Author Topic: Shorting, how does it make sense with 200% collateral  (Read 2663 times)

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Offline knircky

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The collateral needs to be high enough that bitAsset holders are confident it will be sufficient to withstand volatility.  The higher the collateral, the lower the leverage for the shorter, and the higher the security for the bitAsset holder.  Since the entire cryptocurrency space is notoriously volatile, high collateral requirements are likely necessary.

Yes I do understand this. It is very important that the asset does not crash.

I am just thinking from the perspective of the short side, that it seems quite a hassle to put up that much collateral. To me anything close to 100% seems excessive. Again I could see a minimum of 50% as sensible with a margin call around 20-30% .

I am overall very impressed with bitshares. I think many things are addressed and it seem that the team has really tried to solve all the issues that bitcoin has.

The key things being:

- having an easy online wallet. I was able to create one super fast, without needing to download anything.
- the confirmation time issue with bitcoin has been solved along
- decentralization problems looks to be solved.
- DEX: the counterparts DEX is a cluster ### this one seems to work. I was able to buy bts and then buy bitUSD within seconds. It was beatiful
- governance: it seems with 100 delegates and them being able to vote on things, one should be able to change things and have a governance and feedback body thru voting. I don't understand the shareholder and the business model behind bitshares at this time. But it looks more robust and flexible while at the same time democratic then bitcoin

Now the big thing is the pegged assets. I think that could help tremendously and one could solve many problems currencies have these days. I am not sure if they work very well so far. the liquidity is very small but its really amazing that this concept has shown to work technically at least.

So overall i am very impressed with what has been done. However a bit shy to put big money into it at this point until i understand the business model better.

Offline knircky

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Have you read this:

https://bitshares.org/technology/price-stable-cryptocurrencies/

Yes I have, yet i found it was not easy to understand exactly how it works from it. But maybe that is just me. It would have been nice to have a plain technical explanation how the assets work.

Offline Troglodactyl

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Hello,

i have a question about the pegged assets.

In the example of bitUSD it all makes sense for me from the perspective of the holder of bitUSD. However i don't understand how it would make sense for the party to create the asset thru shorting.

Does the fact that the shorter is putting up 200% of collateral mean that this party cannot make a profit?

So yesterday i bough 1 bitUSD it cost me 200 bts.

So assuming that it cost 400 bts in collateral to create the asset, what happens to the shorter when bts loses 50% of value.


obviously my bitUSD do not change they should still be worth 1USD and i should be able to sell them for roughly 300 bts.

The shorter can buy back the asset for 300 and make a loss of 100 bts. At the same time the collateral of 400 also has lost 50%. This overall is losing proposition as the shorter bet on the wrong side. We have 300 bts left. We lost 25% of the asset that has lost 50% of value.

If the market moves the other way around:

the shorter can cover its asset for 100, making 100 bts profit. At the same time the collateral also increased 50% in value.

So overall we made 100 bts and now have 500 bts,

we originally had 2 USD worth of bts (400 bts)
Now we have 5 USD worth of bts (500) instead of 4 if we would have simply held BTS. So does this mean when we buy a bit asset we simply accelerate a bit how much money we make on either side.

Did I understand this correctly?

Why is the collateral so high. Does this not complicate things? Why do we not use 50% collateral and margin at 20%. Would that not make an overall better product?

"Now we have 5 USD worth of bts (500) instead of 4 if we would have simply held BTS. So does this mean when we buy a bit asset we simply accelerate a bit how much money we make on either side.

Did I understand this correctly?"

This part is correct.  By shorting bitUSD, you're taking a leveraged long position in BTS, so you amplify your gains when BTS increases in value relative to USD.

"Why is the collateral so high. Does this not complicate things? Why do we not use 50% collateral and margin at 20%. Would that not make an overall better product?"

The collateral needs to be high enough that bitAsset holders are confident it will be sufficient to withstand volatility.  The higher the collateral, the lower the leverage for the shorter, and the higher the security for the bitAsset holder.  Since the entire cryptocurrency space is notoriously volatile, high collateral requirements are likely necessary.


Offline speedy

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What do you mean?

All the 2.0 documentation i have read still defines 200% collateral. If not can you show me?

If you go here:
https://graphene.bitshares.org/#/exchange/trade/USD_CORE

In the "Borrow" button dialog, there is a scroll bar that lets you slide your collateral ratio for newly shorted BitAssets.

Offline knircky

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What do you mean?

All the 2.0 documentation i have read still defines 200% collateral. If not can you show me?

Offline liondani

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bts2.0 solves all the problems you mentioned (just wait a couple of hours for the release)

PS you will be able to put as much as collateral you want...

Offline knircky

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Hello,

i have a question about the pegged assets.

In the example of bitUSD it all makes sense for me from the perspective of the holder of bitUSD. However i don't understand how it would make sense for the party to create the asset thru shorting.

Does the fact that the shorter is putting up 200% of collateral mean that this party cannot make a profit?

So yesterday i bough 1 bitUSD it cost me 200 bts.

So assuming that it cost 400 bts in collateral to create the asset, what happens to the shorter when bts loses 50% of value.


obviously my bitUSD do not change they should still be worth 1USD and i should be able to sell them for roughly 300 bts.

The shorter can buy back the asset for 300 and make a loss of 100 bts. At the same time the collateral of 400 also has lost 50%. This overall is losing proposition as the shorter bet on the wrong side. We have 300 bts left. We lost 25% of the asset that has lost 50% of value.

If the market moves the other way around:

the shorter can cover its asset for 100, making 100 bts profit. At the same time the collateral also increased 50% in value.

So overall we made 100 bts and now have 500 bts,

we originally had 2 USD worth of bts (400 bts)
Now we have 5 USD worth of bts (500) instead of 4 if we would have simply held BTS. So does this mean when we buy a bit asset we simply accelerate a bit how much money we make on either side.

Did I understand this correctly?

Why is the collateral so high. Does this not complicate things? Why do we not use 50% collateral and margin at 20%. Would that not make an overall better product?