Topic: Decentralized Lending Protocol / Network - page 3. (Read 8675 times)

hrm, trying to figure out if ethereum and/or mastercoin can do what we wanna do..........

welp, one thing to legitimize the effort would be a web page. I saw some folks in the above threads that wanted to contribute but can't code - getting a website going would be great.

I'm currently working on the white paper. At the least, I'll host the whitepaper and that can serve as a web page why not.

so I've successfully registered dafne.bit on the namecoin network, so in 12 blocks it'll be verified or whatever.

Now how exactly I develop a .bit is beyond me. Nameserver what? Anyone know?

well that seems crazy complicated. I also just got dafnep.com ....

yeah, we'll see if we can get it in.... I actually have a NIMH grant due in february (that I should be working on nonstop until then) but whattaya gonna do. Gotta take a break somewhere.

Cool. I think slack (www.slack.com) is a good one. Github actually has some stuff built in.


Nodes running full clients - I think they will be incentivised because they are participating in the lending (for that version of it) - they are invested in a secure network because their $$$ is on the line. Also, a full node can also technically be a miner, so they'll get block rewards. Also (in the lending use of the protocol), they'll get dividends and interest.

Volunteers / developers / investors - I was thinking about this too - because this side chain / alt chain theory, with no immediate asset of its own, doesn't provide much incentive to develop. Thus, we could incorporate some time-limited percentage for developers. Say, 5% of the interest is distributed to developers until 500 BTC is reached or something.

"need people who are willing to invest their time, for possibly no immediate reward"
Or, in a manic daydream, we present this to that VC, they see it for what it is, then we can just put bounties out on the code, or just hire people out in silicon valley. Because ultimately, as you pointed out, the core of the DAFNe is this "virtual bitcoin playground" that has a trigger point... and this could be used in a lot of different ways.

Or we could just suck it up and make another damn coin, but treat it as a "share" of the company. This would definitively transform the DAFNe into a DAC, which is fine. But it would be cool to incorporate a way where the block reward is directly proportional to the amount of activity in each block, such that shares of the company aren't produced just because its mineable - instead, this would couple share production to actual business activity. I think it would also be good to change the block reward mechanism such that all miners are rewarded when a block is found, similar to the way that mining pools operate now. This would encourage mining, would encourage solo mining, and would truly represent the amount of "work" you put into the "company", as opposed to the current currency model of block reward which is meant to distribute currency in a random fashion to promote... well I don't know exactly.

Ultimately, the share could be used for voting purposes (with those heavily invested having more of a vote), and voting would be performed by sending to an unpayable (but trackable) wallet address. In this system, shares would always be rewarded (no decrease in block rewards over time - shares always produce in proportion to activity in block)

Oh wow, you are thinking very ambitiously... sure, let's give it a go, See what we can do.

I'll start up a list of available programs we can use to collaborate better, and we need people who are willing to invest their time, for possibly no immediate reward.

I was thinking of channeling the Bitcoin's to the multiple Blockchains and just through the DAFNe, but how do we setup the incentives to protect the system?

so far we have incentives for the Miners to protect the system through fees, but still have to think of the Volunteers/Developers, Investors, and the nodes running full Clients. I am sure they would like to be supported by the system that they are helping.

Hrm, could also use the DAFNe in some type of crowd-buying effort, similar to groupon's core model, or related to stock purchases...

say you wanted to buy something at 1 BTC, but the price is currently 1.2 BTC.

You put a buy ticket out on the DAFNe, and people can opt into the buy ticket. The transaction builds until enough people have gotten into the transaction, and the seller triggers the transaction at 1 BTC.

Or crowd selling effort.

Or you put a sell ticket into the DAFne, with a trigger of 1000 buyers. The transaction builds until the condition is met and then BAM, money moves.

In this instance, yes, there would just be a flat fee, because there's no money going the other way.

Probably useful in stock markets or something.

I'm thinking about refining this whole rambling mess to submit to https://www.boost.vc/ jan deadline. Yay i'll get to make a youtube.

You are confusing money with wealth. Extra wealth worth 1 BTC can be created as you describe, no problem. The problem is that, within the society as a whole, the additional 1 BTC (as money) cannot be created because the money supply is fixed.

Again, there are two points you must not forget. 1) The problem is the needed extra amount of money, not the needed extra amount of wealth and 2) the problem occurs with the society as a whole, not in a particular person-to-person transaction.

