Using BitShares to Underwrite Risky Asset Backed CurrenciessteemCreated with Sketch.

in #bitshares4 years ago

During the past two years I’ve had the privilege of talking to many people interested in monetizing their illiquid assets. People who own warehouses of gold bullion or entire provinces full of natural resources want to know if they can use them to back currencies on the BitShares network.

Of course they can. It takes less than an hour to have DawgPatchDiamonds trading internationally against hundreds of diverse assets.

However, it might take a bit longer to get someone interested in buying it!

You see, its no longer about engineering the technology to have your own asset backed coin. It’s about engineering the trust. I covered this theory extensively over a year ago in Engineering Trust with Charles Hoskinson .

Asset backed currencies have counter party risk because the blockchain has no control over the actual assets. The currency merely represents a promise that the issuer will redeem it for the backing asset or its equivalent value. If that asset is gold in the ground or timber on the hillside, how will the issuer redeem the token? She has to go mine the gold or cut the timber! This might not even be possible. This is why few banks are willing to lend against assets so far from being liquid. If they do, it’s for pennies on the dollar. No bank wants to be in the mining or lumber business. It’s as simple as that.

The same is true for crowdfunding, say, a new smartwatch. Investors put up money now for a smartwatch later, after it’s developed. There are risks that it will never be developed or that the issuer will disappear with the money. The risks are exactly the same as gold in the ground or standing forests on the Serengeti.

Thus, unrealized promises are hard to use to back anything.

Enter BitShares and the Hero

Since I’ve had so many people ask me for it, especially the leaders of scores of indigenous nations with great natural wealth, I decided to invent a solution. It’s still in development, but I think it has promise. Let me know what you think:

It derives from the same technology used to offer the Hero. You use your lunch money to buy BitShares, then lock them up in escrow to borrow Heros. You spend your Heros on lunch while your BitShares continue to appreciate. Of course, this only works if BitShares go up in value. If it goes the other way it will eat your lunch.

But coming up with ways to ensure that BitShares continues rising forever is the subject of another post – or read all about it at, where I spill the beans on the whole thing…

Here’s the easy 9 step way to issue an asset-backed token on the BitShares network:

  1. Explain these steps to your customers.
  2. Sell them the token.
  3. Use the proceeds to buy BTS.
  4. Borrow Heros by locking up the BTS in escrow.
  5. Hire a reputable third party to hold the keys to the escrow account.
  6. Spend the borrowed Heros to develop the product, mine the gold, etc.
  7. When the product is available, deliver it in exchange for the token.
  8. Regain access to the escrow from the reputable third party
  9. Enjoy your profit from fulfilling your promise to deliver your product.

And you have the leveraged appreciation of that escrow account for the entire time you were producing your product.

In the event you fail to deliver your product by a specified time, the escrow agent cashes in your escrow and gives it to your investors instead of the failed product.

Thus, BitShares can be used to transparently back a risky asset-backed currency.

We even thought up a catchy slogan:


Backed by Gold

Insured by BitShares


This is exactly what I am showing people how/what to do. Our presentation in Hollywood opened a lot of doors and minds to our blockchain, the features it has and the possibilites for real use case banking.

Interesting observation. I never thought of it that way.

It has the "True" potential to change our world. With giants like you in our community the future is promising. I have been learning soooo much from this blockchain in the 7 days ive been home on vacation. Keep speaking, traveling and informing the people on these new solutions to make Crypto as solid as Gold!!!



Best way to invest, always doing differsification of our investments.

Way to go Michael :)

Yopp, I agree

Great of you to promote this!

I also give a huge thumbs up, great work

can i have the blessing of getting your vote on my comments and posts as well please?

Great job. I fell the same..



Such generous much nice ! Would love to have some of that magic on mine one day :)

I'm fuzzy on point 6. "Spend the borrowed Heros to develop the product, mine the gold, etc."

How will you spend those Heros to develop your project? I guess a real world example would be nice.

