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Offline karnal

Prices make no sense
« on: March 09, 2015, 10:02:54 AM »

BTC/BTS is now at 0.00003428

The fair BTS/BitBTC price should be around 29172 per btc (0.00003428*29172 = ~1)

In the BitBTC built-in market, the sells instead look like:

29630 (already overpriced)
31250 (""  ""  ""  "")
31499  ..
...
40511 (ridiculously overpriced)
...
55000
...
65000


No way someone is going to buy like this. The market doesn't move.


I've observed the same in GOLD and SILVER (ridiculously overpriced compared to the official markets).

This seems to be a big issue?

Offline mdj

Re: Prices make no sense
« Reply #1 on: March 09, 2015, 10:29:16 AM »
You can always buy at price feed by creating a short and buying your own short. Annoying thing with this though is having to put up all of the colateral


Offline Ander

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Re: Prices make no sense
« Reply #3 on: March 09, 2015, 04:25:32 PM »
Lack of liquidity.
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Offline liondani

Re: Prices make no sense
« Reply #4 on: March 09, 2015, 06:53:44 PM »
You can always buy at price feed by creating a short and buying your own short. Annoying thing with this though is having to put up all of the colateral

maybe it would be a good future to have a button that buys our own short with one step...?  :)
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Offline mdj

Re: Prices make no sense
« Reply #5 on: March 09, 2015, 07:50:01 PM »
You can always buy at price feed by creating a short and buying your own short. Annoying thing with this though is having to put up all of the colateral

maybe it would be a good future to have a button that buys our own short with one step...?  :)

 +5% so long as the message told you it was going to use 300% collateral for the buy it would be cool, there would be no reason to buy above feed unless to avoid the 300%

Offline starspirit

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Re: Prices make no sense
« Reply #6 on: March 09, 2015, 09:27:17 PM »
Bids and offers are each on the right side of the price feed, so the market looks fair. It looks more like an issue of liquidity, meaning the spread is very high. Potential shorts may currently be reluctant to take a position on BTS against BTC while BTC has been rallying of late.

[Edit: I actually think this is one of the weaknesses of BitAssets at this stage, in that issuance requires BTS bulls to take a view that BTS will do better than the underlying asset, when these underlying assets may be unpredictable. In turn this makes the entire system liquidity reliant on the existence of very strong BTS bulls. Shorts are effectively borrowing in the underlying asset to fund their position in BTS. The availability of new issuers (i.e. shorts) may be improved and more consistent if there were a simple way for issuers to profit from the pure service of issuing bitAssets without having to take directional views. Arbitrage has some practical issues though.]
« Last Edit: March 09, 2015, 09:36:42 PM by starspirit »

Offline arhag

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Re: Prices make no sense
« Reply #7 on: March 10, 2015, 06:04:51 AM »
[Edit: I actually think this is one of the weaknesses of BitAssets at this stage, in that issuance requires BTS bulls to take a view that BTS will do better than the underlying asset, when these underlying assets may be unpredictable. In turn this makes the entire system liquidity reliant on the existence of very strong BTS bulls. Shorts are effectively borrowing in the underlying asset to fund their position in BTS. The availability of new issuers (i.e. shorts) may be improved and more consistent if there were a simple way for issuers to profit from the pure service of issuing bitAssets without having to take directional views. Arbitrage has some practical issues though.]

How could such a thing be possible? Of course BitAssets require the shorts to believe BTS will do better than the underlying asset. That is the only way (as far as I can imagine) to motivate the shorts to risk their BTS supporting the BitAsset price. If you are able to somehow take away that risk from the shorts, I can't imagine how the BitAsset could maintain its peg anymore without anything of value backing it.

Offline starspirit

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Re: Prices make no sense
« Reply #8 on: March 10, 2015, 07:54:31 AM »
[Edit: I actually think this is one of the weaknesses of BitAssets at this stage, in that issuance requires BTS bulls to take a view that BTS will do better than the underlying asset, when these underlying assets may be unpredictable. In turn this makes the entire system liquidity reliant on the existence of very strong BTS bulls. Shorts are effectively borrowing in the underlying asset to fund their position in BTS. The availability of new issuers (i.e. shorts) may be improved and more consistent if there were a simple way for issuers to profit from the pure service of issuing bitAssets without having to take directional views. Arbitrage has some practical issues though.]

