Quote from: Winslow Strong on November 17, 2013, 09:25:31 AM

Quote from: hathmill on November 14, 2013, 07:31:52 AM

BitShares idea of incorporating prediction markets is very interesting. I have not thought it through to Ive not decided whether I believe in it fully or not, but if it works then I would prefer it over trusted price feeds.

I've been trying to understand the bitshares idea myself, and have a discussion going with bytemaster over here http://bitsharestalk.org/index.php?topic=13.0

I started trying to summarize our conversation, but the explanation given to me so far of the version of bitassets (e.g. bitUSD, which it's hoped would track the USD/BTS exchange rate) that are only able to refer to their own price rather than an embedded price feed of USD/BTS is so incoherent, that I can't even give a hypothetical explanation of how it should be believed to work. There really isn't much similarity with prediction markets, because prediction markets have terminal payouts for who is right and who is wrong. In bitUSD's case:
(a) Such information would need to be derived from an embedded USD/BTS
(b) There is no terminal horizon for bitUSD
(c) There are no lump-sum paymets from holding bitUSD which scale linearly with respect to USD/BTS.

bytemaster seems to be willing to consider a version with an embedded USD/BTS feed. However, in that case, merely dividend payments are proposed to scale with deviations from USD/BTS. Compare this with CFDs where the value that changes hands exactly compensates for changes in the price of the underlying - e.g. of USD/BTS.

If they were going to embed price feeds, they would be better off using CFDs, or futures, i.e. established financial products, where cash flows compensate directly and linearly for price changes. The proposal without embedded price feeds makes no sense. How could an asset track the price of another when none of the attributes that give it value are even able to reference that price? It's not like there are arbitrage possibilities between bitUSD and USD/BTS, like there are with e.g. ETFs, because you can't redeem bitUSD for USD, nor for anything tied to the value of USD, because nothing in the blockchain even knows about the price of USD unless it were to be embedded.

Bitshares and Mastercoin are similar but Bitshares is more decentralized and pays dividends. Also Bitshares inherits its price discovery mechanism from market fundamentals while Mastercoin gets its price from goods and services. At the moment both are relying on speculation and have massive momentum.

Protoshares unlike Mastercoin will pay dividends.