Well they are your Heros and you can spend them any way you want:

  1. Sell them for USD and make payroll for your company.
  2. Send them to people as payment for things your company needs.
  3. Use them to buy more BTS. Rinse and repeat.

A real world example:

  1. Sell DawgpatchGoldDabloons for $200 each worth 1 oz of gold in two years.
  2. Use the proceeds to buy BTS
  3. Lock up those BTS in escrow to back the total DawgpatchGoldDabloons in circulation and borrow up to 50% in the form of HEROS. Then give the keys to the escrow to some trusted escrow agent - law firm or Miley Cyrus or whatever.
  4. Sell your HEROS for cash to pay for mining operations.
  5. As the mine begins to deliver gold, put that gold on deposit with Brinks.
  6. When enough gold is on deposit, make it available for delivery in exchange for DawgpatchGoldDabloons.
  7. As the gold is delivered, the escrow agent releases a matching amount of escrowed BTS to the issuer of DawgpatchGoldDabloons. These become their profits.
  8. If gold is not delivered by contract date, escrow agent issues the escrow to holders of DawgpatchGoldDabloons instead.

@Stan Well Stan, you have DONE what I've been breaking my mind to do since 2005, before the 2008 (near economic crash) .... This is exactly what I was envisioning without having the resources nor the "how to's" needed to accomplish this feat! You have put these things together with brilliance and I can only wonder if you don't have an inline connection to my brain somehow... ;) it is so exactly what I wanted to do that it just leaves me in awe to witness the fact before my eyes! So as far as being in absolute agreement with what you've done... how could it be in any way otherwise on my part. I've been searching the viable solution to EXACTLY this, and to see it just blows my mind! You can count me in as a trustworthy Ally and I will do everything I can to use this vehicle (more like a starship) to drive this intent forward and into total realization. I have plans which are now, for the first time feasable and in perfect harmonics with the vision we both share. I'm really more than happy that you were able to make this shift happen... Like the saying goes, "You've got the right stuff " !! and I guess we can both begin to sing "OH when the Saints, come marching in..." .... :)

Thanks. But God gets the glory!

@Stan ... I guess 'that' all depends on our individual interpretations, definitions and assumptions on the ideology of "A GOD" per se... Being of no specific adhesion to any belief system in the realms of the "GOD" ideology and perception, I can't be considered an atheist either. However I do believe in the greater consciousness within all life and our species being the most evolved form of that life 'brainwise' down here, we have all that much of a greater responsibility towards not only each other, but also toward other life in our fragile ecosystem. What motivates me in this direction in relation to your accomplishment, is the fact that through this medium, we have a wonderful opportunity to cap the Greed powers and throttle their insane abuses which are causing the definite demise of our Planet, notwithstanding the suffering and horrors of every war that has ever befallen our species, be it economical or otherwise. In my view, this was due to come about and call it God, man, consciousness or whoever one wishes to give credit to for its realization, it remains a work of art that will go down in history as being a great thing and they'll be putting your name on it as its father. Something I nor anyone will ever dispute nor have the least problem with! So cheers to you and to the one you choose to be your God! May you be by him blessed :) ....

Love is patient, love is kind. It does not envy, it does not boast, it is not proud. It does not dishonor others, it is not self-seeking, it is not easily angered, it keeps no record of wrongs. Love does not delight in evil but rejoices with the truth.

Interesting idea. In asia, where people have a mindset to put everything in real estate and it may represent their 70% of the wealth, how would we monetize those and this becomes even more critical if one is heading for retirement.


Thanks a bunch for sharing this powerful information with us all. Uprooted, esteemed and shared. All for one and one for all!

Namaste :)

I like the pitch, let's just make sure we deliver now as well.

Trust can erode very fast when you do business with other people that are generally distrusted.

Think I may have to look little deeper into Bitshares now.

I was just saying to someone today we would need an article like this!

And here it is! Wow, finally :D

Today a Chinese exchange chbtc had open BTS exchange, i think this will have a huge impact on BTS price also.

