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julian1

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automatic margin call fails, what happens to bitasset?
« on: February 03, 2015, 07:22:21 AM »

I suspect I don't understand this very well,

If the market moves away from the shorter and there's insufficient maintenance margin, then the blockchain will try and satisfy the collateral need by withdrawing from the account automatically. Formerly, I believe there was also a 5% fee attached to this event to encourage traders to always keep sufficient balances.

However, if there's no BTS (or other backing) in the account, then this action will fail, in which case what happens to the created BitAsset?

Offline Markus

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Re: automatic margin call fails, what happens to bitasset?
« Reply #1 on: February 03, 2015, 11:19:23 AM »
On shorting the 200 % collateral is taken out of the shorter's account. Together with the purchase price the blockchain starts off  with 300 % initial collateral. If its value halves to 150 % the position is called. After the position is closed any collateral remaining (roughly 50% of the initial value) will be payed out to the shorter - minus the 5% fee you mention.

Because at any time the collateral is held by the blockchain there is no need to withdraw anything from the shorter's account in case of a margin call.

julian1

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Re: automatic margin call fails, what happens to bitasset?
« Reply #2 on: February 03, 2015, 12:53:49 PM »
Quote
If its value halves to 150 % the position is called. After the position is closed any collateral remaining (roughly 50% of the initial value) will be payed out to the shorter - minus the 5% fee you mention.

If the position is closed - this means the BitAsset is destroyed? Then what happens to the holder(s) of the BitAsset (assuming the party that shorted it into existence then sold/transferred it on)?

Offline bytemaster

Re: automatic margin call fails, what happens to bitasset?
« Reply #3 on: February 03, 2015, 01:35:32 PM »
See blog on black swan
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Offline Markus

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Re: automatic margin call fails, what happens to bitasset?
« Reply #4 on: February 03, 2015, 10:52:24 PM »
When a margin is called the blockchain tries to buy the BitAsset on the market at parity. The position can only be closed after someone voluntarily sells the BitAsset to the blockchain. The blockchain then destroys it.

julian1

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Re: automatic margin call fails, what happens to bitasset?
« Reply #5 on: February 04, 2015, 09:47:24 AM »
Thanks guys. Engineering the incentives that go in to these sorts of consensus systems is an interesting challenge!.

Offline Chronos

Re: automatic margin call fails, what happens to bitasset?
« Reply #6 on: February 05, 2015, 11:32:28 PM »
Is it possible for the holder of a BitAsset to suddenly and unexpectedly have BTS in their wallet instead, due to the asset being liquidated by this mechanism?

Offline toast

Re: automatic margin call fails, what happens to bitasset?
« Reply #7 on: February 06, 2015, 02:12:26 AM »
Is it possible for the holder of a BitAsset to suddenly and unexpectedly have BTS in their wallet instead, due to the asset being liquidated by this mechanism?

No, not by the normal market operations. This would only happen in a black swan event where there is *global* undercollateralization. Not just a price fall but a very fast fall with no new traders entering.

I think this actually has a decent chance of happening once we add other cryptos as MPAs. For example in the recent XRP or NSR rallies, bitXRP or bitNSR holders would have had a "stop-gains" where their bitAssets are converted to BTS.
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Offline Chronos

Re: automatic margin call fails, what happens to bitasset?
« Reply #8 on: February 08, 2015, 11:29:49 PM »
a "stop-gains" where their bitAssets are converted to BTS.
So this "black swan" affects all holdings of a single under-collateralized Bitasset. Interesting. Thanks for the info!

 

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