How could such a thing be possible? Of course BitAssets require the shorts to believe BTS will do better than the underlying asset. That is the only way (as far as I can imagine) to motivate the shorts to risk their BTS supporting the BitAsset price. If you are able to somehow take away that risk from the shorts, I can't imagine how the BitAsset could maintain its peg anymore without anything of value backing it.

I don't really know the best answer arhag, I'm just brainstorming some embryonic ideas. Below are some possibilities. I don't know the technical difficulties in any of these ideas. I'm sure you will have much clearer thoughts on that front.

Take arbitrage for a start. If the arbitrageur has an existing inventory of BTS to support their trading activity, then when there is excess demand for the bitAsset, they could theoretically short the bitAsset and sell the corresponding amount of BTS for the real underlying asset on an external exchange. In this way, they have left their net BTS exposure unchanged, and not taken a directional view, but still participated in new issuance of the bitAsset. However, this arbitrage has some practical problems associated with it. First, it is capital intensive, because it requires 3 units of BTS in the inventory (2 for the short, and 1 for the sale) to arbitrage one unit. If there is an arbitrage return on that, it will not be very large. It is also subject to several risks. There is the risk that the bitAsset trades more expensive than their entry point, since there is no mechanism to force convergence to the price feed on any definite timeframe when bitAssets are expensive. It's also possible that with expiries or margin calls they are forced out of position, possibly at inopportune times, and possibly taking a while to reset their position. Finally, its complicated for the average person to understand and manage the short side, so a lot of people, even BTS bulls, just won't do shorts.

What I'm wondering is if this process were made easier (e.g. click a button, or invest in SHORT fund, or follow recipe XYZ) might more people might be engaged in this strategy. If it were less capital intensive, requiring less inventory, might it also invite more arbitrageurs rather than just large BTS bulls.

I also offered some alternative constructions for bitAssets in another thread, https://bitsharestalk.org/index.php?topic=14835.msg192154#msg192154. Taking the idea of a bank on the block-chain, if possible, this might reduce a lot of short-side risks and simplify the process, perhaps encouraging more BTS bulls to participate in shorting (by borrowing from the bank). If the bank intermediary were a UIA, it may be possible for the bank to be flexible with respect to the matching of deposits in various bitCurrencies to loans in those bitCurrencies, if internal hedging strategies are adopted. In effect this entity would conduct the hedging that would have been done by arbitrageurs, and so the creation of the bitCurrencies does not rely as much on specific shorting demand in that market, or on individual market participants having the required shorting and arbitrage expertise.

Another idea from that thread was to set up trading assets as expiring derivatives, as per traditional derivative markets. This would simplify arbitrage also, perhaps encouraging more shorts.

All just somewhat random ideas at this stage.
« Last Edit: March 10, 2015, 08:50:26 AM by starspirit »

Offline starspirit

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Re: Prices make no sense
« Reply #9 on: March 12, 2015, 12:28:09 AM »
Perhaps another possibility is to have a hierarchy of MPAs, whereby most MPAs could be backed by a set of core currency MPAs.
For example, assets like bitAPPLE or bitDOWJONES (which I'll denote bitTradingAssets) could be backed by bitCurrencies such as bitUSD instead of BTS, with the feed price being the real asset in real USD.  Then longs can trade from a bitCurrency account, and shorts could provide liquidity on bitTradingAssets without having to be bullish BTS. (The set of DOWJONES bears for example is probably greater than the set of people with a conviction that BTS will outperform DOWJONES). Other benefits might be that collateral requirements could be reduced because collateral is more stable, and feed prices might be more efficient by eliminating the need to also track BTS. While apparently we can now create markets for MPA pairs such as bitTradingAsset:bitUSD, this relies on all MPAs being created against BTS first, where liquidity is thin. Instead what I'm suggesting means that BTS is being used directly only in the creation of bitCurrencies, where liquidity is likely to be better.

I'm not sure though if such a hierarchy system could still be just as reliant on BTS bulls, because the bitUSD creation required to feed such MPA demand still requires BTS bulls to create the bitUSD. BTS is still the foundation collateral. On the other hand, it creates an application for stable bitCurrencies that may see increased demand for them.

Having said all that, this idea competes against the expiring derivatives approach provided in my other link, which may have other benefits, such as margin trading and simpler 2-way arbitrage, where we do not require fungibility. But maybe these are all possibilities that could be explored for their feasibility, pros and cons.

 

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