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Offline Rune

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How to prevent yield harvesting?
« on: February 12, 2015, 08:15:34 PM »

One of the things that were discussed in the now-abandoned thread is that yield currently tends towards zero since people can short to themselves whenever there are no active short orders on the books, inflating supply and getting a cut of the yield at no risk. As an example about half of all bitUSD supply is currently held by a whale that shorted it to himself, harvesting about half of all bitUSD yield.

How can we prevent this from happening so yield can get high enough to drive bitasset demand?

zerosum

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Re: How to prevent yield harvesting?
« Reply #1 on: February 12, 2015, 08:30:58 PM »
First find the reasons why the yield is so low. And no, it is not because of ''yield harvesting".


[edit]

Not that this practice helps, but it is unpreventable. Even you find a way to disable it for one account the 'yield farmer' will simple use 2 accounts - one to short and one to buy.
« Last Edit: February 12, 2015, 08:37:09 PM by tonyk2 »

Offline Ander

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Re: How to prevent yield harvesting?
« Reply #2 on: February 12, 2015, 08:33:41 PM »
First find the reasons why the yield is so low. And no, it is not because of ''yield harvesting".

Yield is too low because there isnt any real reason to actually provide a yield
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Offline monsterer

Re: How to prevent yield harvesting?
« Reply #3 on: February 12, 2015, 08:36:20 PM »
One of the things that were discussed in the now-abandoned thread is that yield currently tends towards zero since people can short to themselves whenever there are no active short orders on the books, inflating supply and getting a cut of the yield at no risk. As an example about half of all bitUSD supply is currently held by a whale that shorted it to himself, harvesting about half of all bitUSD yield.

How can we prevent this from happening so yield can get high enough to drive bitasset demand?

The only way is to have the short pay the long directly instead of it being pooled, but then you have fungability problems.
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Offline speedy

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Re: How to prevent yield harvesting?
« Reply #4 on: February 12, 2015, 08:38:04 PM »
Ok here is one idea - the yield that you pay for the first 15 days is what you offered in your short order, and then for the next 15 days it reverts to the average of all short yields.

That way you still have the yield competition, and if you do get lucky by shorting at 0% in a quiet period you can only "harvest" for a smaller period of time.
« Last Edit: February 12, 2015, 08:39:57 PM by speedy »

zerosum

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Re: How to prevent yield harvesting?
« Reply #5 on: February 12, 2015, 08:43:09 PM »
First find the reasons why the yield is so low. And no, it is not because of ''yield harvesting".

Yield is too low because there isnt any real reason to actually provide a yield
Yes you can say that. More specifically nowadays shorts pay interest for the right and privilege to have the chance to lose 2x as much as they can potentially gain.

[EDIT]
My solution - 2x collateral (1x from short 1x from buyer) + very tight margin call -> as little as 15% price drop in BTS compared to the BitAsset can trigger the  margin call.
« Last Edit: February 12, 2015, 08:50:36 PM by tonyk2 »

Offline NewMine

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Re: How to prevent yield harvesting?
« Reply #6 on: February 12, 2015, 08:50:04 PM »
First find the reasons why the yield is so low. And no, it is not because of ''yield harvesting".

Yield is too low because there isnt any real reason to actually provide a yield

Yield is low because there is low demand for bitUSD. As bitUSD demand grows, yield will too in the form of competition between those who want to short.

Offline vlight

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Re: How to prevent yield harvesting?
« Reply #7 on: February 12, 2015, 08:50:21 PM »
One of the things that were discussed in the now-abandoned thread is that yield currently tends towards zero since people can short to themselves whenever there are no active short orders on the books, inflating supply and getting a cut of the yield at no risk. As an example about half of all bitUSD supply is currently held by a whale that shorted it to himself, harvesting about half of all bitUSD yield.

How can we prevent this from happening so yield can get high enough to drive bitasset demand?

If there is a black swan event, wouldn't the shorts be destroyed  more compared to bitassets?

