From 20baf1bdfca203b20bf331d99edfef85c6d310e7 Mon Sep 17 00:00:00 2001 From: Matt Luongo Date: Fri, 8 Mar 2019 14:50:53 -0500 Subject: [PATCH 1/9] Updated custodial fees to host-only overcollateral --- deposits/index.adoc | 23 ++++++++--------------- 1 file changed, 8 insertions(+), 15 deletions(-) diff --git a/deposits/index.adoc b/deposits/index.adoc index b053fd50f..43022d036 100644 --- a/deposits/index.adoc +++ b/deposits/index.adoc @@ -133,20 +133,13 @@ improving the resilience of the system to signing group failure. == TBTC Minting -:collateral: 200% -:custodial-fee: 20% -:base-custodial-time: 2 months +Once a deposit has been made and funded, the backing TBTC are minted. The +_custodial fee rate_ coupled with the _minimum custodial lockup period_ +determines how much TBTC is immediately available for withdrawal by the +_depositor_, who is now the owner of a funded `Deposit`. -Once a deposit has been made and funded, the _depositor_ is authorized to mint -an amount of TBTC that provides for {collateral} collateralization plus -a custodial fee of {custodial-fee} of the deposit for maintaining the deposit up -to {base-custodial-time}. The amount of mintable TBTC is expressed by this -equation: +A _custodial fee rate_ of 1% a year with a _minimum custodial lockup period_ +of 1 year would immediately enable 99% of the `Deposit` to be withdrawn as TBTC. -`TBTC = {lot-size} / ({collateral} + {custodial-fee})` - -The depositor mints their allowed TBTC by sending a transaction to the tBTC -system, which in turn credits their account with the full amount of TBTC they -are due. - -Custodial fees are described in more detail in <<../custodial-fees/index#,their own section>>. +Custodial fees are described in more detail in +<<../custodial-fees/index#,their own section>>. From 2b8a51b802c6905fc9ff6de06df743de61fcc017 Mon Sep 17 00:00:00 2001 From: Matt Luongo Date: Fri, 8 Mar 2019 16:21:26 -0500 Subject: [PATCH 2/9] Describe a simple custodial fee structure --- custodial-fees/index.adoc | 47 +++++++++++++++++++++++++++++++++++---- index.adoc | 11 ++++----- 2 files changed, 49 insertions(+), 9 deletions(-) diff --git a/custodial-fees/index.adoc b/custodial-fees/index.adoc index b9ce4c5ff..78bc880c1 100644 --- a/custodial-fees/index.adoc +++ b/custodial-fees/index.adoc @@ -1,5 +1,44 @@ -= Custodial Fees: Paying for security += Custodial Fees -* Custodial fee rate -* "Earnest money" -* Deposit ownership +Signers put their own <> to assure depositors there will +be no foul play. The bonds they put down are capital that could otherwise be +productive, and need to earn a return relative to the risk to remain competitve +with other opportunities. + +== Paying for security + +There are a number of pricing models that could cover the opportunity cost of +signers' bonds. An adjacent space offers a strongly aligned pricing model. + +Today's centralized cryptocurrency custodians charge 50 to 75 basis points +(between 0.5-0.75%) on _assets under custody (AUC)_ per year. For each year +that a centralized custodian protects a bitcoin deposit, that's as much as +0.75% lost to the costs of custody. + +A decentralized model should allow a lower effective fee on custody by +introducing more competition to the space. There's a caveat, however- a +decentralized approach to custodianship makes legal recourse more difficult, +requiring additional bonded collateral to ensure recompense in case of failure. + +Applying this pricing model to tBTC's bonding, it's clear that a signer would +like to make a similar return on the total capital it's responsible for- its +portion of `Deposit` security. In the full threshold case, that's +`(n - m - 1) / n` in deposit security and +`(n - m - 1) / n * OverCollateralizationFactor` in bonds, assuming for a moment +a shared value currency. + +For a few conservative values, +`n = 20, m = 15, OverCollateralizationFactor = 150%, LotSize = 1 BTC`, a single +signer can hope to make .0015 TBTC a year per wallet. But for depositors, that +costs 3% a year. Lowering single-signer returns to 0.25% across the security +value they provide means total signing revenue is 1.5% of the market cap of TBTC +each year, with a return a year of their locked up capital, denominated in TBTC. + +While these returns are reasonable relative to their risk in the cryptocurrency +space, we can save both sides money through a more efficient use of capital. As +the network matures, these costs can be lowered through