Can someone explain the reasoning behind investing in "shares" (traded as stocks?) of a "personal loan" (bonds?), with redemption terms defined as
"You can request refund of the loan at face value anytime.
Redeeming bonds may take some time to liquidate positions or procure more BTC if no liquid BTC is available."?
What recourse is there when the issuer finds himself short of "liquid BTC," thus making the time frame "some time"?
Can the terms of the OP be reduced to "Lend me money & i'll pay you back when it's convenient for me"?
Thanks.
The reasoning would presumably be that by having them 'tradable as stocks' - holders can exit their position (at what under normal conditions would be close to face value) even if the rate of people wishing to exit is slightly higher than available from the borrower.
It wouldn't make sense to take out a loan if at any time the borrower was able to refund the face value of the entire amount... so it should have been obvious to all that at certain lender demand levels it would be unfeasable to pay out immediately.
As it happens of course - the combination of bitfunder closure and people just wishing to redeem due to the rise in BTC value has clearly passed that limit.
This in itself shouldn't be a worry (aside from the now significant haircuts taken by those needing to exit).. but combined with the lack of transparency regarding the borrower's financials, and the fact we don't know to what extent a BTC price-rise puts the borrower at risk of default, it's surely now a worry - providing yet more redemption pressure.
Say what you want about the risk/foolishness of lending money under conditions of such low transparency of the underlying businesses... but the mechanism of lending as a 'share-like' asset seems a reasonable model otherwise. (with of course the usual caveats about legality and recourse when taking a risk on any assets on these unregulated 'exchanges')
Of course it should have been obvious that the borrower would not have the liquidity to pay back the loan at any point in time at face value. The rub is absolutely nothing in the terms *motivates* the borrower to gain such liquidity.
To be in keeping with the terms, the debt issuer simply invests the borrowed funds in a bet on JustDice. If he wins, he pocket the profits & bets the original amount again, until he finally loses. He may also convert all the BTC into USD, and short BTC while staying illiquid.
All the risks are *explicitly* with the lender.
Regarding "lack of transparency" -- that's what defines a "personal loan." No transparency is offered or should be expected.
You also point out that unforeseen circumstances are responsible for the failure here, but you overlook the fact that, according to OP's terms, *failure is undefined*. In case i'm not making myself clear, OP has not defaulted on his loan,
nor is defaulting possible according to OP's terms.
Every possible venture will succeed under ideal circumstances. A contract should exhaustively
define how each party must act under all possible circumstances, including unfavorable scenarios. OP explores exotic possibilities (1BTC=1$), but neglects to delineate the essentials. That's the difference between useful business instruments and random assemblages of words.
