Hi,
Brazilian currency is gaining value this year, see: http://blocklink.info/
I just would like to tell that, If someone wanted to lend me 10 bitcoins and after 10 months I needed to pay interest rate of 6% linked to dollar or 10,6 bitcoins. Make sure I’d get this loan.
I trade stocks and regularly sell short. So, I’ll just correct a few things:
If you have $1000 in your account, no one is going to let you short $1,000,000 worth of stocks. Since there is unlimited upside, they normally set their “Stop losses” at the exact same level has your account.
The problem here is, in the real world, this lending is handled by the broker. The broker, knows if you are short on NYSE, but Long on ARCA…so net flat. So, the customer here is short on BitSquare and Long on Bitstamp…therefore the price movements are not hurting but from your perspective…this guy is doing badly. This guy could be running a statistical arb…yet you’ll know because you only see one leg of his trade.
I think (and I have been doing a lot of thinking since the Bitfinex hack), exchanges need to simply trade. Stay away from lending with incomplete data.
Manfred,
What you have described is a classic carry trade. Very common in the Yen and Swiss Franc … and recently Swiss franc has killed a lot of people.
A. Even if your exposure is to the US Government, there is a small(US Gov shut down nearly triggered a default as recent as few years ago), but not a insignificant chance of default.
B. There is a chance the currency might move against you, such that when you convert back from USD to Yen, you won’t be able to return the exact same number of Toyota shares.
C. In the BTC world, you can only see the BTC, if it is sold and converted to REAL, you have already lost sight of this. And if it is lent in the real world, its gone even further from your control. The borrower would have provide 100% security and if they could…why would they borrow in the first place. The only way this works(at least in my mind), is if the borrowing, lending and consuming never leaves bitsquare eco system.
Exactly…Like countries removing their currency peg or adjusting it. It is also indication of high inflation.
ghostdawg.
My thinking too. Why borrow btc if you need to put the same amount (in btc) + interest in collateral?
Still I think there are some instruments that can be constructed in bitsquare in a trustless way that gamblers and hedgers would like to buy. Maybe in all cases some other currency must be involved, fiat or altcoin which will limit the possibilities since only btc can be put as collateral.
mepistol,
I’m currently drafting the whitepaper. Basically what I envision is a facility that extends Bitsquare to enable margin trading (a facility such as the “Lending” facility currently provided for on Poloniex but designed for a decentralized exchange). See the article at:
http://cryptomoms.com/forum/guides/31/lending-to-the-margin-traders-a-way-to-grow-your-bitcoin/1002/
which describes the Poloniex lending feature. Of course this would need some design changes to be properly implemented in a decentralized pattern but it does provide value-add:
I have a significant amount of bitcoin that when not trading just sits in a wallet. I would put it all up on Poloniex to earn interest, if I were not afraid of loosing it all due to a hack of the exchange (think bitfinex). If Bitsquare had a lending facility protected via 2-of-3 multi-signature transactions, a significant number of my idle coins would be there earning interest! Because of the risk of theft on centralized exchanges, I will NOT risk my coins in this manner!
The concept of taking out a loan that is 100% collateralized confuses many. It is part of the risk mitigation in a decentralized pattern. I will try to articulate that in a simplified manner in the whitepaper. Bottom line is that we have to factor out the margin governance (typically provided by an intermediary which is an exchange/broker) for a decentralized pattern. I am involved in a project called Maker DAO which uses a > 100% collateralized debt position to enable a stable currency. There are some similarities to the Maker DAO model for this margin lending facility I envision here. Again I will attempt to provide a comprehensive description in the whitepaper.
Maker DAO whitepaper:
https://makerdao.github.io/docs/
I’ll notify you once I have a decent draft of the white paper.
Thanks dougbebber,
I will await the whitepaper with interest.
I think also fiat-lending against bitcoin collateral is possible. This is then getting very close to options.
mepistol
Checking around a bit. Banks are terribly regulated and take little risk (they say). There is thus a mispricing of bankloans which is somewhat compensated by credit-bureaus (still regulated) and loansharks (also regulated since what they do is “criminal”). The amount of spam I get by firms wanting to lend me money attests to this.
I thus think that a lending facility (fiat for btc security) will have a great future in Bitsquare, even if limited to 1 BTC in security per loan.
Meh. It’s a good simple platform for exchanging currencies. Why complicate it with this c̶r̶a̶p̶ stuff. There are plenty of places to borrow money, and the risk handling is significant. What it will effectively do to Bitsquare is require it to have a huge staff handling user disagreements, which centralizes the exchange and provides a target point for attacks.
No. It’s stupid. If you want to make a little money lending then use Poloniex and get your 20% without the hassles.
i really like the lending idea because i assume it will be some sort of trustless multisig and not rely on a centralised exchange.
So write a new app for that.
interesting, more services like this the better 
i guess i need to check out hodl too.
also crypto managed funds will launch coming at some point via iconomi, this all seems like the wild west.
if this stuff goes mainstream, i dont know what is going to happen. (crypto/openbazaar/decetralysed everything)
The wild west? It’s quite a trick to throw a bitcoin in the air and plug it with you six-shooter, pardner.
I am still in the process of drafting the whitepaper. I will need a little more time (been real busy lately). In the meantime, here is a paper describing the lending facility on Poloniex:
I’d like to see a similar facility that is actually decentralized on Bitsquare. That’s what my whitepaper will describe.