Offline speedy

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Re: How to prevent yield harvesting?
« Reply #8 on: February 12, 2015, 08:54:50 PM »
Maybe we should look at this another way: yield harvesting should be encouraged by everyone. If everyone tries to spot an opportunity to harvest when there are no short orders, then pretty soon there will always be short orders.

Its kind of like arbitrage, if everyone tries to do it then we have a more perfect market.

Offline arhag

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Re: How to prevent yield harvesting?
« Reply #9 on: February 12, 2015, 09:08:04 PM »
My solution - 2x collateral (1x from short 1x from buyer) + very tight margin call -> as little as 15% price drop in BTS compared to the BitAsset can trigger the  margin call.

This isn't too different than what I have been proposing although mine is a little bit less friendly to shorts than your proposal (at the benefit of lower undercollateralization risk).

So, I take 15% drop to trigger a margin call to mean that if the price at which the short was matched was p1 (in BitAsset/BTS), then if the price becomes p2 = 0.85*p1 or lower, the short is margin called. If the initial amount of collateral is 2x, then that means the amount of BTS needed to cover a debt of X BitAsset is 2*X/p1 BTS. If the price feed then becomes p2, the collateral will be worth 2*X*p2/p1 BitAsset, which corresponds to a margin call limit of m = 2*p2/p1 = 2*0.85 = 1.7 = 170%. So to recap your proposal, you think the initial collateral requirement should be 200% (100% for buyer and 100% margin from shorter) and the margin call limit should be 170%.

My proposal is that the margin call limit should be 200% and there should be no initial collateral requirement other than it being larger than the margin call limit. So someone can put up 101% margin, which combined with 100% from the buyer gives them an initial collateral of 201%. But then in that case if the price of BTS (in BitAsset/BTS) goes down by 0.5% or more, the short would be margin called. Since shorters would want more volatility protection than that, they will naturally put up more collateral. The short sellers would get to decide not only the quantity of BitAssets to short sell and the price limit (as they can now) but also the initial collateral ratio. Someone might go with 220% (protection from a 9% drop in price) and monitor the price frequently to add more collateral as necessary. Someone else may not want to deal with the hassle of frequently checking up on their shorts and would instead simply short with 300% collateral to begin with.

Edit: Also, what I would really like is for anyone to create a new BitAsset where they define the description, price feed authority, collateral asset type, and margin call limit (among other things; read more about this proposal here). That way you could create your own BitUSD variant that had a margin call limit of 150% and utilized the same USD/BTS price feeds currently available. Then you could short that BitUSD variant with an initial collateral ratio above the margin call limit (so say 200%). That of course assumes someone will be willing to bid on this BitUSD variant given that it would have a larger undercollateralization risk than the more conservative BitUSD with the 200% margin call limit. But this way we could let the free market decide what level of undercollateralization risk is appropriate.
« Last Edit: February 12, 2015, 09:18:39 PM by arhag »

Offline Rune

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Re: How to prevent yield harvesting?
« Reply #10 on: February 12, 2015, 09:08:20 PM »
Maybe we should look at this another way: yield harvesting should be encouraged by everyone. If everyone tries to spot an opportunity to harvest when there are no short orders, then pretty soon there will always be short orders.

Its kind of like arbitrage, if everyone tries to do it then we have a more perfect market.

Yield harvesting doesn't create more short orders. At any moment there are no active short orders it's possible for everyone who holds BTS to short 100% of their BTS holdings to themselves in an instant. If everyone were rational actors almost all BTS would be held this way since there are always moments where shorting to yourself becomes possible, and as long as there is any yield it's profitable to do. This is also the best way to go long BTS, since you can just sell the bitasset you shorted to yourself at times where there are other shorts competing on interest, so you order will get matched first and you won't have to pay interest. Ultimately once people learn how to do this there shouldn't be any reason to short bitassets at an interest.

Offline graffenwalder

Re: How to prevent yield harvesting?
« Reply #11 on: February 12, 2015, 09:10:25 PM »
It's natural to have less shorts in a bearish market, which would allow 0% shorts.
When it turns bullish the only way to get your short in is to raise your interest.

zerosum

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Re: How to prevent yield harvesting?
« Reply #12 on: February 12, 2015, 09:17:37 PM »
My solution - 2x collateral (1x from short 1x from buyer) + very tight margin call -> as little as 15% price drop in BTS compared to the BitAsset can trigger the  margin call.

