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Offline starspirit

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When a short is covered, either voluntarily or forcibly, the system hits the market and buys the quantity of shorted bitAsset with BTS from the collateral pool, and the remaining BTS held in collateral from the original shorting transaction gets released to the short. I'm wondering what exactly happens in the forced-covering scenario where the BTS originally placed into the collateral pool by the long and the short is no longer enough to buy back the quantity of bitAsset shorted. Does the full quantity of bitAsset still get cancelled? And where does the extra BTS required get drawn from? Thanks.

Offline starspirit

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Here's some numbers that might help clarify my post.

Say bitUSD price is 50 and a short of 100 bitUSD is opened, requiring 5000 BTS from the long and 10000 BTS from the short as collateral, for 15000 in collateral in total.

Scenario 1 (fully collateralised)

Suppose bitUSD price goes to 75 and the short covers the full 100 bitUSD. This requires 7500 BTS in collateral to buy back at the new price, leaving 7500 (of the original 15000 placed into the pool) to be returned to the short. He has lost 25% of his original 10000 BTS.

Scenario 2 (under-collateralised)

Suppose bitUSD moves sharply to 200 before the automatic short cover can kick in. It now requires 20000 BTS to buy back 100 bitUSD to fully cover the short, but there is only 15000 BTS originally contributed by the long and short. So what is the rule here for how the 100 bitUSD get covered?

Thanks.

Offline joele

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Here's some numbers that might help clarify my post.

Say bitUSD price is 50 and a short of 100 bitUSD is opened, requiring 5000 BTS from the long and 10000 BTS from the short as collateral, for 15000 in collateral in total.

Scenario 1 (fully collateralised)

Suppose bitUSD price goes to 75 and the short covers the full 100 bitUSD. This requires 7500 BTS in collateral to buy back at the new price, leaving 7500 (of the original 15000 placed into the pool) to be returned to the short. He has lost 25% of his original 10000 BTS.

Scenario 2 (under-collateralised)

Suppose bitUSD moves sharply to 200 before the automatic short cover can kick in. It now requires 20000 BTS to buy back 100 bitUSD to fully cover the short, but there is only 15000 BTS originally contributed by the long and short. So what is the rule here for how the 100 bitUSD get covered?

Thanks.

"In the rare event that the value of BTSX falls by more than 50% in less than an hour resulting in insufficient collateral, 100% of the collateral will be used to cover as much BitUSD as possible leaving some BitUSD uncovered. "

http://wiki.bitshares.org/index.php/BitShares_X#Overview

Offline xeroc

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You may want to read the "Black Swan" thread in the forums:
https://bitsharestalk.org/index.php?topic=7032.0
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Offline starspirit

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Thanks joele, thanks xeroc.
xeroc, in the thread link you provided, BM refers to the storage of transaction fees as a reserve that can then be used to cover shorts should they ever be closed with inadequate collateral to buy back the bitUSD. Further if that is insufficient, the reserve would go negative to make up the difference, and then get credited back as transaction fees keep getting paid to it. This implies that the short bitUSD would be fully covered one way or the other.

Its the first I've read of this...do you know if this is how things are currently implemented? Or was that just a proposal that has since been superseded?

Offline xeroc

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Thanks joele, thanks xeroc.
xeroc, in the thread link you provided, BM refers to the storage of transaction fees as a reserve that can then be used to cover shorts should they ever be closed with inadequate collateral to buy back the bitUSD. Further if that is insufficient, the reserve would go negative to make up the difference, and then get credited back as transaction fees keep getting paid to it. This implies that the short bitUSD would be fully covered one way or the other.

Its the first I've read of this...do you know if this is how things are currently implemented? Or was that just a proposal that has since been superseded?

The reserve fund is already implemented and everything in the fund will be used to pay the YIELD!
That means there is a separated fund for each individual asset:
http://www.bitshares.org/infogfx/feeflow/btsx-feeflow.png

Besides that, you argumentations are correct. In the case of a black swan, the uncovered bitUSD can be destroyed from the reserve fund which might lead to negative reserve fund ... filling up over time again .. I am not sure if that is already implemented and also not sure if there will be zero yield during that time ..

I can't remember a post from BM which clearly stated how it is finally implemented (especially in the case of a black swan event) .. the reserve fund however is already up and running .. you can see the balance of the fund in the client or in the block explorer:
http://bitsharesblocks.com/assets/asset?id=USD  (below, middle table)
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