the introduction of +"leveraged bonds" + +== Minimum custodial deposit + +== Deposit ownership and maintenance diff --git a/index.adoc b/index.adoc index c533d45a9..4c726feff 100644 --- a/index.adoc +++ b/index.adoc @@ -220,20 +220,21 @@ all of which are implemented by the Keep network. The architecture is broken down into -* Deposits +* Deposits and signer selection +* Bonding and price feeds +* Custodial fees * Signing -* Price feeds -* Wallet and collateral failure +* Wallet failure * Redemption include::deposits/index.adoc[leveloffset=+2] +include::bonding/index.adoc[leveloffset=+2] + include::custodial-fees/index.adoc[leveloffset=+2] include::signing/index.adoc[leveloffset=+2] -include::bonding/index.adoc[leveloffset=+2] - include::failure/index.adoc[leveloffset=+2] include::redemption/index.adoc[leveloffset=+2] From 42611611a56d683ff73a2fedebab0c6e5f51436c Mon Sep 17 00:00:00 2001 From: Matt Luongo Date: Fri, 8 Mar 2019 17:18:57 -0500 Subject: [PATCH 3/9] Emdash endash ---------- --- bonding/index.adoc | 8 ++++---- custodial-fees/index.adoc | 4 ++-- 2 files changed, 6 insertions(+), 6 deletions(-) diff --git a/bonding/index.adoc b/bonding/index.adoc index 097e89f40..4bbdfe513 100644 --- a/bonding/index.adoc +++ b/bonding/index.adoc @@ -19,7 +19,7 @@ forfeits their bond, and risks their work token stake. == Acceptable collateral -Two tokens present themselves as obvious choices for signing bond collateral- +Two tokens present themselves as obvious choices for signing bond collateral-- TBTC and the underlying work token. During the bootstrap phase of the network, neither is an appropriate candidate due to low liquidity. @@ -58,7 +58,7 @@ of ETH crosses a security threshold, open `Deposit` s will enter This threshold will be determined by the contract owner. If the value of BTC drops precipitously, signers won't make the return on their -bonded capital that they'd hoped- as <> are denominated in TBTC. +bonded capital that they'd hoped-- as <> are denominated in TBTC. This doesn't pose a problem for tBTC reserves, but is expensive to signers, lessening their value proposition. @@ -73,7 +73,7 @@ This threshold will also be determined by the contract owner. == A resilient price feed Unlike popular synthetic stablecoin schemes, the tBTC system design makes no -effort to stabilize the value of TBTC relative to BTC- TBTC will be priced by +effort to stabilize the value of TBTC relative to BTC-- TBTC will be priced by the market. Instead, the goal is to ensure that the TBTC supply is strictly less than its backing BTC reserves. @@ -143,4 +143,4 @@ ceiling of the TBTC surplus. If any TBTC is left over after, it's given to the `Deposit` owner. What the unresponsive signers do with the BTC outside the tBTC system design is -for them to decide- it might be split up, stolen by a signing majority, or lost. +for them to decide-- it might be split up, stolen by a signing majority, or lost. diff --git a/custodial-fees/index.adoc b/custodial-fees/index.adoc index 78bc880c1..9f261c00a 100644 --- a/custodial-fees/index.adoc +++ b/custodial-fees/index.adoc @@ -16,12 +16,12 @@ that a centralized custodian protects a bitcoin deposit, that's as much as 0.75% lost to the costs of custody. A decentralized model should allow a lower effective fee on custody by -introducing more competition to the space. There's a caveat, however- a +introducing more competition to the space. There's a caveat, however-- a decentralized approach to custodianship makes legal recourse more difficult, requiring additional bonded collateral to ensure recompense in case of failure. Applying this pricing model to tBTC's bonding, it's clear that a signer would -like to make a similar return on the total capital it's responsible for- its +like to make a similar return on the total capital it's responsible for-- its portion of `Deposit` security. In the full threshold case, that's `(n - m - 1) / n` in deposit security and `(n - m - 1) / n * OverCollateralizationFactor` in bonds, assuming for a moment From 921a0a8a9734fdd3aeb395b354770e42c4f7f0b2 Mon Sep 17 00:00:00 2001 From: Matt Luongo Date: Fri, 8 Mar 2019 17:52:28 -0500 Subject: [PATCH 4/9] Explain deposit maintenance --- custodial-fees/index.adoc | 10 ++++++++++ 1 file changed, 10 insertions(+) diff --git a/custodial-fees/index.adoc b/custodial-fees/index.adoc index 9f261c00a..f9ecb8a55 100644 --- a/custodial-fees/index.adoc +++ b/custodial-fees/index.adoc @@ -42,3 +42,13 @@ the network