Between two people in the society, the second one will most likely find a way to get the extra money by selling the products of his labor. But the totality of loans (with interest) in the society requires increased money supply (for the interest) - and with a fixed-supply currency this is not possible.

I still don't have a good answer to the person who asked why lend at all. Of course, every individual member of the society will make his own (different) economic calculation. Some will offer loans at a small interest, others will offer loans at no interest (hoping that the money appreciation will reward them sufficiently), yet others might even offer loans at a negative interest, hoping that the currency will appreciate more than the nominal loss of principal. Some of them will be right and prosper, others will be wrong and go bankrupt; that's normal. But for the society, as a whole, interest with a deflationary currency is not possible and there is a strong motivation not to lend.

That would be interesting. The protocol alerts its users to changes in the market...
Indeed. I was actually thinking that multiple DAFNe's may pop up that have different Key Numbers - i.e., one insures at 1000 participation, while another insures at 5e12, etc
Hrm, yes - but this requires pegging Bitcoin (or any crypto) to something else, right?. Currently that is the dollar, but in a potential future without another currency... then what? The DAFNe is somehow fed information about the price of actual commodities?

Also, "suggestions are given to the Lender and Borrower to maintain the same forecasted level of Interest for the term".... but there are potentially thousands of lenders per borrower. We can't expect all of them to be actively managing their investments at this level.


Ultimately, I think the answer is to just build the system with the option to work in either pure crypto or fiat-crypto modes. In fiat-crypto mode, the ledgers are all kept in fiat, and the front end does the conversion based on the current BTC valuation.

Definitely needs metrics for people to consider this situation.

People are smart, we simply have to be able to give them the information they need to react appropriately.
With out a doubt we are going to have negative interest rates according to the terms of payment, people should be able to choose their level of risk; That is what the settings would be there for. If the system detects parameters of the Bitcoin economy are shifting it can begin alerting the user of the change as it happens, with key information that supports the Geopolitical, Supply Chain Management, Technological and Market forces at work... if it's speculators, we can ride out the storm with the long term forecasts.

Best part, we can upgrade the system later, Add components and metrics that we were simply not aware of before we started the project, driving better Investor and Borrower outcomes.

For example if the short term metrics are pointing to a dip in Bitcoin, then short term contracts are adjusted and suggestions are given to the Lender and Borrower to maintain the same forecasted level of Interest for the term. Long term forecasts would get better and better, filtering out speculative Information, sticking to facts and helping long term loans achieve a favorable outcome.

There are going to be a lot of things we are going to be learning... If people can make their own connections in the system choosing their level of risk, many new business models will be coming out, well have to adapt to those. Adding new information, plugging security holes, better metrics, and refined interfaces will be a constant.

Timed Terms may not be the best solution for this system, market conditions will be unfavorable at any moment, increasing risk at random times. Automated Payment Conditions may be required.

I don't think interest is much of a problem. The extra 1 BTC you are talking about in that scenario could be acheieved by working and saving for it over the years or creating profit from whatever you did with the loan.

I think the bigger problem might lie in the price volatility. Lets say someone this year was to start a loan request for 10 btc to be paid back over 10 years. Right now the price of the 10 btc would be worth roughtly 3500$. Now lets assume they are repaying 1 btc every year. 5 years from now the price of btc could be worth 3500$.

This would not be a problem if the loan applicant kept their loan in btc. But right now I would assume most loans would probably be sold and used as fiat only to rebuy btc later to repay the loan.

In this scenario people could be left in a position trying to pay back 10x the amount of money they ever borrowed in the first place. Clearly that would be their own fault, but it still could be a drawback to the average person looking to exchange the btc loan for fiat.

The thing to do is offer the option for usury in the short term as a necessary evil while still applying a standard fee for miners and people that maintain the network.

In the future in a perfect world anyone that would offer to pay usury would be a fool. They would realize that's it's going to take more goods and services to pay back the loan with no interest let alone another 5%. Any additional interest would be crippling. But you can't legislate for stupidity can you? Neither can you program your way out of stupidity. More options is likely better than few options is what I'm saying.

Then what is the incentive to loan at all? Why not just sit on your pot o' gold? There's no incentive to risk an investment. Are people going to do it out of the good of their heart?