This isn't too different than what I have been proposing although mine is a little bit less friendly to shorts than your proposal (at the benefit of lower black swan risk).

So, I take 15% drop to trigger a margin call to mean that if the price at which the short was matched was p1 (in BitAsset/BTS), then if the price becomes p2 = 0.85*p1 or lower, the short is margin called. If the initial amount of collateral is 2x, then that means the amount of BTS needed to cover a debt of X BitAsset is 2*X/p1 BTS. If the price feed then becomes p2, the collateral will be worth 2*X*p2/p1 BitAsset, which corresponds to a margin call limit of m = 2*p2/p1 = 2*0.85 = 1.7 = 170%. So to recap your proposal, you think the initial collateral requirement should be 200% (100% for buyer and 100% margin from shorter) and the margin call limit should be 170%.

My proposal is that the margin call limit should be 200% and there should be no initial collateral requirement other than it being larger than the margin call limit. So someone can put up 101% margin, which combined with 100% from the buyer gives them an initial collateral of 201%. But then in that case if the price of BTS (in BitAsset/BTS) goes down by 0.5% or more, the short would be margin called. Since shorters would want more volatility protection than that, they will naturally put up more collateral. The short sellers would get to decide not only the quantity of BitAssets to short sell and the price limit (as they can now) but also the initial collateral ratio. Someone might go with 220% (protection from a 9% drop in price) and monitor the price frequently to add more collateral as necessary. Someone else may not want to deal with the hassle of frequently checking up on their shorts and would instead simply short with 300% collateral to begin with.

Yours is even better. My main point is - 'Get rid of the 300% required collateral. The rest is just a way to keep the system secure enough.

Edit: Also, what I would really like is for anyone to create a new BitAsset where they define the description, price feed authority, collateral asset type, and margin call limit (among other things; read more about this proposal here). That way you could create your own BitUSD variant that had a margin call limit of 150% and utilized the same USD/BTS price feeds currently available. Then you could short that BitUSD variant with an initial collateral ratio above the margin call limit (so say 200%). That of course assumes someone will be willing to bid on this BitUSD variant given that it would have a larger undercollateralization risk than the more conservative BitUSD with the 200% margin call limit. But this way we could let the free market decide what level of undercollateralization risk is appropriate.

That will be cool. And I have read that proposal before. (I do read the forum even when I do not post. And you are one of the people on my 'check recent posts' list)
My thinking is let's dream smaller and lets fix a truly broken part of our system before striving for awesome. :)
« Last Edit: February 12, 2015, 09:49:04 PM by tonyk2 »

julian1

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Re: How to prevent yield harvesting?
« Reply #13 on: February 12, 2015, 09:18:40 PM »
First find the reasons why the yield is so low. And no, it is not because of ''yield harvesting".

Yield is too low because there isnt any real reason to actually provide a yield

I kind of wonder about that too. In the non-blockchain world, yield is the benefit paid in return for the opportunity to convert money into capital assets that improve a firm's productivity in the real economy. For example, a company issues a bond, and uses those funds to purchase tractors/computers/plant etc which increase revenue or reduce costs and enable the firm to pay back the capital with interest. Unless the money can be re-directed into the real economy to be productive, then I don't know how well the yield analogy holds.

Offline Rune

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Re: How to prevent yield harvesting?
« Reply #14 on: February 12, 2015, 09:35:57 PM »
It's natural to have less shorts in a bearish market, which would allow 0% shorts.
When it turns bullish the only way to get your short in is to raise your interest.

Even in bullish markets there will be periods where there are no active short orders at the price feed, just a moment of this will enable everyone to short to themselves at 0% interest (at which point there will be no more shorts at all, because anyone wanting to go long will just sell the bitasset they shorted to themselves). The markets will always equilibrate towards a point where there will be no open orders at all directly on the price feed, but only around the feed at a spread.

 

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