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

chimp1984 notifications at github.com
Mon Jun 15 06:17:27 UTC 2020

Hi @stejbac,
Interesting concept. 
Here some feedback:

On the conceptual side:
As you pointed out there is a malleability risk. From my understanding malleability is caused intentionally and not "randomly" even any miner could cause it there is no incentive for them to do so. I never heard of malleability issues in such regards. So I think we can focus on cases where one of the traders would gain a benefit from malleability.
The malleability risk comes down to a blackmail risk. Alice cannot lose anything. If she cannot do the repayment she has simply traded BSQ to BTC, assuming no volatility and 100% BSQ collateral thats a zero sum game.
Bob has no incentive to cause an altered tx as he would hurt himself by not being able to get the BSQ if Alice is not repaying the BTC. But Alice could abuse that weak position of Bob by blackmailing him. 
Segwit would provide a solution but I am not sure if segwit can be used for BSQ transactions. 
Alternatively there could be used another idea: 
The DAO could state that it will reimburse any victim of such a blackmail (proof need to be verifiable). If Alice would attempt a blackmail Bob would request a reimbursement from the DAO and Alice would fail. The DAO would suffer some financial loss, but if the protocol has an added value to the DAO and fees are paid it might be acceptable. Just being the "savior of last resort" would kill the incentive for Alice to try a blackmail attempt (which would be difficult to do and success anyway with various other reasons). There still would be a "sabotage" risk for the DAO. 
Further a security deposit could be added to the collateral so that Alice if completing the deal by paying back (and not blackmailing or defaulting) she gets her deposit back, otherwise Bob gets it. That would decrease blackmail risk further if combined with the DAO reimbursement.

On the economic side:
As others have commented it has the character of more an option trade. The positive and negative effects should be analysed from people more familiar with that, but from my guts feeling I see it more as a risk rather than an opportunity. The main use cases for BSQ (paying contributors, paying trade fees) benefit from low volatility. I assume speculative trade options increase volatility, but that might be seen differently by others. At least high volatility makes markets more interesting for speculative traders.

On the BSQ ecosystem side:
The complexity of the BSQ ecosystem is already quite high and hard to understand for many participants. Adding a speculative trading option tool would add more complexity and risks on the economic side IMO. 

On the technical side:
BSQ has not implemented support for multisig (as there was no use case and as we wanted to limit complexity).

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