I, too await your solution to this problem:
"When you lend on BTCJam or other peer to peer services, the borrower has full custody of the funds they’ve borrowed. Default rates in this scenario are high, especially in the cryptocurrency space where the lender has little recourse if the borrower defaults.
When you lend to margin traders on platforms such as Poloniex, it’s impossible for the borrowed funds to leave the platform. As soon as the borrower closes their trade, the funds are automatically returned to the lender. Additionally, Poloniex is able to implement strict risk controls for borrowers, where the borrower’s loan is auto-liquidated if their available collateral drops below a certain threshold."
I think the idea of generating a loan facility, on bit square is an excellent one. Any news on the white paper. I have an idea on how to get this working easily. Beauty of lending is it lets people short and lets people earn “interest” on their bitcoin.
One of the main money earners on Bitfininex is that people deposit USD and bitfinex uses it as margin for BTC etc trading. The depositors earn interest on their USD way above the banks .25% until of course bitfinex gets hacked and you lose 30%.
Bitsquare eliminates that risk.
I have been busy looking at a number of scenarios for such a lending facility and have lots of draft documents that I have yet to assemble into content that I would want to publish. I first thought that the lending facility would be a great extension to Bitsquare, however, I think a well designed decentralized lending protocol could be applicable to any exchange, centralized or decentralized, so developing it specifically for Bitsquare may be a suboptimal approach. I will elaborate on this further in the white paper. Since, the value transfer endpoints in the lending facility are cryptocurrency addresses, interfacing with Bitsquare (as well as Poloniex) should be a natural fit.
I have a draft workflow doc on ipfs that can be found at: https://gateway.ipfs.io/ipfs/QmepUc9vTEvs4WML7sy4gxY3iph3RmAgmVSQhgKt3qjkaV
(All of the workflow steps are automated and represent an event-based workflow processing system. Notifications are available through p2p messaging and workflow state is maintained through a blockchain construct).
I believe one key aspect of decentralized lending will involve the deposit of collateral by the borrower. Securing the collateral deposit in a decentralized lending system will require a multi-signature facility. Additionally, decentralized arbitration will be essential not only for properly disbursing loan collateral, but for obtaining decentralized consensus for the lending workflow. I really believe that for a decentralized lending facility to be efficient and effective, the system must utilize automation as manual human workflows involve inefficient, long (unacceptable) cycle times.
I have created a couple of prototypes that I’m working on to validate and test proof-of-concepts.
I stored a document on ipfs that illustrates how the multi-signature facility for collateral could work. That document can be found at: https://gateway.ipfs.io/ipfs/QmZpVkGQKZvf8mAxLj6CEUjhriRgf6iHbCwCCyJjjf15Xc
Many of the steps in this document would be automated in code. I illustrate it in the document using bitcoin-qt manually to make it easier for individuals to follow. I find that discussing multi-signature transactions using Bitcoin typically ends up confusing recipients and so I thought this approach might be more comprehensive. I am also looking to allow multiple protocols for collateral based multi-sig (Monero should have a multi-sig facility soon: https://gateway.ipfs.io/ipfs/QmWj7u6WmWXWxSVFuDXoHpwT6fPzPC9Vgbp3n71DBbiK9W).
I’m currently prototyping the arbiter as a software agent that processes the lending workflow as an automated software agent. The arbiter software agent code is on every p2p node. The arbiter is turned off by default, however, users can opt-in and turn the arbiter agent code on. An algorithm for obtaining decentralized consensus for arbiter agent workflow processing is currently being written and tested (the arbiter facility workflow processing will be similar in principle to how Bitcoin provides decentralized consensus for transaction processing). Incentives for participating in the arbiter functionality (PoW) will be a built-in monetary incentive similar to Bitcoin mining.
My prototyping work uses libp2p (out of the ipfs work) for the p2p architecture (I like the libp2p as routing options such as Tor and I2P are accommodated. I think the world will need agility in this area as authorities keep trying to attack financial privacy. The libp2p architecture allows for evolution to take place in this important capability.) I’m also looking at ipfs and Merkle DAG for offers, lending contracts, and workflow events.
My goal is to complete the current prototyping/Proof-of-Concepts, then write a comprehensive white paper to be published with the establishment of an open-source project on github to develop the decentralized lending facility. I’ll make the prototype code available in the github open-source project.
Sorry for the delay, but this idea has expanded and taken-on a life of its own.
Please feel free to contact me if you have any questions or concerns.
Doug
awesome! great idea to make it more general purpose and not just for bitsquare. the collateral value would have to be same value as the loan amount + interest yeah? or people will just say good-buy! some people may not see the purpose to get a loan if you already have the money, but the printing of money out of nothing is obviously is not a good idea either, or possible in crypto.
the other day i was thinking, bitsquare could facilitate altcoin to fiat by locking up the same value in BTC due to the multisig functionality. i would love if this idea could be coded in sometime down the line.
(not sure if good idea or not, but all the btc iv been buying has been transmogrify to xmr)
could this be taken even one step further and use mutlisig magic to lend people without ANY BTC at all, the small amount required to take/make a btc offer, but somehow keep it locked even after their first trade is successful, the first btc purchase gets unlocked whrn the loaned funds get returned to the lender or gets loaned out to the next person. its such a small amount i dont see people worrying too much about .0x bitcoin and passed around so others can dip their toes in. but we need some sort of measure to not be taken advantage of because of…well people and their nature. maybe in the future…
sorry for my ramblings