matures, these costs can be lowered through the introduction of == Minimum custodial deposit == Deposit ownership and maintenance + +Over time, the _custodial deposit_ is earned by signers, who will be paid for +their efforts when the `Deposit` is redeemed. Half of the unwithdrawn _minimum +custodial deposit_ must be maintained at all times for a `Deposit` to be +considered maintained. + +`Deposit` s that fall below this threshold will be put up for auction, +potentially forfeiting part of a _deposit owner's_ TBTC. + +// TODO further explain the benefits of deposit maintenance From 8c618b0c956b81d6ab147ba65cd51bd0d41b101d Mon Sep 17 00:00:00 2001 From: Matt Luongo Date: Tue, 12 Mar 2019 14:58:23 -0400 Subject: [PATCH 5/9] Further flesh out deposit ownership & maintenance --- custodial-fees/index.adoc | 28 ++++++++++++++++------------ 1 file changed, 16 insertions(+), 12 deletions(-) diff --git a/custodial-fees/index.adoc b/custodial-fees/index.adoc index c43beb8f2..6719a8c74 100644 --- a/custodial-fees/index.adoc +++ b/custodial-fees/index.adoc @@ -16,8 +16,8 @@ Today's centralized cryptocurrency custodians charge 50 to 75 basis points that a centralized custodian protects a bitcoin deposit, that's as much as 0.75% lost to the costs of custody. -A decentralized model should allow a lower effective fee on custody by -introducing more competition to the space. There's a caveat, however-- a +A decentralized model should eventually allow a lower effective fee on custody +by introducing more competition to the space. There's a caveat, however-- a decentralized approach to custodianship makes legal recourse more difficult, requiring additional bonded collateral to ensure recompense in case of failure. @@ -30,7 +30,7 @@ a shared value currency. For a few conservative values, `n = 20, m = 15, OverCollateralizationFactor = 150%, LotSize = 1 BTC`, a single -signer can hope to make .0015 TBTC a year per wallet. But for depositors, that +signer can hope to make .0015 TBTC a year per deposit. But for depositors, that costs 3% a year. Lowering single-signer returns to 0.25% across the security value they provide means total signing revenue is 1.5% of the market cap of TBTC each year, with a return a year of their locked up capital, denominated in TBTC. @@ -38,18 +38,22 @@ each year, with a return a year of their locked up capital, denominated in TBTC. While these returns are reasonable relative to their risk in the cryptocurrency space, we can save both sides money through a more efficient use of capital. As the network matures, these costs can be lowered through the introduction of -"leveraged bonds" - -== Minimum custodial deposit +leveraged bonds. == Deposit ownership and maintenance +A _minimum custodial deposit_ is set aside from the initially available TBTC of +each `Deposit`. This withheld balance ensures signers will be paid for their +work as time goes on. + Over time, the _custodial deposit_ is earned by signers, who will be paid for -their efforts when the `Deposit` is redeemed. Half of the unwithdrawn _minimum -custodial deposit_ must be maintained at all times for a `Deposit` to be -considered maintained. +their efforts when the `Deposit` is redeemed. A portion of the unwithdrawn +_minimum custodial deposit_ must be maintained at all times for a `Deposit` to +be in good standing. -`Deposit` s that fall below this threshold will be put up for auction, -potentially forfeiting part of a _deposit owner's_ TBTC. +A _deposit owner_ can maintain their `Deposit` by returning TBTC, or by leaving +a larger balance undrawn. -// TODO further explain the benefits of deposit maintenance +`Deposit` s that fall out of good standing will be put up for auction, +potentially forfeiting a _deposit owner's_ remaining _custodial deposit_. More +details can be found in <>. From b84e5066ac43e60340e09351301e7dfafdfbc0b2 Mon Sep 17 00:00:00 2001 From: Matt Luongo Date: Sat, 16 Mar 2019 22:20:06 -0400 Subject: [PATCH 6/9] Fix the required signing bond math --- custodial-fees/index.adoc | 10 +++++----- 1 file changed, 5 insertions(+), 5 deletions(-) diff --git a/custodial-fees/index.adoc b/custodial-fees/index.adoc index 6719a8c74..7a59eba4f 100644 --- a/custodial-fees/index.adoc +++ b/custodial-fees/index.adoc @@ -24,15 +24,15 @@ requiring additional bonded collateral to ensure recompense in case of failure. Applying this pricing model to tBTC's bonding, it's clear that a signer would like to make a similar return on