Author Topic: Neolithically simple alternative bitasset peg  (Read 4469 times)

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Offline bytemaster

Lets say the delegates produce a feed and offer to sell USD for 1% over the feed.... and then buy it back at 1% below the feed.... then the BTS holders can lose money any time the price moves more than 1% and arb bots take advantage of the unlimited liquidity to rob BTS holders.    Consider for a moment that the "feed price" represents only the price that very small amounts are trading for on the real markets.   If someone attempted to dump 1M BTS on the real market they would get far less than the feed price.

Thus price is a function of liquidity.   So if you are going to fix the price then you will have to vary the liquidity. 

So this means a variable spread based upon redemption demand.   If only $1 BitUSD is demanded you can do it at the feed.  If $1 Million BitUSD is demanded it will have to be at a steep premium. 

So if you can identify the proper function for adjusting the price relative to liquidity demands then you can emulate what the market is already doing today....

If you fix the price/liquidity curve wrong then the market will rob value from the BTS.
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Offline speedy

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The current peg design is working great. We just need more people to use it & more volume.

Offline Ander

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There was a need to move to the feed... you could short a BitAsset out of existence and market confidence in the peg would force it to 0 allowing shorts to cover cheaply.    Plan A only works in very large and liquid markets that are relatively equally balanced between bulls and bears.   

Indeed, the way it worked in itially back in august, you could short infinitely at any price without needing to ever cover (unless you got a margin call), and thus the price of bitUSD could simply go to 0.

Now this is virtually impossible, because you cannot short below the feed, and shorts must cover eventually, so the price must rise back towards the feed price eventually.
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Offline bytemaster

Just want to make clear that I already suggested this as plan 'E' several months ago...the problem is we went from plan A to plan B without any need for doing so, other than delaying the whole project with a good 2 month and counting...

There was a need to move to the feed... you could short a BitAsset out of existence and market confidence in the peg would force it to 0 allowing shorts to cover cheaply.    Plan A only works in very large and liquid markets that are relatively equally balanced between bulls and bears.   
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zerosum

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Just want to make clear that I already suggested this as plan 'E' several months ago...the problem is we went from plan A to plan B without any need for doing so, other than delaying the whole project with a good 2 month and counting...


Offline toast

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the issuers are then the 101 delegates as they publish the price feeds .. is that desired?

The delegates aren't the issuers, it's still the BTS holders. Delegates only set feeds, they don't place orders.
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Offline monsterer

the issuers are then the 101 delegates as they publish the price feeds .. is that desired?

Well, I don't think the trust requirement is any different than it is now since the price feed still controls everything either way?
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Offline Ander

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the issuers are then the 101 delegates as they publish the price feeds .. is that desired?

Right, this isn't better than the free market solution.

Better for the decentralized free market to determine the price rather than 101 delegates.


All we need is liquidity and the peg will work incredibly well.
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Offline xeroc

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the issuers are then the 101 delegates as they publish the price feeds .. is that desired?

Offline monsterer

The current bitasset pegging system is so fantastically complex because the assets are traded on a free market, which can be manipulated by any other market participants.

A neolithically simple alternative way to peg a bit asset to an external price would be to remove the other participants from the equation.

Create a different class of asset, which can only be bought and sold by the issuer. The issuer maintains a buy and sell price with a spread which takes into account adverse selection costs.

Issues:

100% trust is required of the issuer. Trust that they don't sell you the asset and then raise their buy price to $1M USD. Trust that they have enough liquidity to cope with adverse selection costs, so they're able to buy back the assets they sold you after the price goes up.

Now, take that idea and make the blockchain the issuer.

You then gain 100% transparency on the algorithm controlling the prices. You'd be able to see the 'balance' of the blockchain in advance to be sure it has liquidity reserves.

In addition, bitshares is ideally placed to implement this idea, since the necessary price feeds are already a fundamental component.

The only real remaining issue is designing the algorithm to set the bid/ask prices - perhaps something like the kalman filter (http://www.r-bloggers.com/the-kalman-filter-for-financial-time-series/) could be used over the feed data.

Thoughts?
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