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Offline teenagecheese

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Method for Stronger BitUSD Peg
« on: November 14, 2014, 07:21:35 PM »

I noticed the BitUSD peg is currently not working so well and I feel like that will keep happening, especially when people expect bitshares price to change rapidly.

Could you just code it so that BitUSD trades can only be executed within $.01 (or whatever) of the price feed, that way people are always guaranteed within 1% of the dollar?

Maybe I'm missing something, please comment.

Offline teenagecheese

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Re: Method for Stronger BitUSD Peg
« Reply #1 on: November 14, 2014, 07:25:59 PM »
...or to offer another question. Is anyone else worried about how far the price feed is off from the order book? Almost 5 bts (http://www.bitsharesblocks.com/assets/asset?id=USD). That's not o.k., right?

Offline toast

Re: Method for Stronger BitUSD Peg
« Reply #2 on: November 14, 2014, 07:27:17 PM »
Looks like free money-making opportunity to me. Want to make 5-10% in 3-4 days? (Next big round of forced covers).

Your method wouldn't help, people can still trade the assets off-chain. You'd just have no volume on-chain until people want to get in or out at feed price.
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Offline davidpbrown

Re: Method for Stronger BitUSD Peg
« Reply #3 on: November 14, 2014, 07:31:03 PM »
Is there a bitUSD/USD declared somewhere and perhaps a history as graph too? I'm surprised that isn't upfront and obvious to encourage confidence in the peg.

In my ignorance I wonder the peg simply follows from the feeds; what does that suggest of the feed quality and what can be done to fix that?
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Offline teenagecheese

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Re: Method for Stronger BitUSD Peg
« Reply #4 on: November 14, 2014, 07:38:29 PM »
Looks like free money-making opportunity to me. Want to make 5-10% in 3-4 days? (Next big round of forced covers).

Your method wouldn't help, people can still trade the assets off-chain. You'd just have no volume on-chain until people want to get in or out at feed price.

Thank you, your reasons make sense.

Still, 5% is too much of a difference for bitUSD to be used by most people. It needs to be tighter (within 1% always) or it is not so awesome I think. Maybe this can/will be solved through greater volume or some other mechanism. I don't know. Currently though it is a great concern of mine.

Offline teenagecheese

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Re: Method for Stronger BitUSD Peg
« Reply #5 on: November 14, 2014, 07:43:38 PM »
Haha, ok. If the buying I see now is because people just read this conversation and toast made them aware of the opportunity, then I am no longer worried and it is simply a lack of awareness and understanding of the system. I hope that is the case.

Offline kokojie

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Re: Method for Stronger BitUSD Peg
« Reply #6 on: November 14, 2014, 07:47:06 PM »
Haha, ok. If the buying I see now is because people just read this conversation and toast made them aware of the opportunity, then I am no longer worried and it is simply a lack of awareness and understanding of the system. I hope that is the case.

Yeah, there may need to be some sort of alert/monitor tool, so when a market peg differs from feed for more than x%, it alerts me, so I could maybe go and try to profit.

Offline Ander

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Re: Method for Stronger BitUSD Peg
« Reply #7 on: November 14, 2014, 08:23:30 PM »
I noticed the BitUSD peg is currently not working so well and I feel like that will keep happening, especially when people expect bitshares price to change rapidly.

Could you just code it so that BitUSD trades can only be executed within $.01 (or whatever) of the price feed, that way people are always guaranteed within 1% of the dollar?

Maybe I'm missing something, please comment.


What would happen if you did that was that once there became a problem and bitUSD was far off of the peg, you would never be able to trade again, because you wouldnt be allowed to trade it for the value that people wanted to trade it at.  This would actually stop anyone from making money by arbitraging, because they would not be allowed to buy at .90 or whatever, so the peg would never correct.

Arbitraging to bring it back to the peg is the free market solution, and is the solution that works, IF there are people taking that arbitrage profit. and providing liquidity.



The proposed method is essentially like the government sticking a gun in your face and saying "you may not sell <a type of good> for less than X or more than Y!".  What happens in that case is that if the value that the good should be trading at is outside of that range, then all trade STOPS.   In this case, the code forcing you to only trade in that range is analogous to the government forcing you to trade in that range.



We need the free market solution, which will work (given sufficient arbitrageurs an liquidity), not the proposed solution which involves force.
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Offline teenagecheese

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Re: Method for Stronger BitUSD Peg
« Reply #8 on: November 14, 2014, 08:40:17 PM »
I think all of your arguments are pretty good and now feel my concept is not, so I won't argue.

