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Author Topic: RFC: Providing digital warranties (GLBSE shares) for loans?  (Read 926 times)
ovidiusoft
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September 04, 2011, 07:27:31 PM
 #1

I didn't see this discussed until now, so I was wondering if someone thought about accepting/offering shares/bonds as a warranty for loans? I was reading IBB's thread and the conditions required. All of them make sense, but some of them are really hard (my personal least favorite is 200 posts on the forum). On the other hand, if one could provide some digital assets, wouldn't that help with the "scoring"?

Let's take an example: I don't have 200 posts on the forum, and I don't like sending my scanned ID to strangers on the net. Not that I don't trust IBB, but I know enough about security to understand that my scanned ID can be stolen by a virus/hacker, or confiscated by some agency in a different country.

On the other hand, I have a few GLBSE shares that I am willing to transfer to IBB as a warranty. Let's say I am willing to provide 10 OPTIMALBITCOIN shares. They were bought for 0.8 each, current bid is 0.75 and current ask is 0.9. They will be worth 1 BTC on december 1st, unless the company goes bankrupt.

I am not a scoring/loans specialist, but evaluating the shares at 0.7+ seems right. I send the 10 shares to the lender, I get 7 BTC for my 10 shares, if I don't pay back I lose the warranty. Sounds fair IMHO.

This might even evolve into a real scoring system: registered more than 2 months: +1 point; more than 100 posts on the forum: +1 point; shares could have their own weight: bonds, 100% of market price, divident paying shares, 50% and so on.

What do you think? Would that work?

Edit: any kind of digital asset would work, of course. I'm just using GLBSE share as an example, because that's what I was experimenting with.
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senbonzakura
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September 04, 2011, 09:23:54 PM
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yes, its a good idea. I will have to think about it for IBB

Jonathan Ryan Owens
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September 08, 2011, 06:15:37 AM
 #3

I didn't see this discussed until now, so I was wondering if someone thought about accepting/offering shares/bonds as a warranty for loans? I was reading IBB's thread and the conditions required. All of them make sense, but some of them are really hard (my personal least favorite is 200 posts on the forum). On the other hand, if one could provide some digital assets, wouldn't that help with the "scoring"?

Let's take an example: I don't have 200 posts on the forum, and I don't like sending my scanned ID to strangers on the net. Not that I don't trust IBB, but I know enough about security to understand that my scanned ID can be stolen by a virus/hacker, or confiscated by some agency in a different country.

On the other hand, I have a few GLBSE shares that I am willing to transfer to IBB as a warranty. Let's say I am willing to provide 10 OPTIMALBITCOIN shares. They were bought for 0.8 each, current bid is 0.75 and current ask is 0.9. They will be worth 1 BTC on december 1st, unless the company goes bankrupt.

I am not a scoring/loans specialist, but evaluating the shares at 0.7+ seems right. I send the 10 shares to the lender, I get 7 BTC for my 10 shares, if I don't pay back I lose the warranty. Sounds fair IMHO.

This might even evolve into a real scoring system: registered more than 2 months: +1 point; more than 100 posts on the forum: +1 point; shares could have their own weight: bonds, 100% of market price, divident paying shares, 50% and so on.

What do you think? Would that work?

Edit: any kind of digital asset would work, of course. I'm just using GLBSE share as an example, because that's what I was experimenting with.

I think it's almost as good an idea as senbonzakura verifying his/her identity and company jurisdiction.

Walk me though this process. Do I need to purchase shares at GLBSE to do this test? Tell me what to do, and I'll do it.

ovidiusoft
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September 08, 2011, 06:36:16 AM
 #4

If you don't already have some shares, then yes. How about this process:

* You want to borrow 1 BTC from me, and I am asking GLBSE shares as warranty.
* In evaluating them, I will use the current bid price for your chosen shares and I will let you know how many I need.
* You send me the shares via the GLBSE interface, I send you 1 BTC.
* When the load expires, we reverse the transactions. If you don't pay back, I keep the shares.

I suggest you buy LIF.B shares, they seem to be a very legit business: http://lifunds.com/index.htm . I also own a few optimalbitcoin shares, but the price doesn't divide right for such a small amount as 1 BTC. So, using LIF.B as an example, you should buy 8 LIF.B shares, current ask price is 0.12 so it will cost you 0.96 BTC. For me, these 8 shares would be worth their bid price, for a total of 0.784, but I am willing to take that risk, since it's an experiment and you are established on the forum.

Risks are as follows:

* for me:

- if I send you 1 BTC before getting the shares, you can disappear.
- you don't pay back, I keep the shares, but I might not be able to sell them for 1 BTC and I either have to wait to get dividends off them, or sell them at a loss.

* for you:

- if you send me your shares before you get 1 BTC from me, I can disappear with your shares.
- even if you pay me back 1 BTC, I can keep your shares without returning them.

Since I am not an old member and have zero public feedback, I think your risk is larger than mine, so I am willing to be the first to send you the BTC and shares.

Of course, a loan company could create a very nice scoring system based on there price/market movements/past results, and include other means of influencing the score. But that's a story for another time. Smiley

So, what do you think?
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September 08, 2011, 08:04:26 AM
 #5

Will you be providing the first GLBSE margin lending product? I can use your loaned bitcoin to buy more GLBSE shares and gain some nice leverage. How will you handle margin calls, when the value of the shares held as collateral drops?

ovidiusoft
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September 08, 2011, 08:15:51 AM
 #6

I don't know yet if I'm ready to launch such a product, the market share in general and GLBSE in particular are pretty new to me. Anyway, I definitely don't have enough BTC to invest in such a venture, but I hope that there experiments that I'm proposing will be useful. I would definitely buy shares in a loan company using this business model.

As for price drops, I think the risks should be included in a scoring system. For example, bonds could be valuated at 95% of maturation price, shares from new enterprises at 20%, shares from established businesses with a good financial record at 80% and so on. I'm not an expert on these, so I don't know.
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September 08, 2011, 09:49:17 AM
 #7

I should have included a smiley.  Grin I was actually partly speaking in jest. GLBSE is certainly not yet ready for it.

And to answer my own question now that I consider it, a margin call could be handled the same way as any other margin lender does it. Contact the borrower and give them 24 hours to bring the loan back with margin by repaying some of the loan of lodging more collateral. Failure to do so results in the shares being sold.

The problem with this for GLBSE at the moment is the lack of liquidity, which means you can't sell a lot of shares in a hurry without driving down the price.

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