Author Topic: Potential Market Manipulations on BitAssets  (Read 3571 times)

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Offline starspirit

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Expired shorts don't ever buy back above the price feed, they just make a buy wall there.
Ahh, that's good - I was not aware of that! Was it a recent change or introduced with the initial expiry rules?

I think it's part of the original expiry rules. It also doesn't trigger until there's a real bid at or above that price. Not sure the point there since you just have to poke it market with a tiny order.
I wonder if a similar mechanism can be used for margin calls then, so that in the short squeeze and bank run scenarios (2) and (3) it does not unfairly distribute BTS away from remaining bitAsset holders and reduce collateralisation. The price for the buy wall in that case would not be the price feed, but initially I'm thinking something like the Price Feed x Current Collateralisation Ratio. This would offer superior protection to bitAsset holders against those manipulations (although shorts can still be disadvantaged by a short squeeze).

Is price feed multiplied by current collateralization ratio correct? I would think it would be something like total BTS held for margin call purposes by the blockchain for the BTS/BitAsset market divided by the total BitAsset debt those short positions owe (or the reciprocal of that depending on the way you look at the market). So, I would imagine a margin call would be a limit BitAsset buy order where the price limit is the price at which all of the BTS in collateral is required to pay off the BitAsset debt.
I didn't define Collateralisation Ratio, but I imagined it would be the value of total BTS held in the collateral pool, measured in units of the underlying asset it is worth at the feed price, divided by the supply of units of the bitAsset. For bitUSD, this would be the USD value of BTS divided by the supply of bitUSD. In normal over-collateralised scenarios that would be around 3, and for under-collateralised situations that would be <1. Is that the same or similar to what you are proposing?

If the price feed goes above the margin call price for the short, the short is called as usual if possible. However, if the price feed ever moves so fast that it goes above the undercollateralization price limit for the short before the margin call can successfully happen, then all of the BTS collateral in the short position would be taken and pooled into a specific margin call fund for the BitAsset market (the owner of the short position of course loses all of his BTS held in collateral but also no longer has any of the BitAsset debt), and all of the BitAsset debts from these fully called short positions would be summed together to calculate a total BitAsset debt owed by the blockchain to itself (for destruction purposes). Basically the blockchain would take over the shorts that are undercollateralized. The total BTS held in the margin call fund divided by the total BitAsset debt owed by the blockchain to itself would be the price (in BTS/BitAsset) at which the blockchain places the single BitAsset buy order for a quantity equal to the total BitAsset debt owed by the blockchain to itself. This price would be under the price feed in the case of undercollateralization, which means if enough BitAsset holders want to exit they would be forced to sell under the peg. But the BitAsset holders quick to get out early would no longer be able to drain all of the BTS collateral at the price feed to the detriment of the slower BitAsset holders left holding the bag with BitAssets that have no BTS left to back them (assuming no new shorts enter after the undercollateralization event begins because they are undercut by enormous BitAsset sells below the price feed).

Initially, I like the sound of your implementation, but the coders will understand much better than I what is possible.

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[ broken record ]

Whatever you do not forget that the shorts are the bloodstream in this system. I know they are usually the solution to virtually anybody's proposals.

- We need more money? - let the shorts pay interest;
- We need  more secure system - let the shorts compete on collateral ( or increase it from 1x to 2x).
- Many benefits in one?  - they should re-short (or try to) every 30 days.

To say nothing about every sharedropper having his opinion how and how much to screw them. Voting? No they a are not good enough for that ( I know it is an issue about to be addressed).


As it stand the short are at disadvantage - they need to provide 2x collateral to take a position.  This will change sooner or later (hopefully in more than 9 mo. from the start of v.1.0) ...

[/ broken record ]

Offline Agent86

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Expired shorts don't ever buy back above the price feed, they just make a buy wall there.
Ahh, that's good - I was not aware of that! Was it a recent change or introduced with the initial expiry rules?
My opinion is that this is not a good rule.  I would rather see shorts have to take the risk that they may pay above feed price.  I think this rule makes the likelihood of under-collateralized bitAssets higher.