While I do think its too soon to say that a global economy using a single deflationary currency would not have local differences in wealth that might subsequently modify the value of money (I'm not a fan of saying things are impossible.... I'm a scientist by training, and I'll trust the experiment, and the experiment has not been run, even though we used deflationary money in the past, we weren't able to send this money to the opposite side of the globe instantaneously)


...... we can effectively kick the can down the road on this one.

Right now, bitcoin is technically inflationary, even if people keep losing coins.

The protocol could also be modified to work in the hybrid fiat-crypto economy, embracing the "bitcoin as a payment system" ethos.

And the protocol can ultimately be used for a cryptocurrency that is inflationary.

No, that won't work. This is precisely why I emphasized that money is not wealth. In a healthy society, wealth increases so this seemingly isn't a problem. But the problem arises from the fact that loans of money are repaid with money - not with wealth. Yes, you sell the wealth you have produced to get money - but that works only on a person-to-person basis. If in the society, as a whole, money supply is constant, it is simply impossible to repay (society-wide) monetary loans with interest with money, even if the wealth of the society keeps increasing.

The only solution is not to loan deflationary money at interest. Normally, the interest is the reward the money-lender gets for taking the risk that the loan will not be repaid and for postponing his consumption by lending his capital instead of spending it. But money is just a means to achieve that - not the goal. A deflationary currency should keep appreciating. You can make a 100 BTC 10-year loan at 0% interest and still be rewarded with wealth for it because by the end of this 10-year period the 100 BTC you get back will have more purchasing power.

and I finally cleared up a concern I had that I didn't understand things properly. Bitcoins don't exist. Only transactions exist.

http://www.coindesk.com/information/how-do-bitcoin-transactions-work/

I'm starting to develop the wiki of the github page. I'll reserve this thread for standard discussion, but any type of conceptualization or code mapping or psuedo-code that I may write up will be on the github. I'm assuming this will make the moderators happy (i'm surprised they haven't moved this thread already!)

https://github.com/Gingeropolous/DAFNE

BTW, did I set up the github properly? Can others modify and add stuff and make commits fly through the night sky?

Well, we may have run into a problem. I found an excel spread formula online where you can calculate how much a loan will cost you, compounded monthly (like a credit card).

https://docs.google.com/spreadsheets/d/1Z_4lBsfJtIZws_8jFLtpvgcpjDXtqEujs5P5SM_LIrY/edit?usp=sharing

If we use the numbers laid out in the OP (a loan with 3% interest, and with 5% of the interest going to the miners, and we assume 10 minute blocks)... and we assume that everyone's getting car loans of 50 BTC with roughly 5 year payment schedule...

and there are 2000 of these loans (!!)

then the average block reward is ~0.0015 with a standard deviation of 0.0008. I used average and stdev because not all loans are going to originate at the same time...

I don't know if thats enough to sustain participation in the network... This might discourage pure miners...

One participating in the network would be rewarded, though, with dividends from the DAR based on their amount invested.

However, if we take full advantage that the current BTC network doesn't need transaction fees (because blocks are rewarded with the current disbursement), we could utilize 10% of the reward portion (labeled as the "miner cut" in the spread), then the numbers are:

0.003 with a dev of 0.0017

But the spreadsheet is fun to play around with...  if there are 10,000 loans, then we're at 0.015 block reward.

And if we increase the average interest to 5%, then we're at 0.026 +- 0.013 .

Hrm, so if there are concerns of 51% attack, then we might need to think something up.

I agree with your well thought out assessment. While bitcoin operates in parallel with existing money supplies it could work. But long term in a closed system it would fail. There's no greater evil in society than people who make money off having too much money.

But I still think you would need fees to offer incentive to people who maintain transactions and the infrastructure. So, I wouldn't think a flat fee would be out of the question.

If we build it, I guess we'll find out.

But I'm of the opinion, with good velocity of money it won't be a problem, A Good system will have a good flow of money that rewards everyone participating sooner or later. And things always appreciate in value, you just get more with less. Negative Interest it will be, bets on how valuable it can become.

I figure if it continues at this trajectory it will reach a point where it is measuring the entire economy and any additions and subtractions will be visible according to it's value. Things depreciate in value, Perishable Goods expire, and new things are made all the time, we may be able to see this in real time some day.

Yeah, I agree with this concern and it was one of the things that I tried to get my head around concerning lending with BTC, or BTC in general. Hence one of the 2 premises of the whole original ramble was something like "deflationary currency makes lending difficult".

