the bank always keeps the exact same capital that it had to begin with.


Scenario 2: The price of DGC drops in half

The investor sells back the 10,000 DGC for 10 BTC, losing 0.5 BTC for the initial fee (the bank covered 95% of the losses). The bank then resells the 10,000 DGC for 5.25 BTC to a new investor at 2,000 DGC per BTC.

The situation is not ideal, but the shareholders continue to see dividends, the bank has the same capital, just in a different form (DGC vs BTC).

You are correct that no trading firm would do this with gold or silver, because it leads to the possibility of 100% net loss. What you are not seeing is that the bank and the shareholders only have DGC invested in the process. If DGC goes to zero, they just end up with the same DGC they started with, plus a little bonus from fees in the form of dividends. Without the bank, they would have just had a bunch of DGC that is worth nothing.

If the bank goes under it is because DGC failed. If the price of DGC increases, the bank will always maintain the exact same profit margin, just on smaller and smaller portions of DGC that it can buy back with the money from expired contracts.

Please find a loophole in this, because if there is one, it's better to get it now rather than waiting until later.

Excellent explanation, and what also needs to be understood is that the bank offers the ability to trade your contract with other people. This is another source of income because of the fees to the bank.  You also own the contract even if you sell your DGC.

If I buy from the bank at 00026 and it goes up to 0005 and I sell, the bank made money off my fees and I made money off my sale (more than covering the fee I paid the bank for the contract)

Now the price collapses to 00015 and my contract hasn't expired yet. I sell my contract to Joe Blow through the bank. The bank makes more money on fees, I make more money on the sale, and Joe Blow gets to sell his DGC to the bank at 00026 which means he makes more than on the open market, the bank now has its original DGC back (plus more fees).  So even though the bank gave up the original BTC or USD or whatever, it got back the same amount of DGC it had originally plus made out on fees. Everyone's happy.

seems legit - the devil is in the detail - so the bank gets more fees on the re-sale of the contract ?

The bank gets fees if you sell your option to someone new, but I don't think they get fees if you call in the buy-back option.

[mercSuey]

Look I trade options very regularly.  I cannot express in words how bad of a value proposition this is for the bank.  They are guaranteeing speculators a profit.

I'll buy all the DGC they have FOR THE LIMIT please.  Put me first in line.

Your logic is correct.  But this is the crypto world.  This 'bank' is not legally bound to fulfill this 'contract'.  This could be the ultimate of scams.

[mercSuey]

Baritus, do you take USD or just BTC?

[lanfeusst]

First, you must agree that it is a zero-sum game.
If the buyer can't lose money, the bank can't win money.
If the buyer can win money, the bank can lose money.

The loophole is

Scenario :
(the bank has initially 0BTC)
The investor purchases 10,000 DGC for 10 BTC with a 5% fee, making the total purchase 10.5 BTC :
The bank purchases 10,000 DGC with the money from the  contract, and sells those 10,000 DGC to the investor for 10.5 BTC
(the bank has now 0.5BTC)

1) First the price of DGC doubles
The bank still have 0.5 BTC.
A new investor purchases 5,000 DGC for 10 BTC with a 5% fee, making the total purchase 10.5 BTC :
The bank purchases 5,000 DGC with the money from the contract, and sells those 5,000 DGC to the investor for 10.5 BTC.
(the bank has now 1 BTC)

2) Then the price of DGC drops in half
The investor sells back the 5,000 DGC for 10 BTC, losing 0.5 BTC for the initial fee (the bank covered 95% of the losses) :
The bank sell 5,000 DGC with the money from the contract, and obtains 5 BTC.
Then the bank gives 10 BTC to the investor.
(the bank has now 1+5-10 =  -4BTC).

The bank wins nothing when the price goes up, but loses when it goes down.

[digitalindustry]

First, you must agree that it is a zero-sum game.
If the buyer can't lose money, the bank can't win money.
If the buyer can win money, the bank can lose money.

The loophole is

Scenario :
(the bank has initially 0BTC)
The investor purchases 10,000 DGC for 10 BTC with a 5% fee, making the total purchase 10.5 BTC :
The bank purchases 10,000 DGC with the money from the  contract, and sells those 10,000 DGC to the investor for 10.5 BTC
(the bank has now 0.5BTC)

1) First the price of DGC doubles
The bank still have 0.5 BTC.
A new investor purchases 5,000 DGC for 10 BTC with a 5% fee, making the total purchase 10.5 BTC :
The bank purchases 5,000 DGC with the money from the contract, and sells those 5,000 DGC to the investor for 10.5 BTC.
(the bank has now 1 BTC)

2) Then the price of DGC drops in half
The investor sells back the 5,000 DGC for 10 BTC, losing 0.5 BTC for the initial fee (the bank covered 95% of the losses) :
The bank sell 5,000 DGC with the money from the contract, and obtains 5 BTC.
Then the bank gives 10 BTC to the investor.
(the bank has now 1+5-10 =  -4BTC).

The bank wins nothing when the price goes up, but loses when it goes down.

except for the fee - and a fee if it is on-sold, but i don't see a huge market incentive to on-sell there - so , mainly just the original fee -