Preface

I spoke during the 25th Bitshares Hangout regarding Bitshares improvement proposals (BSIPs), that we should be utilizing the reserve pool to fund workers and that we should all write up BSIPs after having a productive discussion on a great Bitshares idea.

A thread on Bitsharestalk was held back in April about profit-sharing within Bitshares DEX, the majority of the feedback was positive and a couple months later I've taken the initiative to write up an BSIP for this feature.

I have created a pull request on GitHub to get this BSIP officially added to the Bitshares BSIP repo.

I'd greatly appreciate input on the idea, especially the 'further research' area.

Thanks,
CM.

EDIT: Updated BSIP-019!

BSIP: #019
Title: Introducing profit sharing/dividends to Bitshares 
Authors: Customminer
Status: Draft
Type: Protocol
Created: 2017-06-18
Primary Discussion: https://bitsharestalk.org/index.php/topic,23981.0.html, https://bitsharestalk.org/index.php/topic,23981.msg304489.html#msg304489
Similar Discussions: https://bitsharestalk.org/index.php/topic,23706.0.html , https://bitsharestalk.org/index.php/topic,21476.msg279498.html#msg279498 , https://bitsharestalk.org/index.php/topic,23707.0.html
Replaces: N/A
Superseded-By: N/A
Worker: None yet - propose bounty?

Abstract

The introduction of 'profit sharing / dividends' for [BTS|MPA|UIA] on the Bitshares DEX, either via redistribution of fees ([BTS|MPA|UIA]) or issuance (sharedrop) of additional tokens (UIA only) against asset holders (not simply collateral).

Motivation

One of the major selling points of BTSX back in 2014 was the 5% (really variable x%) on 'anything' marketing.

The idea that anyone could securely hold MPAs long term in their wallet and receive better 'interest' rates than that FIAT banks were offering was (and remains) a powerful message that had me (and a lot of other users) sold on Bitshares.

During the migration from BTSX (BTS 0.9x) to BTS 2.0 we removed 'socialized yield' due to 'yield harvesting', however I believe that its removal without an established replacement income stream for asset holders was a mistake (one that we can ammend).

The motivation of UIA dividends through sharedropping (additionally issued tokens) is to replicate the distribution mechanism of POS cryptocurrencies, plausibly enabling pos cryptos to migrate entirely to the BTS DEX.

The Bitshares DEX recently turned a profit!

We can reallocate fee redistribution without increasing fees by reducing referral fee allocation.

Peerplays has already implemented profit sharing in graphene.

Rational

The potential for earning more interest on smartcoins than centralized banks offer for FIAT deposits (with near zero risk) could drive many new users to pick the BTS DEX over centralized banks for storing their savings.
An increased demand for smartcoins leads to an increased supply and thus a reduction in the quantity of liquid BTS (since 200-300% BTS are locked up as collateral for each smartcoin).
Providing dividend functionality to UIA issuers introduces potential for new UIA to be created with this functionality in mind.
Other cryptocurrency platforms offer profit-sharing/dividends, such as Peerplays/NXT/CounterParty/DigixDAO/LBRY/Waves/Dash.
New types of UIA could be made possible, driving fees to the reserve pool when registered.
By incentivizing Bitshares users to hold their BTS on the DEX instead of on centralized exchanges we minimize the risk of said centralized exchanges having a massive voting weight with which they could disrupt BTS operations by voting maliciously.

Specifications

Creation of fee redistribution variables for committee/asset-issuer to set

The consensus regarding fee redistribution was that the values should be decided by the committee (or the asset issuer for UIA).

Committee fee redistribution values required: reserve-pool, referral, bitAsset holders, BTS holders, LTM members, Non-LTM members.

Implementation of peerplays profit sharing mechanism

The user 'Bunkerchain labs' posted "Implement our profit sharing code thanks to Peerplays development", a large portion of the work for this BSIP may be complete.

Discussion

A quote from the 'Socialized yield is broken' blog post:

"Under BitShares the BitAsset holders receive a yield simply by holding BitUSD. This yield was between 1% and 5% APR on average. Unfortunately, yield harvesting can happen at any time by someone shorting to themselves to gain a very low risk return and undermining goal of encouraging people to buy and hold BitUSD. The yield was funded from transaction fees and by interest paid by shorts."

The concept of "Collateralized Bonds" has yet to materialize within Bitshares 2.0, so in effect we cut asset holders out of fee redistribution (by removing 'socialized yield') without providing a replacement source of income for holding assets on the Bitshares DEX.

The vast majority of the gathered fees were from non-trading transactions (registering assets, accounts, etc).

Further research

Should exchanges be exempt from receiving dividends?
Should LTM users receive a separate bonus dividend?
Should this BSIP be split in two? One for focusing on MPA's, the other on UIAs?
Can we pay out dividends in MPA, or will we have to distribute BTS?
Who can perform this work?

Summary for Shareholders

No worker proposal has been created yet, input from coders regarding the cost is neccessary.
This BSIP does not propose values for these fees, this is up to the discretion of the network & committee.
The fees distributed towards the referral system will be reduced to make room for profit-sharing.

Copyright

Potentially peerplays for their profit-sharing functionality - MIT?

BSIP-019 Draft: "Introducing profit sharing/dividends to Bitshares"