[bisq-network/proposals] Fixed term BTC loans against BSQ collateral (#176)

sqrrm notifications at github.com
Sun Feb 16 23:09:38 UTC 2020

#### Feasibility
This is a really interesting idea. I'm not sure it's that valuable to be able to borrow BTC with BSQ as collateral in itself, but perhaps there is a market for it. Regarding the details, I can't find anything wrong so far. The pre-signed repay and confiscation txs should make this safe and having ANYONECANPAY should work nicely. It would definitely be both an easier protocol and easier to implement to use an atomic commitment tx with BSQ to be locked being swapped for the BTC loan. It would also be faster, cheaper and probably somewhat safer.

#### Implementation
Regarding implementation it would likely not be worth changing the current trade protocol to integrate this idea. I feel the current protocol is a bit fragile and it would affect all trading with bisq if we mess it up. I think I would rather start by adding atomic BSQ/BTC trades and go from there to add this kind of idea and others. That would give us room to play with the new protocol, although most of it would just be building parts from what we have already.

The UI could probably be mostly the same as we have already, or whatever we will have after the planned revamp coming up. Good point to keep in mind while we do that to allow for more kinds of products that aren't just buying or selling BTC for some other kind of money.

#### Use Case
Since the loan doesn't have to be paid back it acts as a hedge on the BSQ price. Perhaps that's the main use case from Alice's point of view. She borrows 0.5 BTC for her 10000 BSQ because she's worried BSQ prices will fall and she's prepared to pay for this safety.

Bob wants to lend BTC to make money by earning interest. The risk is the BSQ volatility so he would likely require more than 100% collateral, or a high interest rate. With a 100% collateral a lower BSQ price would result in Alice keeping the 0.5 BTC and Bob making a less than the anticipated interest, perhaps even a loss, and higher prices would result in Alice repaying the loan to get the BSQ back.

There might indeed be a market for both sides of that trade with a reasonable collateral that's dependent on the BSQ volatility and the interest rate paid. Although it's not a proper interest rate, more like an option premium. Some finance guys surely has a good name for it already.

I'm not sure what the effect on the BSQ market would be though, but I feel this would stabilize BSQ prices as it adds an option to hedge ones holdings rather than sell at any cost. It locks up BSQ though so I'm not sure about the liquidity aspect.

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