Within limit or we get new attacks on thin markets.
I don't have a strong objection to a limit that at least gives substantial room for shorts to be forced to cover above the peg when no other sellers exist.

But generally short sellers need to change their behavior to mitigate and protect themselves from these "attacks".  If we allow short sellers to sell at a fixed offset above the peg, these are tools short sellers can use to ensure sufficient depth and protect themselves from a short squeeze.  Protecting bitAsset holders from loss is more important than protecting short sellers.  I also think we should ultimately be using the lowest priced bitUSD for sale as a measure for margin calls and not the price feed.

Offline arhag

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Expired shorts don't ever buy back above the price feed, they just make a buy wall there.
Ahh, that's good - I was not aware of that! Was it a recent change or introduced with the initial expiry rules?

I think it's part of the original expiry rules. It also doesn't trigger until there's a real bid at or above that price. Not sure the point there since you just have to poke it market with a tiny order.
I wonder if a similar mechanism can be used for margin calls then, so that in the short squeeze and bank run scenarios (2) and (3) it does not unfairly distribute BTS away from remaining bitAsset holders and reduce collateralisation. The price for the buy wall in that case would not be the price feed, but initially I'm thinking something like the Price Feed x Current Collateralisation Ratio. This would offer superior protection to bitAsset holders against those manipulations (although shorts can still be disadvantaged by a short squeeze).

Is price feed multiplied by current collateralization ratio correct? I would think it would be something like total BTS held for margin call purposes by the blockchain for the BTS/BitAsset market divided by the total BitAsset debt those short positions owe (or the reciprocal of that depending on the way you look at the market). So, I would imagine a margin call would be a limit BitAsset buy order where the price limit is the price at which all of the BTS in collateral is required to pay off the BitAsset debt. If the price feed goes above the margin call price for the short, the short is called as usual if possible. However, if the price feed ever moves so fast that it goes above the undercollateralization price limit for the short before the margin call can successfully happen, then all of the BTS collateral in the short position would be taken and pooled into a specific margin call fund for the BitAsset market (the owner of the short position of course loses all of his BTS held in collateral but also no longer has any of the BitAsset debt), and all of the BitAsset debts from these fully called short positions would be summed together to calculate a total BitAsset debt owed by the blockchain to itself (for destruction purposes). Basically the blockchain would take over the shorts that are undercollateralized. The total BTS held in the margin call fund divided by the total BitAsset debt owed by the blockchain to itself would be the price (in BTS/BitAsset) at which the blockchain places the single BitAsset buy order for a quantity equal to the total BitAsset debt owed by the blockchain to itself. This price would be under the price feed in the case of undercollateralization, which means if enough BitAsset holders want to exit they would be forced to sell under the peg. But the BitAsset holders quick to get out early would no longer be able to drain all of the BTS collateral at the price feed to the detriment of the slower BitAsset holders left holding the bag with BitAssets that have no BTS left to back them (assuming no new shorts enter after the undercollateralization event begins because they are undercut by enormous BitAsset sells below the price feed).
« Last Edit: December 01, 2014, 08:19:05 pm by arhag »

Offline bytemaster

Expired shorts don't ever buy back above the price feed, they just make a buy wall there.
Ahh, that's good - I was not aware of that! Was it a recent change or introduced with the initial expiry rules?
My opinion is that this is not a good rule.  I would rather see shorts have to take the risk that they may pay above feed price.  I think this rule makes the likelihood of under-collateralized bitAssets higher.

Within limit or we get new attacks on thin markets.
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Offline Agent86

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Expired shorts don't ever buy back above the price feed, they just make a buy wall there.
Ahh, that's good - I was not aware of that! Was it a recent change or introduced with the initial expiry rules?
My opinion is that this is not a good rule.  I would rather see shorts have to take the risk that they may pay above feed price.  I think this rule makes the likelihood of under-collateralized bitAssets higher.

Offline jsidhu

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Someone has to lose for u to win.. Those coins u win spendable? U want 7000000 bts for it lol?
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zerosum

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Believe it or not, I have figured out a way to never make a loosing trade in the BTS system.

