USD IOUs in Gatehub

[fleclerc]

I am doing some experiments with IOU between Bitstamp and Gatehub and I struggle to understand how thing works.  There must be something missing in my understanding of IOU and I would appreciate if someone could help demystify.

In Bitstamp I proceed with an IOU USD Transfer to my gatehub account (I configure the trust line previously).  Once the transfer is done, my gatehub wallet shows the 50$ associated with Bitstamp gateway and my Gatehub USD balance is 0.  If I try to use the Trade tab on gatehub to trade my USD for XRP (for example), I see that I can only use my gatehub USD balance and not the bitstamp one.  I struggle at this point to understand why the balance is still linked with the originating gateway (and why a bitstamp USD is not fongible with gatehub one).  Anyway, I find that using the 'exchange' tab in gatehub allows me to exchange bitstamp USD to gatehub USD, but the exchange rate is 1.08 bitstamp USD for 1 gatehub USD.  A now I get really puzzled.  I like the idea of being able to move around USD in split seconds through ripple, but not if there's 8% fees on the way.  Is that something specific to gatehub? 

I would appreciate if someone could shed some lights on how IOU works.

thanks

Edited January 6, 2018 by fleclerc

[cmbartley]

Bitstamp is still the counterparty for your USD IOU as that is the trust line that is asscoiated with your wallet. The IOU simply transferred from bitstamps wallet to your Ripple wallet. Gatehub is simply proivding you an interface t interact with you wallet but you could just as easily use www.tehworldexchange.net. You can still trade it for XRP but only using bitstamp.USD orderbooks. The price discrepancy comes from the fact that people value bitstamp dollars more than they value gatehub dollars. Probably because of liquidity and that they think it is a safe exchange. It is a beautiful example of the fact that the value of a dollar is actually a function of trust rather than inherent to the dollar. For example, would you rather park $100 in a Venezuelan bank if they offered to give you your $100 back or an American bank if they offered to only give you $98 back? Many would take the $2 haircut because of the greater probability of getting their $ back from the American bank. Looked at another way, how many additional dollars would a Venezuelan bank have to offer you to transfer your $100 to their bank? $110, $130, $$200? This is where the risk comes from, from the perceived risk of the IOU not being honored.

[fleclerc]

Interesting, thank you for your response.  if you know of a piece of documentation I could read to understand that part better I would appreciate.

Additional question if I may. I can transfer $ from bitstamp to gatehub.  I can then convert bitstamp$ to gatehub$ (with the 8% loss) and request to withdraw to my bank account.  Ad this stage gatehub will require real $ to interact with the traditional banking system.  What would be the process for them to claim the real money from bitstamp , get it transfered to their bank account so they can transfer to mine?

thanks

[cmbartley]

You can trade bitstamp.USD for Gatehub.USD and then cashout from Gatehub to your bank account. Not sure why you'd take the 8% loss to do so but you can. Presumably all IOUs on the ledger are backed by real Fiat so it should be fine. I just heard from a friend that he's successfully wired from bitstamp into Wells Fargo and Chase Bank. Bitstamp and Gatehub use the same sending bank AFAIK.