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Question: Would you as a customer trust an issuer who has collateral?  (Voting closed: February 25, 2014, 07:21:11 AM)
Yes - 1 (50%)
No, collateral isn't enough - 0 (0%)
Maybe, it depends on how much leverage it is (*2,*3,*4) - 1 (50%)
Total Voters: 2

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Author Topic: Would you as a customer trust an issuer who has collateral?  (Read 439 times)
Gilberto
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February 19, 2014, 07:21:11 AM
 #1

I will present a scenario and then let me know if you think it would be useful to you as a either a customer or a business?

In a recent article on Kickstarter coins the idea was presented that companies could issue their own coins and back them by goods and services. This idea isn’t exactly new but until recently it has not had a mainstream audience. The idea seems to have been positively received so now I want to offer a twist to that idea.

A collateralized backed coin is a token of credit backed by the goods and services of the issuer which offers a money back guarantee prior to the expiration date.

So for instance if you’re issuing a token called wood coins with the promise that you’ll redeem these wood coins for wood cutting boards.

This is like a pre-order. The problem with doing a pre-order without collateral is that prior to delivery there is no way for the people who hold the tokens or coins to get their money back.

By offering collateral a company can guarantee that whoever sends them the coins before the redeem date will get their money back. So if this were Butterfly Labs and you purchased BFLASIC coins those coins would represent the next generation ASIC to be released by Butterfly Labs. The problem is people who purchased preorders might realize that they can’t make a return on their investment so now they want their money back.

If there is collateral then they can get their money back. Collateral acts as a buffer which provides a money back guarantee to whomever holds the coin and this collateral backs the coin in a similar way that gold used to back the dollar. If at any time you want your money back you would get it back.

Once Butterfly labs starts to ship their product you don’t get your money back. At that point you can send them your token and they’ll send the product to the address you give them. The token effectively allows for decentralized preordering.

But the difference is that these tokens can also function as currencies and be traded for other tokens. So you could trade a Butterflylabs token for some other type of tokens or you can sell the Butterflylabs token for Bitcoins to random people who want to buy the token because these tokens can be used for speculation and trade. So that would mean you could trade BFLASIC coins for wood coins.

Game theory - trust based on the amount of risk the company is taking via collateral

In order for the collateralized backed coins protocol to work the company would have to put x*2 or x^3 into collateral.

What I mean is the company must put double or triple in collateral until people trust them. This is so that people know the company has more than enough money to give them all their money back held in escrow. This could work 1:1 also, but of if the user has a choice as to which company to trust which company would they prefer?

That would mean the company who puts twice as much in collateral has twice as much to lose scamming as they would by being honest. The collateral would be held in escrow and anyone with the coins would be able to send them in. The remaining collateral would either be destroyed or given as a dividend if the company fails to launch or turns into a scam.

Please give your feedback? Would you find this feature useful as a business, a speculator, or a customer? If coins were issued with collateral and backed by goods and services of the issuer do you think this would be of value to you?

For reference
http://techcrunch.com/2014/02/15/kickstarter-coins-2/

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Gilberto
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February 22, 2014, 08:00:48 PM
 #2

The purpose of collateral backing a token or asset is so that the level of trust can be minimized.
Do any of you have opinions on this?

So far the vote tally says 1 for yes, and 1 for it depends on how much leverage.
Please continue voting.

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