Funny - I was recently reading about Islamic banking and found one of the major tenets to essentially be buy-back loans - repos. This appeals to me as a more stable lending mechanism than the dominant form of unsecured, rating-based credit.
Utilizing GLBSE shares as collateral is a positive move in my book.
Topic: Lower-risk loans with repos (Read 981 times)
Hi all,
I guess it's the time of the week for me to go on my customary long rant (that nobody reads) about how to change the bitcoin credit market.
This time I think it's a pretty simple and helpful idea, though. Real markets have these things called repos (repurchase agreements) which are basically a loan using another asset as collateral. As more and more people start using GLBSE (and eventually MPEX, I hope) for their bitcoin investments, it becomes very easy to transfer securities between users. These transfers are the simplest form of collateral ever: if borrower B asks for a loan, he can transfer an equivalent number of shares to lender L and get the coins, with an agreement that B will buy the shares back from L at a later date for a pre-determined higher amount. If B runs off with the coins, L is left with a bunch of shares. If L loses the shares, B still has coins.
It does expose L to risk from fluctuations in the price of the asset being repurchased, but that's typically better than just losing the entire principal from a dishonest B. By removing most of the counterparty risk from the equation, it could lead to loans with lower risk (good for the L) and lower interest (good for B). Obviously L would have to believe that B's shares are worth something to begin with for this to work, but there are several assets on GLBSE right now that are moderately liquid (bitbond, puremining, SS, gigamining soon, probably BFLS soon)
Anyway, I'd be interested to see what people think. I'd really like to find ways to lower credit risk without compromising the decentralized/pseudonymous nature of this community.
tl;dr: use shares/bonds as collateral for loans
I guess it's the time of the week for me to go on my customary long rant (that nobody reads) about how to change the bitcoin credit market.
This time I think it's a pretty simple and helpful idea, though. Real markets have these things called repos (repurchase agreements) which are basically a loan using another asset as collateral. As more and more people start using GLBSE (and eventually MPEX, I hope) for their bitcoin investments, it becomes very easy to transfer securities between users. These transfers are the simplest form of collateral ever: if borrower B asks for a loan, he can transfer an equivalent number of shares to lender L and get the coins, with an agreement that B will buy the shares back from L at a later date for a pre-determined higher amount. If B runs off with the coins, L is left with a bunch of shares. If L loses the shares, B still has coins.
It does expose L to risk from fluctuations in the price of the asset being repurchased, but that's typically better than just losing the entire principal from a dishonest B. By removing most of the counterparty risk from the equation, it could lead to loans with lower risk (good for the L) and lower interest (good for B). Obviously L would have to believe that B's shares are worth something to begin with for this to work, but there are several assets on GLBSE right now that are moderately liquid (bitbond, puremining, SS, gigamining soon, probably BFLS soon)
Anyway, I'd be interested to see what people think. I'd really like to find ways to lower credit risk without compromising the decentralized/pseudonymous nature of this community.
tl;dr: use shares/bonds as collateral for loans
Not a bad idea... unless B also runs the PonziShares he offers as collateral
. 
Hi all,
I guess it's the time of the week for me to go on my customary long rant (that nobody reads) about how to change the bitcoin credit market.
This time I think it's a pretty simple and helpful idea, though. Real markets have these things called repos (repurchase agreements) which are basically a loan using another asset as collateral. As more and more people start using GLBSE (and eventually MPEX, I hope) for their bitcoin investments, it becomes very easy to transfer securities between users. These transfers are the simplest form of collateral ever: if borrower B asks for a loan, he can transfer an equivalent number of shares to lender L and get the coins, with an agreement that B will buy the shares back from L at a later date for a pre-determined higher amount. If B runs off with the coins, L is left with a bunch of shares. If L loses the shares, B still has coins.
It does expose L to risk from fluctuations in the price of the asset being repurchased, but that's typically better than just losing the entire principal from a dishonest B. By removing most of the counterparty risk from the equation, it could lead to loans with lower risk (good for the L) and lower interest (good for B). Obviously L would have to believe that B's shares are worth something to begin with for this to work, but there are several assets on GLBSE right now that are moderately liquid (bitbond, puremining, SS, gigamining soon, probably BFLS soon)
Anyway, I'd be interested to see what people think. I'd really like to find ways to lower credit risk without compromising the decentralized/pseudonymous nature of this community.
You can read more about the idea at http://en.wikipedia.org/wiki/Repurchase_agreement
tl;dr: use shares/bonds as collateral for loans
I guess it's the time of the week for me to go on my customary long rant (that nobody reads) about how to change the bitcoin credit market.
This time I think it's a pretty simple and helpful idea, though. Real markets have these things called repos (repurchase agreements) which are basically a loan using another asset as collateral. As more and more people start using GLBSE (and eventually MPEX, I hope) for their bitcoin investments, it becomes very easy to transfer securities between users. These transfers are the simplest form of collateral ever: if borrower B asks for a loan, he can transfer an equivalent number of shares to lender L and get the coins, with an agreement that B will buy the shares back from L at a later date for a pre-determined higher amount. If B runs off with the coins, L is left with a bunch of shares. If L loses the shares, B still has coins.
It does expose L to risk from fluctuations in the price of the asset being repurchased, but that's typically better than just losing the entire principal from a dishonest B. By removing most of the counterparty risk from the equation, it could lead to loans with lower risk (good for the L) and lower interest (good for B). Obviously L would have to believe that B's shares are worth something to begin with for this to work, but there are several assets on GLBSE right now that are moderately liquid (bitbond, puremining, SS, gigamining soon, probably BFLS soon)
Anyway, I'd be interested to see what people think. I'd really like to find ways to lower credit risk without compromising the decentralized/pseudonymous nature of this community.
You can read more about the idea at http://en.wikipedia.org/wiki/Repurchase_agreement
tl;dr: use shares/bonds as collateral for loans
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