eric at voskuil.org [ARCHIVE] on Nostr: 📅 Original date posted:2022-05-04 📝 Original message:Good evening ZmnSCPxj, For ...
📅 Original date posted:2022-05-04
📝 Original message:Good evening ZmnSCPxj,
For the sake of simplicity, I'll use the terms lender (Landlord), borrower (Lessor), interest (X), principal (Y), period (N) and maturity (height after N).
The lender in your scenario "provides use" of the principal, and is paid interest in exchange. This is of course the nature of lending, as a period without one's capital incurs an opportunity cost that must be offset (by interest).
The borrower's "use" of the principal is what is being overlooked. To generate income from capital one must produce something and sell it. Production requires both capital and time. Borrowing the principle for the period allows the borrower to produce goods, sell them, and return the "profit" as interest to the lender. Use implies that the borrower is spending the principle - trading it with others. Eventually any number of others end up holding the principle. At maturity, the coin is returned to the lender (by covenant). At that point, all people the borrower traded with are bag holders. Knowledge of this scam results in an imputed net present zero value for the borrowed principal.
While the lack of usability is a cost to the lender, it is not a benefit to the borrower. The lender incurs no risk, and will obtain no reward - as the loan is of no value. Failure to deploy capital is an opportunity cost, and locking it up is not deployment.
Now, even if we accept the generous (economically irrational) assumption that money must increase in price (i.e. trades from more goods) over any given period, we are still left with the observation that the presumed appreciation would accrue to the lender absent lending, making it pointless.
e
> -----Original Message-----
> From: ZmnSCPxj <ZmnSCPxj at protonmail.com>
> Sent: Tuesday, May 3, 2022 7:37 PM
> To: Eric Voskuil <eric at voskuil.org>
> Cc: Chris Belcher <belcher at riseup.net>; Bitcoin Protocol Discussion <bitcoin-
> dev at lists.linuxfoundation.org>
> Subject: Re: [bitcoin-dev] BIP proposal: Timelocked address fidelity bond for
> BIP39 seeds
>
> Good morning e,
>
>
> > It looks like you are talking about lending where the principal return is
> guaranteed by covenant at maturity. This make the net present value of the
> loan zero.
>
> I am talking about lending where:
>
> * Lessor pays landlord X satoshis in rent.
> * Landlord provides use of the fidelity bond coin (value Y) for N blocks.
> * Landlord gets the entire fidelity bond amount (Y) back.
>
> Thus, the landlord gets X + Y satoshis, earning X satoshis, at the cost of having Y
> satoshis locked for N blocks.
>
> So I do not understand why the value of this, to the landlord, would be 0.
> Compare to a simple HODL strategy, where I lock Y satoshis for N blocks and
> get Y satoshi back.
> Or are you saying that a simple HODL strategy is of negative value and that
> "zero value" is the point where you actively invest all your savings?
> Or are you saying that HODL strategy is of some value since it still allows you
> to spend funds freely in the N blocks you are HODLing them, and the option to
> spend is of value, while dedfinitely locking the value Y for N blocks is equal to
> the value X of the rent paid (and thus net zero value)?
>
> Regards,
> ZmnSCPxj
📝 Original message:Good evening ZmnSCPxj,
For the sake of simplicity, I'll use the terms lender (Landlord), borrower (Lessor), interest (X), principal (Y), period (N) and maturity (height after N).
The lender in your scenario "provides use" of the principal, and is paid interest in exchange. This is of course the nature of lending, as a period without one's capital incurs an opportunity cost that must be offset (by interest).
The borrower's "use" of the principal is what is being overlooked. To generate income from capital one must produce something and sell it. Production requires both capital and time. Borrowing the principle for the period allows the borrower to produce goods, sell them, and return the "profit" as interest to the lender. Use implies that the borrower is spending the principle - trading it with others. Eventually any number of others end up holding the principle. At maturity, the coin is returned to the lender (by covenant). At that point, all people the borrower traded with are bag holders. Knowledge of this scam results in an imputed net present zero value for the borrowed principal.
While the lack of usability is a cost to the lender, it is not a benefit to the borrower. The lender incurs no risk, and will obtain no reward - as the loan is of no value. Failure to deploy capital is an opportunity cost, and locking it up is not deployment.
Now, even if we accept the generous (economically irrational) assumption that money must increase in price (i.e. trades from more goods) over any given period, we are still left with the observation that the presumed appreciation would accrue to the lender absent lending, making it pointless.
e
> -----Original Message-----
> From: ZmnSCPxj <ZmnSCPxj at protonmail.com>
> Sent: Tuesday, May 3, 2022 7:37 PM
> To: Eric Voskuil <eric at voskuil.org>
> Cc: Chris Belcher <belcher at riseup.net>; Bitcoin Protocol Discussion <bitcoin-
> dev at lists.linuxfoundation.org>
> Subject: Re: [bitcoin-dev] BIP proposal: Timelocked address fidelity bond for
> BIP39 seeds
>
> Good morning e,
>
>
> > It looks like you are talking about lending where the principal return is
> guaranteed by covenant at maturity. This make the net present value of the
> loan zero.
>
> I am talking about lending where:
>
> * Lessor pays landlord X satoshis in rent.
> * Landlord provides use of the fidelity bond coin (value Y) for N blocks.
> * Landlord gets the entire fidelity bond amount (Y) back.
>
> Thus, the landlord gets X + Y satoshis, earning X satoshis, at the cost of having Y
> satoshis locked for N blocks.
>
> So I do not understand why the value of this, to the landlord, would be 0.
> Compare to a simple HODL strategy, where I lock Y satoshis for N blocks and
> get Y satoshi back.
> Or are you saying that a simple HODL strategy is of negative value and that
> "zero value" is the point where you actively invest all your savings?
> Or are you saying that HODL strategy is of some value since it still allows you
> to spend funds freely in the N blocks you are HODLing them, and the option to
> spend is of value, while dedfinitely locking the value Y for N blocks is equal to
> the value X of the rent paid (and thus net zero value)?
>
> Regards,
> ZmnSCPxj