Offline toast

Re: Method for Stronger BitUSD Peg
« Reply #9 on: November 14, 2014, 08:45:16 PM »
1% would be possible if either bitbtc was trading on an external exchane or if there was a good usd/bts on/off ramp

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Offline Ander

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Re: Method for Stronger BitUSD Peg
« Reply #10 on: November 14, 2014, 08:45:57 PM »
Haha, ok. If the buying I see now is because people just read this conversation and toast made them aware of the opportunity, then I am no longer worried and it is simply a lack of awareness and understanding of the system. I hope that is the case.

Yes, right now if bitUSD is off the peg, its mostly because there is so little liquidity and so few people trying to arbitrage for it.  It is an opportunity available for someone to make money for being the bitUSD arbitrageur.
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Offline starspirit

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Re: Method for Stronger BitUSD Peg
« Reply #11 on: November 14, 2014, 09:20:28 PM »
Haha, ok. If the buying I see now is because people just read this conversation and toast made them aware of the opportunity, then I am no longer worried and it is simply a lack of awareness and understanding of the system. I hope that is the case.

Yes, right now if bitUSD is off the peg, its mostly because there is so little liquidity and so few people trying to arbitrage for it.  It is an opportunity available for someone to make money for being the bitUSD arbitrageur.
I started a thread on how to arbitrage this spread in both directions, but there are some practical difficulties. If anyone can contribute ideas on overcoming these, it would be helpful for the market.
See "Arbitrage on BitUSD discount/premium is not risk-free", https://bitsharestalk.org/index.php?topic=11246.msg148712#msg148712

Offline kokojie

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Re: Method for Stronger BitUSD Peg
« Reply #12 on: November 14, 2014, 09:31:11 PM »
Haha, ok. If the buying I see now is because people just read this conversation and toast made them aware of the opportunity, then I am no longer worried and it is simply a lack of awareness and understanding of the system. I hope that is the case.

Yes, right now if bitUSD is off the peg, its mostly because there is so little liquidity and so few people trying to arbitrage for it.  It is an opportunity available for someone to make money for being the bitUSD arbitrageur.
I started a thread on how to arbitrage this spread in both directions, but there are some practical difficulties. If anyone can contribute ideas on overcoming these, it would be helpful for the market.
See "Arbitrage on BitUSD discount/premium is not risk-free", https://bitsharestalk.org/index.php?topic=11246.msg148712#msg148712

I think bytemaster's idea from that thread is great, I would love a limit order that I could set like this "Buy 1000 BitUSD when more than 5% lower than average feed price"

Offline hpenvy

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Re: Method for Stronger BitUSD Peg
« Reply #13 on: November 14, 2014, 09:45:13 PM »
Haha, ok. If the buying I see now is because people just read this conversation and toast made them aware of the opportunity, then I am no longer worried and it is simply a lack of awareness and understanding of the system. I hope that is the case.

Yes, right now if bitUSD is off the peg, its mostly because there is so little liquidity and so few people trying to arbitrage for it.  It is an opportunity available for someone to make money for being the bitUSD arbitrageur.
I started a thread on how to arbitrage this spread in both directions, but there are some practical difficulties. If anyone can contribute ideas on overcoming these, it would be helpful for the market.
See "Arbitrage on BitUSD discount/premium is not risk-free", https://bitsharestalk.org/index.php?topic=11246.msg148712#msg148712

I think bytemaster's idea from that thread is great, I would love a limit order that I could set like this "Buy 1000 BitUSD when more than 5% lower than average feed price"

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Offline vlight

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Re: Method for Stronger BitUSD Peg
« Reply #14 on: November 15, 2014, 08:48:55 PM »
https://blog.ethereum.org/2014/11/11/search-stable-cryptocurrency/

Quote
However, the mechanism has some rather serious fragility properties. Sure, if the price of a stable-coin goes to $0.95, and it’s a small drop that can easily be corrected, then the mechanism will come into play, and the price will quickly go back to $1. However, if the price suddenly drops to $0.90, or lower, then users may interpret the drop as a sign that the peg is actually breaking, and will start scrambling to get out while they can – thus making the price fall even further. At the end, the stable-coin could easily end up being worth nothing at all. In the real world, markets do often show positive feedback loops, and it is quite likely that the only reason the system has not fallen apart already is because everyone knows that there exists a large centralized organization (BitShares Inc) which is willing to act as a buyer of last resort to maintain the “market” peg if necessary.

Note that BitShares has now moved to a somewhat different model involving price feeds provided by the delegates (participants in the consensus algorithm) of the system; hence the fragility risks are likely substantially lower now.

::)

 

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