I think this is too much of me spamming Skycoin's thread. They have been enormously patient with my too numerous posts in their thread. Unless the developers engage me in further discussion, I kindly ask that any further discussion directed at me be move to another thread. Simply provide a link here or in PM please. Feel free to create a discussion thread.
In our case, I have proposed a platform for competing currencies. One of the key elements of my proposal is to have the ability to purchase a unit in any currency that tracks (via options betting) any unit-of-account (e.g. USD or Bitcoin) that you desire. Thus you no longer are tied to the speculative value of the competing currencies if you don't desire to be, and thus there is no longer a need for the market to choose a "winner take all" because everyone can vote for the currency they feel is best managed while sharing a common unit-of-account across multiple currencies. This is the paradigm in money that has never been tried in the history of mankind.
What would the "common unit-of-account" be? Would it be a common coin to the platform, like Ripple or Bitshares, issued in a private offering and subsequent ICO? Or would it be distributed with some sort of proof of work? It could be a basket of assets, like shares in a hedge fund.
None of those. I had already mentioned "option bets".
My idea is decentralized option bets, with two parties taking opposing positions on the move of the currency relative to the specified unit-of-account exchange rate. Leverage relative to exchange rate movement could vary for different bets. When the currency declines in value (an asymmetry in the opposing risks), then the difference has to be taken from the margin posted to make the 3rd party holder of the unit-of-account constant in value. There needs to be auto-settlement so that if the posted margin is depleted, the unit-of-account contract is settled instantly. Afaics, there could be built automated bots which settle and recontract the unit with a new free market bet with new margins posted.
The free market of bid and ask should determine the bets. So the asymmetry will be factored in by the free market of bid and ask.
In other words, I propose an option system where there is no centralized counter party risk. The protocol makes sure settlement occurs before margin is depleted.
We could create a common trading platform for all these competing currencies, i.e. decentralized exchanges with the appropriate logic and APIs. In essense, Skycoin and some of jl777's work for NXT are mentioning some of these similar ideas about decentralized exchanges and platforms for multiple currencies, but afaics they have missed slightly the key insights of what we really need. (Btw, I am still in communication with jl777, but I am not aligned with him and these ideas do not originate from discussion with him)
I am not an expert on options, so perhaps my idea is flawed?
Afair, the BitShares BitUSD functioned differently but I don't recall all the details. (I might go look up the details and edit this post later)
Edit#1: the flaw in my idea is that no one will buy these options because someone else can offer another set of options with the same features that do not have the asymmetric loses (given to the holder of the unit-of-account when the exchange rate declines). The holder would need to pay some cost for the others to take on this asymmetric risk. The holder would have to weigh this cost against the risk (cost) of holding the unit-of-account in its normal form, e.g. USD in a bank. Note we are moving towards negative interest rates so it will actually cost money to store your fiat in a bank or sovereign bonds.
Edit#2: silly me. All I am really advocating is that users can buy puts. The standard models for options apply. The carrying cost of the put will be relative to the volatility of the exchange rate. I think the Black–Scholes model applies.
https://www.khanacademy.org/economics-finance-domain/core-finance/derivative-securities/Black-Scholes/v/implied-volatilityEdit#3: Okay I see that what we originally told Daniel Larimer (bytemaster) in this forum in 2013 was finally accepted as reality and so they adjusted their design to use a price feed:
http://docs.bitshares.org/content/price_stability.htmlSo the buyer of the unit-of-account is essentially buying a put (the right to sell his currency for a constant price relative to the unit-of-account) and the other party (is not a short seller!) is buying a call, i.e. is paid a carrying cost for offering to buy that currency at the strike price. A decentralized exchange would match buyers of these puts and calls, where the bid and ask would be for the carrying costs. If the current exchange price is the implied strike price, bids and asks would need to be updated as often as the exchange price changes (but this is conceptually no different than when strike prices are constant and bid and asks change constantly as the market price changes). There would be different contracts for different expirations.
So all BitAssets are is an attempt at a decentralized options market. But it is only for their currency and not a platform for competing currencies. And they are using a single price feed voted on by consensus, whereas I proposed that there be different contracts for different price feeds so that each contract can use a different price feed server (more degrees-of-freedom).
Edit#4: there is another wrinkle that can be considered. It is possible to give some of the upside to the buyer of the unit-of-account, so they have no risk to the downside, but retain some of the upside appreciation if the currency they hold appreciates. But this will increase the carrying cost, i.e. the price the buyer needs to pay for the unit-of-account insurance. Rather the buyer could also obtain the same effect by holding some portion in the unit-of-account (without upside) and some in the uninsured holding of the currency.
Edit#5: the market for buyers of such unit-of-account contracts are people who want to diversify their (e.g. USD) holdings into crypto-currency without the volatility risk, i.e. they want the advantages of anonymity, autonomy, instant transactions, without the volatility of crypto-currency. Or for example, you want to invest in Bitcoin, but you like the anonymity and instant transactions of an altcoin, so you can get both for a carrying cost, where the carrying cost is related to the volatility of that altcoin relative to the unit-of-account chosen. Thus altcoins can compete to gain marketshare and thus less volatility.
Bottom line is competing currencies as true decentralization and more degrees-of-freedom instead of "one size fits all, one winner forced on everyone".
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