I see trading going on here I can't read Chinese but it looks like there is a lot of volume. Thanks for this information, @rayanboland

Bitshares is the best decentralize exchange other comes close to the features of BTS...

Someone promoted your post. Promotions help every steemians.
Your reward is an upvote and 0.768 SBD extra promotion.
Good job, see you next time in Promoted! ;)

Point 4 says:

Borrow Heros by locking up the BTS in escrow.

When is the time when you return the borrowed Heros?

There is one thing I don't understand: how come you keep funds in escrow and simultaneously spend the same funds to cover your development expenses?

Key to the concept is the fact that, given no change in BTS price, the escrow agent can acquire a Hero on the market to pay back the loan, releasing to him the price of two Heros one of which goes to the investor and one reimburses him for the cost of paying off the loan.

If BTS increases in value, this becomes profitable. If it decreases in value, then the underwriting reduces only part of the risk of waiting for the final product.

It doesn't add up. If there is no change in BTS price, and the developer incurred some costs but did not deliver the product, who takes the loss?

Surely, it must be the investor who takes a loss in this case, as he can recover only half of the initial investment (because the other half is used to pay off the Hero lender).

It looks to me that your schema boils down to this: we combine an ICO with a bet on BTS price. Thus the ICO needs to raise at least twice as much funds as the developer actually needs to deliver the product and the surplus is used to bet on BTS price.

If we win the bet, the investor gets extra profit which will offset a potential failure of the crowdfunded product. If we lose the bet, the investor takes a double hit: he loses on the bet and additionally has full exposure to the potential failure of the product.

In other words:

  • if BTS price rises enough: the investor is fully hedged against the product failure by the profit from the successful bet on BTS price
  • if BTS price doesn't rise enough or stays the same: the investor gets some profit but is not fully hedged
  • if BTS price drops: the investor takes a loss on the bet and remains unhedged against the product failure

EDIT: I'm not saying that combining an ICO with a bet on BTS price is a bad idea. It offers risk diversification which can be valuable. But in my opinion it does not magically eliminate the risk, just splits it between two quite unrelated outcomes.

Yes. Two things have to fail for the investor to take a loss. Failure to deliver the product and failure of BTS to rise under the market conditions we are engineering. Presumably the investor is offered a good price to offset the residual risk. There is no free lunch.

Are there potential downsides to having BTS backed by gold? I feel this would be an interesting topic to discuss.

This is not BTS backed by gold.
This is gold backed by BTS!

Oh wow, I must have misread it.
That is an amazing concept!
Thanks for the fast reply, I love it! :)

Just started following you, looking forward to hearing more news and checking out your previous posts!

Hoeray Cryptocurrencies! Are you ready for us to take over the world :) Upvoted you

This is literally amazing. I love it. I've been long Bitshares for a bit now. It will hit $1.00 dollar mark very soon in my opinion. People are still discovering the value/potential that it has. It was a nice little surprise when I researched its capabilities, and its A STEAL UNDER $1.00 DOLLAR. Great post.

they could have a great benefit to millions or many more than that as a means for the very smallest business operators to bring their skills and services to the marketplace. At the same time creating a more safe environment for limited partners. Limited partnerships are by definition quite risky, and crypto assets are even more risky because of the risk to the underlying coin, and the risk of behaviors of the general partner or operator of the crypto asset. I just posted an article here on steemit discussing the issues as I see them. You can find it here:
it must be pretty cool to be working with nationstates!

Cryptocurrency is currently in its best form; which coincidentally is the worst it can ever be. Welcome to 22nd century

Nice post! I have upvoted and followed you please follow me 🔙 if possible.

Thank you for nice post.

Bitshares are nice, lets look what brings the Future

Thank you for this post. I was on the fence but now I will purchase some bitshare to buy and hold.

Great work @stan, upvoted, resteemed, that's amazing

I concur Stan, even though it is big boy stuff you're talking about - warehouses of gold bullion, but it is an interesting post. Thanks.

