Quote from: mmeijeri on May 11, 2013, 03:03:28 PM

Quote from: dave111223 on May 11, 2013, 02:55:32 PM

So let me get this straight any gateway that allowed IOUs from other gateways would be taking on credit risk and in the event of a run would not be able to pay back 100% of it's own IUOs because of the IOUs of other gateways it held were defaulted.

You have said that it's people own fault for using these kind of gateways that are exposed to the above credit risk. So you would therefore say that all people should use gateways that only redeem IOUs that they issued themselves (and are therefore able to pay off 100% of their IOUs)

You should only trust gateways that have earned your trust, likely through frequent audits of their assets and liabilities. And that includes IOUs issued by other gateways. Note that gateways could accept IOUs issued by other gateways at less than face value. The exchange rates between the various IOUs for the same currency issued by different issuers would be the best market estimate of their relative reliability.

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So lets assume all gateways only redeem their IOUs (because people would be silly to use a gateway exposed to risk you said).

It's likely to start that way, unless some very widely trusted banks get in the game.

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Now ask yourself, what was the point in all that? When they could have both just logged into Bitstamp and done the trade directly without ever having to go to Ripple?

If the market is comfortable with holding IOUs for a while, then you wouldn't have to redeem the IOUs after every transaction. In fact, between individuals this could be a very convenient mechanism to split a check after a dinner in a restaurant. Granting a person a trust line means you'll accept their self-issued IOUs up to a certain limit.

I don't see why I would want to trust a series of inter-indebted gateways, by holding IOUs in Ripple, when I could either:

1) Trust the gateway directly (example by just hold my USD or Bitcoin directly in my Bitstamp balance)

2) Trust purely in the market/a single protocol (hold in Bitcoin wallet)

3) Truth a government and hold fiat directly

Why would i choose option 4:
4) Hold an IOU in a gateway that is holding IOUs from other gateways as the reserve for my balance, hold this IOU with a virtual currency protocol, having the virtual currency protocol controlled by a single governing body.

When you look at it; it's actually balling up and combining the risks from all 1,2,3 + a little extra risk to spice it up.

Anyways bed time...look me up in 10 years and we'll see where Ripple is; I took my $500USD and cashed out, i'll either look like a fool or a smart guy by then.