At this early stage I am ready to trade this priceless secret, for just 7,000 K BTS, per request.

 :) :) :)

Offline starspirit

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Expired shorts don't ever buy back above the price feed, they just make a buy wall there.
Ahh, that's good - I was not aware of that! Was it a recent change or introduced with the initial expiry rules?

I think it's part of the original expiry rules. It also doesn't trigger until there's a real bid at or above that price. Not sure the point there since you just have to poke it market with a tiny order.
I wonder if a similar mechanism can be used for margin calls then, so that in the short squeeze and bank run scenarios (2) and (3) it does not unfairly distribute BTS away from remaining bitAsset holders and reduce collateralisation. The price for the buy wall in that case would not be the price feed, but initially I'm thinking something like the Price Feed x Current Collateralisation Ratio. This would offer superior protection to bitAsset holders against those manipulations (although shorts can still be disadvantaged by a short squeeze).

Offline toast

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Expired shorts don't ever buy back above the price feed, they just make a buy wall there.
Ahh, that's good - I was not aware of that! Was it a recent change or introduced with the initial expiry rules?

I think it's part of the original expiry rules. It also doesn't trigger until there's a real bid at or above that price. Not sure the point there since you just have to poke it market with a tiny order.
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Offline starspirit

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Expired shorts don't ever buy back above the price feed, they just make a buy wall there.
Ahh, that's good - I was not aware of that! Was it a recent change or introduced with the initial expiry rules?

Offline toast

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But why is that bad or a manipulation? That's no more of an attack than saying "if bitUSD is undervalued, and I buy some and resell it higher, than a later bitUSD buyer won't get the better price". The short *should* get punished for not buying back the bitUSD himself at a cheap price earlier, no?
Good point. Manipulation is not the best classification, but it is a way that certain market participants can be unfairly taken advantage of. It's not always an appropriate punishment  for any short that has not covered before expiry. Maybe the bitAsset was trading at a premium beforehand, or maybe there was not enough liquidity before expiry, or some other situation preventing the short from taking an early gain. And maybe on expiry they will also be forced to buy above the peg, which is an unnecessary penalty and unnecessary liquidity provision to the market.

Expired shorts don't ever buy back above the price feed, they just make a buy wall there.
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Offline starspirit

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But why is that bad or a manipulation? That's no more of an attack than saying "if bitUSD is undervalued, and I buy some and resell it higher, than a later bitUSD buyer won't get the better price". The short *should* get punished for not buying back the bitUSD himself at a cheap price earlier, no?
Good point. Manipulation is not the best classification, but it is a way that certain market participants can be unfairly taken advantage of. It's not always an appropriate punishment  for any short that has not covered before expiry. Maybe the bitAsset was trading at a premium beforehand, or maybe there was not enough liquidity before expiry, or some other situation preventing the short from taking an early gain. And maybe on expiry they will also be forced to buy above the peg, which is an unnecessary penalty and unnecessary liquidity provision to the market.

Offline toast

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But why is that bad or a manipulation? That's no more of an attack than saying "if bitUSD is undervalued, and I buy some and resell it higher, than a later bitUSD buyer won't get the better price". The short *should* get punished for not buying back the bitUSD himself at a cheap price earlier, no?
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Offline starspirit

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Prior discussions, covers #2 and #3 especially well I think:   https://bitsharestalk.org/index.php?topic=3130.0

Also I think #1 is not an attack but is expected behavior. You should get rewarded for trading towards the true price and you should get punished by trying to sell undervalued.
Quote
We can see when shorts are about to be forced to cover in the market due to expiries. Its possible in this situation to buy bitAsset just prior to the cover at the lowest ask, then set a sell order a distance into the sell queue where it is guaranteed to be picked up by the volume of the short-cover. As the sell price will be higher, a risk-free profit results, at the expense of the short.

toast, thanks for pointing out the previous thread on this issue. There are clearly many variations on these types of manipulations with their own nuances. I think the manipulations are feasible, others can decide if they agree.

For (1), its not the low sellers getting punished, its the short. The low seller gets the price he asked for. The short has to pay a higher price than he otherwise would have.