Upvoted and Followed.

nice Post @stan..,,
it's very informative..
do your best and post more!!

Upvoted and followed bitshare god! Follow back if you interested in some crypto trade ideas :)

Thanks for sharing this information


Good job. If we are able to secure investment in escrow "Crypto" could be a world-wide monitized system in no time... What would the PTB do then? Ouch!!!



Thank Stan. Nowsday, right it is about trust. Whoever engineers the trust, earn more credits than the real value itself. I will follow your tips.

nice post
thanks for sharing
upvoted resteemed

I'm starting to understand this more and more. Looking forward to more discussion and topics on this. Great work.

Thank you for sharing upvoted and resteemed :)

Nice concept. And I guess further it could also be used for land and all those assets.


Can anyone send my steem power. I am new to steem and want to promote my account.

Thanks in advance!

Excellent information about this BitShares feature. Keep on posting. Followed you!

I am new to this cryptocurrency world but reading posts like yours is helping me grow my knowledge. Great work!

This is exactly what I am showing people

That is interesting! :)

I agree with your points! upvoted and resteemed ;)

sweet like honey

Interesting, it's always so mind blowing reading these articles.

Cryptocurrency is the best! :D

Arn't most currencies value dictated by their respective countries GDP. I understand how you could use bitshare to underwrite risky asset back securities. But how would you use it to underwrite an entire currency.

I like the lunch example

thanks for the info , will try

Very interesting read! Interesting times!

There are a lot of people saying this coin will be successful. Great article, those who don't start utilizing Blockchain Technology will be playing catch up soon!

Great concept. everyone wins it looks like as well.

Nice article. Informative.

I guess it is inevitable that some form of "reserve" banking will enter the cryptocurrency world. Already there are crypto credit cards. But isn't this opening the door for the way the world already got into so much trouble with debt? Seems safe enough in the way you are presenting it. But these things have a way of being a foot in the door.

Debt for consumption is generally bad.
Debt for producing something of value is generally good.
That's what puts the "capital" in capitalism.

And in this case, it can enable many poor nations that have great wealth in natural resources to become players in the global economy.

I'm only an armchair expert, but this is not really banking... nor are there 'reserves', fractional or otherwise. In Stan's demo, there is no product at the outset. Lets assume an orcharding scheme - say, sandalwood.

  • In point 1: "Explain these steps to your customers" your are responsible for a prospectus to notify your customers about auditing arrangements, expected sandalwood yields and time to yield, sandalwood delivery terms, sundry risks like pests and climate change, yada yada due diligence.
  • In point 4: "Borrow Heros by locking up the BTS in escrow". By using escrow, the BTS is backed 1:1. No fractional reserves, otherwise we'd be as crooked as the banksters. And the customer already knows they are betting against the price of BTS in addition to the risks already explained in point 1, the prospectus.

There is no argument this is financial engineering, but its orders of magnitude simpler and less opaque and less contrived than that which overheated the US housing market. In answer to your question: ["isn't this opening the door..."] well, no. This scheme is nothing unusual, if the prospectus is exposed correctly. Objectively 'bad' ideas abound. This scheme is balanced on trust, less delicately than perhaps fractional reserve lending is. Certainly less punishing on the sandalwood harvester, than a traditional big-bank securitised loan, because:

  • the BTS are already in escrow
  • the BTS are not an occupied domicile (mortgage) or means-of-production (secured by your pickup, orchard, tractors, etc).
  • This is seed money, venture capital, crowdfunding, whatever - it's not a securitised loan.

Thank you. In the search of a more honest monetary system, this certainly has appeal. The crooks and malevolent schemers will always be with us and spend their days and nights misusing what intelligence they have to divert whatever system for their own aggrandizement to the detriment of the whole. Stan is coming from the right place. Thank you for your thoughtful comments.

No worries mate.

When is the first bitshares debit card out? Or will it remain a geeky thing no one can use?

Working on it in a few different formats.

this should shake up the banking world for certain.