Let's take a look at how crypto-currency endowments work.
Most of us don't realize how important endowments are in the operations of, say, their favorite private university. An endowment is just a donation made to an organization where the gift is locked up and can't be touched, but the earnings from the gift are used to help fund the organization's expenses - forever!
A well-endowed university can afford to grow and expand or offer scholarships and reduced tuition to its students.
A "Bitcoin Endowment" is just a donation that is held in Bitcoin or any mix of other crypto-currencies which benefits from the growth of the assets it holds. Over the past 5 years, any well-chosen basket of crypto currencies would have enjoyed growth by several factors of ten and the industry is just getting started. While no investment is guaranteed, there is every reason to believe that funds based on quality crypto-currencies will do very well in the coming decade as the industry surges into the mainstream. This is especially true for actively managed endowments where the mix is adjusted as industry growth leaders come and go.
BitShares Powered Endowments
The problem with ordinary crypto-currency holding funds is that there is no good way to extract profits without touching the principle. You have to sell off some of the coins as they grow to produce a revenue stream. This certainly works, but there is a better way!
BitShares allows you to lock up the principle in escrow and borrow against it to fund operations while the principal remains untouched and continues to grow.
This is best described with an example. Suppose someone donates a million dollars to use as an endowment for some Good Cause or Big Heroic Audacious Project (BHAP). You could do the following:
- Buy a million dollars worth of BitShares.
- Using your BitShares wallet, dial yourself a loan from the BitShares network. You borrow up to a half-million worth of any of BitShares' Smartcoins (e.g. bitUSD, bitEUR, bitCNY, bitGold, bitSilver, bitBTC, the HERO, etc.)
- Sell the resulting smart coins or use them to pay for current expenses.
That's it. No humans involved. It is just a smart contract between you and the BitShares network of honest robots. This is no different, really, than taking out a home equity loan, except the collateral is a fist full of BitShares instead of your home.
You can borrow up to 50% of the value of whatever BitShares you lock up in your account.
As the value of BitShares increases, with the growth of the network and the crypto currency industry in general, the amount you can borrow increases as the value of the collateral you have backing it grows.
If the fund managers ever decide to liquidate the endowment, they simply buy the same kind of Smartcoin that they borrowed (at hopefully much cheaper prices in terms of BTS) and use them to pay off the loan. This frees up the collateral which can then be liquidated.
The Fund Manager's Job
Borrowing against a volatile, high-growth potential asset like BitShares is a job best left for professional fund managers. It has risks that need to be properly hedged.
One good hedge is to hold half of the fund in Bitcoin and the other half in BitShares. The Bitcoin half will probably double at least once during the life of the endowment offsetting the possibility that the higher risk / higher payoff BitShares component might go to zero. This means that only half the endowment is exposed to the upside of the BitShares growth curve, but that might make a pretty acceptable compromise overall.
There are no guarantees with any investment, but the upside that BitShares could grow by 10x, 100x, 1000x or more makes the combination of the two very interesting! Check out The Million to Billion Club.
I like the 50/50 Bitcoin/BitShares Endowment as a way to leverage the expected growth of the Bitcoin industry.
to build a billion dollar prize to fund 12 public-selected Good Causes,
visit billionherocampaign.com
Stan Larimer, President
Cryptonomex
The Godfather of BitShares and the HERO
About the Author -- Stan Larimer
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Greatest Hits
Bitcoin and the Three Laws of Robotics
Engineering Trust with Charles Hoskinson
The Origin of BitShares
The Hero from BitShares Island
This sounds like a great way to expose yourself to potential exponential growth over the next few years. I was unaware, however, of the ability to leverage some of your investment in the form of a loan, that's an awesome advantage to an investment. Thanks for the information on a potential investment that I may be interested in.
wow that looks interesting, Im going to have to look in to that, I just bought a bunch of bitshares recently. I'm surprised at how well bitshares is holding up today. Other alts are dropping much harder.
I think that BitShares is suffering from a big and enormous lack of marketing.
Well, in terms of daily operations, Bitshares is way before any cryptocurrency, maybe all of them combined, it always show proofs of stability, the client is powerful, but still Bitshares has not launched yet, when you can see coins and crypto that do not do the half of it going crazy wild.
This is one thing I don't understand.
There is one theory, what Bitshares do, many centralized companies are still doing it... Are they slowing down the process @stan? What do you think.
Great article, of course upvoted :)
Heh. Don't ask!
Yes. It's a conspiracy against Bitshares >:)
Hi @stan, Great post like all of your previous ones. I got a question:
Also, you're a crypto expert, here is another question for you:
I hope you don't mind that I asked off topic questions. I believe you're one of the right persons here at Steemit to ask this question. I have to make investment in 2-3 coins, though small at this point but I want to take the calculated risk. Please guide.
Keep up the awesome job. You got my unconditional support.
Steem On!
The potential delist is just Bittrex, not coinmarketcap. It hurts short term in the sense that it causes uninformed people to dump. In the mid to long term it helps because it increases liquidity on the BitShares DEX and eliminates a source of market manipulation (e.g. shorting). We are in no way dependent on other exchanges for BitShares' ultimate success and they will soon be watching from the sidelines.
Bitcoin, BitShares, Steemit, and EOS are the coins I'm watching. I know nothing at all about any of the also-rans. There are a couple of more I can't talk about yet. Stay tuned.
Thanks @stan for your response and advice. I appreciate it.
Whatever you do may seem insignificant to you, but it is most important that you do it.
- Mahatma Gandhi
The sheer functionality of Bitshares and the Dex is what has sold me on the future of Bitshares. The idea of having a decentralized banking and trading platform is delicious!
Thanks @stan, for sharing such a important topic about bitcoin endowments. i thinks that's very useful and important news because its used for the development and for good cause of peoples.I support your lines and impressed from your effforts for the development and promotion of steemit.
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Very important and valuable post about bitshares. Lot of guild lines including your article. I saved this article to my desktop folder for further studying.
Have a nice day sir,,
@smartbot tip @stan 500
Tipped @stan
500 SMART! Comment@smartbot helpto claim. Currently the price of SmartCash in the market is$0.020 USDperSMART. To find out more about SmartCash, please visit https://smartcash.cc.Thanks for the great explanation. I never knew what an endowment was, but have a much better understanding now.
Thanks for sharing.
This is very complicated. It will take me a few days to digest
I really think bitshares is very undervalued, taking into account all this great possibilities, I did not have idea this could be done @stan if this gets to the average person, it would be mind blowing to them as well the problem is how to explain it. It's a shame that billions of people don't even know what an Smart contract is.
Wow, this sounds like a great proposition. Thanks for the great Advise keep it coming.
@stan So how you do that am seriously interested and have tried in the bitshares exchange but could not find the way?
This is where all the experts hang out.
https://web.telegram.org/#/im?p=@BitSharesDEX
They love to help people.
► BitShares on Telegram: http://smarturl.it/btsdiscord
► BitSharestalk Forum: https://bitsharestalk.org/
openledger is a 3rd party company offering services on BitShares Blockchain.
Contact them for support requests: [email protected]
@stan I have asked in the btsdiscord and administrator told me he thinks you are still building this feature, is that correct?
@stan I have asked in the btsdiscord and administrator told me he thinks you are still building this feature, is that correct?
What feature is that? The HERO? No, it's been there 6 months. Awaiting the rest of the whale power needed to make it work.
@stan The feature where you can lock your bitshares and get a loan of 50% of the total value of bitshares.
My girlfriend tells me I have a fairly large endowment 😛😛😛😛