The BitShares 2.0 network consist of several assets, tokens or currencies. All assets are equal from a technological point of view and come with more or less the same features, namely, they can be traded against each other and can be transferred within seconds. The differences between them are of economical nature.
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Market-Pegged Assets (MPA)
These SmartCoins track the value of an underlying asset, such as Gold, U.S. Dollar, The HERO. Smartcoins can be created by anyone contracting with the BitShares ecosystem and putting sufficient BTS (at least 175%) into the so called contract for difference as collateral. Instead of creating a UIA where the full control over supply is in the hands of the issuer, we can also create a Market Pegged Asset(MPA) and let the market deal with demand and supply. All we need is a fair price and another asset that can be used as collateral.
User Issued Assets (UIAs)
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BitShares allows individuals and companies to create and issue their own tokens for anything they can imagine. The potential use cases for so-called user-issued assets (UIA) are innumerable. On the one hand, UIAs can be used as simple event tickets deposited on the customer's mobile phone to pass the entrance of a concert. On the other hand, they can be used for crowd funding, ownership tracking or even to sell equity of a company in form of stock.
- Reward Points
- Fan Credits
- Flight Miles
- Event Tickets
- Digital Property
- Company Shares
Exchange Backed Assets (EBA)
This kind of asset is commonly known as I owe you (IOU). It represents the right to withdraw the same amount (minus fees) of a backing asset from a central entity. Often they are issued by a bank, an exchange or an other financial institute to represent deposit receipts.
Exchange Backed Assets represent deposit receipts that are issued by a centralized entity, such as exchanges, banks or other institutes. These can either be interpreted as I owe you (IOUs) or certificates for a deposit at that institute. From the blockchain perspective, EBA are equivalent to a User Issued Assets that is created and issued by an exchange, bank or financial institute. Hence, it is their responsibility to credit you with the corresponding blockchain token (the EBA) on deposits. Exchange Backed Assets represent deposit receipts that are issued by a centralized entity, such as exchanges, banks or other institutes. These can either be interpreted as I owe you (IOUs) or certificates for a deposit at that institute. From the blockchain perspective, EBA are equivalent to a User Issued Assets that is created and issued by an exchange, bank or financial institute. Hence, it is their responsibility to credit you with the corresponding blockchain token (the EBA) on deposits.
Alternatively to regular MPA like the bitUSD, BitShares also offers entrepreneurs an opportunity to create their own SmartCoins with custom parameters and a distinct set of price feed producers. Privatized SmartCoin managers can experiment with different parameters such as collateral requirements, price feeds, force settlement delays and forced settlement fees. They also earn the trading fees from transactions the issued asset is involved in, and therefore have a financial incentive to market and promote it on the network. The entrepreneur who can discover and market the best set of parameters can earn a significant profit. The set of parameters that can be tweaked by entrepreneurs is broad enough that SmartCoins can be used to implement a fully functional prediction market with a guaranteed global settlement at a fair price, and no forced settlement before the resolution date.
Fee Backed Asset
Feed backed assets allow to propose and fund market based innovation by sharing a cut of future profits generated by this particular innovation with the people that helped fund it. Think of it as a Kickstarter for features. Hence, if people can profit from successful features in the form of fees then it can help the BitShares ecosystem to become more adaptable over time as it promotes innovation and can pay for its development.
If you have any features in mind that require new kind of transaction on the blockchain, you can code that feature and fund it with an FBA.
Prediction Market Asset
A prediction market is similar to a MPA, that trades between 0 and 1, only. After an event, a price feed can be used to determine which option to take and participants can settle at this price.
A prediction market is a specialized BitAsset such that total debt and total collateral are always equal amounts (although asset IDs differ). No margin calls or force settlements may be performed on a prediction market asset. A prediction market is globally settled by the issuer after the event being predicted resolves, thus a prediction market must always have the global_settle permission enabled. The maximum price for global settlement or short sale of a prediction market asset is 1-to-1.
A user can take either bet on a positive outcome, or a negative outcome. We here show how this works, technically.
BETTING FOR A POSITIVE OUTCOME
If you are confident that the bet will resolve positive, you want to hold that particular PM-asset since it allows you to settle it for its collateral on a 1:1 basis.
In order to get hold of those tokens, you can put a buy order for them at any price (between 0 and 1) and wait for it to be filled, or buy at market rates. By this technique, a user can pre-define at which odds to buy shares.
For instance, if you think that the bet resolves positively at a probability of 80%, you can put your buy order at a price of 0.8. If the bet resolves positively (price feed of 1), then you can settle your shares at 1 and make a 20% profit.
If you can buy tokens at a price of 0.2 (i.e. market participants think it is unlikely to resolve positively), then you could make 80% profits at a risk of losing with 80% probability.
After closing of the bet, a user can claim his profits by settling his borrow position and taking out the collateral.
BETTING FOR A NEGATIVE OUTCOME
In order to bet for a negative outcome (bet resolves to false with a price feed of 0), you need to sell the tokens. In order to get them, you should not buy them at the market, but instead borrow them from the network by paying collateral at a 1:1 ratio.
For example, in the PM.PRESIDENT2016 if you want to bet on a negative outcome with 100k BTS, you can borrow 100k PM.PRESIDENT2016 by paying 100k BTS to the network.
Note: Since PM-Assets can technically be pegged by any other asset, you may need to pay USD (or anything else) instead of BTS.
Once you borrowed the token, you can sell them at any price between 0 and 1. If you thing the probability of a negative outcome is 20%, you should consider selling your tokens at 0.2.
If the bet resolves negatively (price feed of 0), your debts is worth debt = amount * price = 0 BTS, you can reclaim your collateral at zero cost, and get to keep 20% profits from selling the token at 0.2. If instead the bet resolves positively and you sold all tokens, you cannot close your borrow position to redeem your collateral. However, your total loss is reduced by 20% for selling the tokens at the market.
If, by the end of the bet, you still have some of the tokens left, you can, of course, close your borrow position partly and redeem the corresponding percentage of the collateral.
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