Date: Tue, 21 Jul 2020 16:28:03 +0000
To: esnierde <hildawithin@gmail.com>
From: ZmnSCPxj <ZmnSCPxj@protonmail.com>
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Cc: Bitcoin Protocol Discussion <bitcoin-dev@lists.linuxfoundation.org>
Subject: Re: [bitcoin-dev] Implementing Investment Aggregation
Precedence: list

Good morning Hilda,

> Good Day ZmnSCPxj,
>
> Thanks for sharing the=C2=A0idea! I read through the=C2=A0doc and have so=
me concerns that might be off the topic or outside the scope. Please bear w=
ith me.
>
> The traditional banking system provides more than custodial holding of fu=
nds in terms of lending & borrowing. One important function is to match lon=
g term investments with short or variable term deposits. Alice might be wil=
ling to make investments at time 0, but some emergency occurs and she may n=
eed (part of) her bitcoins back at time 1 before the loan due=C2=A0date.=
=C2=A0

This may be possible by using a Decker-Russell-Osuntokun ("eltoo") mechanis=
m.

The laon-payback transaction (the one that is signed with `SIGHASH_ANYPREVO=
UT`) can, instead of paying out directly to the investors, pay out to a Dec=
ker-Russell-Osuntokun mechanism that is signed by a MuSig of the investors =
plus the coordinator.

The initial state of this mechanism is the payouts of each investor, in pro=
portion to the amounts they lent out.
Thus, if none of the investors need to liquidate early, this initial state =
is what gets posted on the blockchain ***if*** the loaning business success=
fully pays back / does not default.

If one of the investors needs to liquidate its position in this loan agreem=
ent, the coordinator can offer to buy its position (in whole or in part) fo=
r a smaller amount (as the coordinator takes on more risk).
Then all the investors plus the coordinator sign a new state of the Decker-=
Russell-Osuntokun mechanism, with the coordinator getting more funds, and t=
he liquidating investor losing all or part of its allocation.
The investor doing the liquidation can demand a pay-for-signature, so that =
its signature share of the new state is only acquired by the coordinator if=
 and only if it actually gets paid with Bitcoins now.

The position need not be bought by the coordinator --- one of the other sma=
ll investors in the business can "double down" and purchase more of the sha=
re of the eventual loan-payback by the same mechanism, from peer investors =
who need to liquidate their position in the loan-payback early, increasing =
its risk exposure but potentially getting even more profit in case the inve=
sted business pays back the loan.


>
> Also, in the banking system, there are usually sophisticated risk analysi=
s systems covering formulas, due diligence, and funds for loan defaults. Ba=
nks can reinvest partial of what they namely have and obtain profits to cov=
er possible losses when borrowers cannot pay back 100%. In this way, they a=
re more resilient to defaults & change of collaterals' value, and borrowers=
 might be able to leverage 1 unit worth of collateral to get 3 units fund i=
nstead of 1.=C2=A0

Similar constructions could be done by the coordinator and / or the investo=
rs directly; unfortunately I know too little of them to give an idea how th=
is can be done.

Regards,
ZmnSCPxj