the total capital it's responsible for-- its portion of `Deposit` security. In the full threshold case, that's -`(n - m - 1) / n` in deposit security and -`(n - m - 1) / n * OverCollateralizationFactor` in bonds, assuming for a moment +`1 / min(m, n)` in deposit security and +`1 / min(m, n) * OverCollateralizationFactor` in bonds, assuming for a moment a shared value currency. For a few conservative values, `n = 20, m = 15, OverCollateralizationFactor = 150%, LotSize = 1 BTC`, a single -signer can hope to make .0015 TBTC a year per deposit. But for depositors, that -costs 3% a year. Lowering single-signer returns to 0.25% across the security -value they provide means total signing revenue is 1.5% of the market cap of TBTC +signer can make .0005 TBTC a year per deposit. For depositors, that costs 1.5% a +year. Lowering single-signer returns from 0.75% to 0.25% across the security +value they provide means total signing revenue is 0.5% of the market cap of TBTC each year, with a return a year of their locked up capital, denominated in TBTC. While these returns are reasonable relative to their risk in the cryptocurrency From fdd9a476f689bdcd2f60294a4125894a41f8b365 Mon Sep 17 00:00:00 2001 From: Matt Luongo Date: Wed, 20 Mar 2019 15:10:46 -0400 Subject: [PATCH 7/9] s/backing/corresponding Be clear about what's collateral vs the actual pegged asset. --- deposits/index.adoc | 2 +- 1 file changed, 1 insertion(+), 1 deletion(-) diff --git a/deposits/index.adoc b/deposits/index.adoc index 1dd0170c9..4d166124a 100644 --- a/deposits/index.adoc +++ b/deposits/index.adoc @@ -138,7 +138,7 @@ improving the resilience of the system to signing group failure. == TBTC Minting -Once a deposit has been made and funded, the backing TBTC are minted. The +Once a deposit has been made and funded, the corresponding TBTC are minted. The _custodial fee rate_ coupled with the _minimum custodial lockup period_ determines how much TBTC is immediately available for withdrawal by the _depositor_, who is now the owner of a funded `Deposit`. From 4652ed6b46cfdf437e44cbf8dfd47bb105047403 Mon Sep 17 00:00:00 2001 From: Matt Luongo Date: Wed, 20 Mar 2019 16:15:24 -0400 Subject: [PATCH 8/9] Simplified the signing bond math --- custodial-fees/index.adoc | 7 ++++--- 1 file changed, 4 insertions(+), 3 deletions(-) diff --git a/custodial-fees/index.adoc b/custodial-fees/index.adoc index 7a59eba4f..cdaa3ed56 100644 --- a/custodial-fees/index.adoc +++ b/custodial-fees/index.adoc @@ -24,9 +24,10 @@ requiring additional bonded collateral to ensure recompense in case of failure. Applying this pricing model to tBTC's bonding, it's clear that a signer would like to make a similar return on the total capital it's responsible for-- its portion of `Deposit` security. In the full threshold case, that's -`1 / min(m, n)` in deposit security and -`1 / min(m, n) * OverCollateralizationFactor` in bonds, assuming for a moment -a shared value currency. +`1 / min(m, n)` in deposit security, or `1 / m` as `m` is strictly less than `n` +and `m` signers are required to move funds. Those `m` signers would each require +`1 / m * OverCollateralizationFactor` in bonds, assuming for a moment a shared +value currency. For a few conservative values, `n = 20, m = 15, OverCollateralizationFactor = 150%, LotSize = 1 BTC`, a single From e344b668c0ffbfc03405216b95ff5ee83e7793f1 Mon Sep 17 00:00:00 2001 From: Matt Luongo Date: Wed, 20 Mar 2019 17:20:12 -0400 Subject: [PATCH 9/9] s/strictly less/less/ --- custodial-fees/index.adoc | 4 ++-- 1 file changed, 2 insertions(+), 2 deletions(-) diff --git a/custodial-fees/index.adoc b/custodial-fees/index.adoc index cdaa3ed56..56e5cb4af 100644 --- a/custodial-fees/index.adoc +++ b/custodial-fees/index.adoc @@ -24,8 +24,8 @@ requiring additional bonded collateral to ensure recompense in case of failure. Applying this pricing model to tBTC's bonding, it's clear that a signer would like to make a similar return on the total capital it's responsible for-- its portion of `Deposit` security. In the full threshold case, that's -`1 / min(m, n)` in deposit security, or `1 / m` as `m` is strictly less than `n` -and `m` signers are required to move funds. Those `m` signers would each require +`1 / min(m, n)` in deposit security, or `1 / m` as `m` is less than `n`, with +`m` signers are required to move funds. Those `m` signers would each require `1 / m * OverCollateralizationFactor` in bonds, assuming for a moment a shared value currency.