While I'm here I've always wondered how things like bitUSD are able to give interest. Can't seem to find where that money is coming from.
Just as in most of the world's traditional exchanges, you short an asset by borrowing it to sell now with the hope of buying it back cheaper later to pay off your loan (thereby taking the savings as a profit).
So a bitUSD is just a tradable collateralized loan that represents lending of a dollar's worth of BitShares now in exchange for a blockchain enforced promise to pay back a dollar's worth of BitShares later (with interest). The borrower puts up three times as many BitShares as she borrowed as collateral under blockchain control to make sure that there will be a full dollar's worth of BitShares available to pay off the loan if the price of BitShares should fall.
So, the interest comes from the person who did the borrowing (shorting) and is paid to the person who did the lending.
One fine point: all interest is paid into a blockchain managed pool from which all interest is paid. So the lender gets a moving average of the interest all borrowers have paid.
What makes this better than doing the same thing on a centralized exchange is that there is no counterparty risk. The blockchain holds the collateral and will automatically pay the agreed amount to the two parties - like a robotically trustworthy third party escrow agent.