Where will the extra 1 BTC come from? As you suggest, I think it would mainly come from a transfer of wealth - the markets of society will transfer wealth from different sectors, and the market value of these sectors, and the players in them, will change.

But that might not solve it as you point out.

Ultimately, I don't know. This might be the experiment that we need to run. One could argue it was run centuries ago when there was only non-fiat.

I think the primary difference between an economy of those times and the potential future economy of BTC is that BTC can (and hopefully will) be truly global. The "extra" 1 BTC may come from the fact that the buying power of a BTC is currently very weak in India compared to Venezuela.

So what might then happen is person in India is paid 3 BTC for every one of their whatsits, whereas in Venezuela, a person is paid 1 BTC for every whatsit. So now the guy in India has a lot more BTC to throw around in the DAFNE, and he can invest in Venezuelan whatsits.

And also, the fact that all of the worlds cultures have different market values for things may influence the ability of a deflationary currency to "create" the extra 1 BTC.

Or, as was presented some posts above, some claim that BTC was never meant to be a currency on its own, but instead exist alongside fiat. But even then, this wouldn't solve the problem, unless the DAFNe works in fiat anyway, and just uses BTC as a medium of exchange, which can also totally happen.

I had another thought the last night... Is lending for interest possible at all with a fixed-supply currency and fully-reserved banking? Let me start with the premises:

1) You have the whole society operating on Bitcoin or some other cryptocurrency that has a fixed supply. If this premise is not true (e.g., if you have fiat currencies existing in parallel, then there are no problems).

2) All the economically mine-able units of the currency have been already mined - its supply no longer increases. In other words, this isn't a problem now, while the supply of Bitcoins is still being inflated.

3) You operate in a fully-reserved banking environment, where the banks are not allowed to inflate the money supply - not even temporary.

Now, you want to make, say, a 10-year load of 100 BTC at 1% interest (total, not annual interest). In other words, by the end of the 10-year period, the debtor has to repay 101 BTC.

Question: Where would the additional 1 BTC come from? Before you try to answer, let me clear a few other things.

Money is not wealth - money is only a medium of exchange, a measure for wealth. Wealth is created by the productive members of the society - the larger the society is and the more productive its members are, the more wealth it generates.

With a fixed-supply currency, the purchasing power of the currency will increase with time, as more wealth is generated by the society but there is still the same amount of money chasing it. In other words, the prices of goods and services will decline. Let's not argue whether it is good or bad right now - I am trying to make a different point. Per se, Bitcoin doesn't have a problem with that, because it is very divisible. The problem lies elsewhere.

Where would the additional BTC (necessary to repay the interest of the loan) come from; I mean from the society as a whole? Remember, the amount of bitcoins in the society no longer increases - only the wealth of the society increases. You can repay the interest with wealth - but you can't repay it with money.

On the surface of it, for a single person, it's easy. You have invested the money from the loan, have produced wealth with your work, have sold it and you repay the loan (with interest) with the money you get. But where did you get the additional 1 BTC? Somebody gave it to you in exchange for the wealth you have produced. But where did that person get it from?

He could have performed a similar trick - sold the products of his labor for money and used that money to buy the products of your labor. But the question remains - the additional 1 BTC has to come from somewhere within the society in order to move through the chain of payments and reach the original lender in the form of interest. But one of the premises is that the supply of money is no longer able to increase.

This leads me to the conclusion that lending for interest in such a society is not possible. (In addition to this problem, the deflationary character of the currency would mean that the lender would have to account for it - i.e. ask for low or even negative interest, in order to account for the appreciating currency and still expect somebody to be willing to take the loan.) Any attempts to implement it would result in unfair wealth transfer from the debtors to the lender - and that would be just a temporary setback until the whole economy collapses due to a shortage of money to pay the interest on the various debts in the society.

Methinks, there was a good economic reason why the old religions prohibited loaning money for interest - at that time the society was operating on a gold standard, which was essentially a deflationary currency, since its supply increased slower than the wealth of the society due to population and productivity increase. The "jubilees" (forgiving of all outstanding debts every 50 years) probably served a similar purpose.

This sounds like a very great idea,

I'd gladly run a node and mine to help secure the network,

Not sure how I could contribute at this time, but I'd love to see the project move forward.