BitAssets 2.0 - For Community Review

[mf-tzo]

To put it in a numerical example what I mean:

Assuming for simplicity 4 days instead of 1 month (until expiry of the Agreement) and the current BTSUSD at day zero price is $1. I believe that upon expiry the BTSUSD will be more so I buy 1 contract FBA BTSUSD @ $1 for expiry after 4 days.

Assuming the daily feed prices. f1=$1.5 , f2=$2 , f3=$0.5 , f4= $4

What will happen on a daily basis is the following:

Average d1=1.25 , therefore +$0.25 on my account
Average d2=1.50, therefore another +$0.25 on my account ($1.5 - $1 - $0.25)
Average d3=1.25, therefore margin call -$0.25 ($1.25 - $1 - $0.25 - $0.25)
Average d4= 1.8, therefore +$0.55 ($1.8 - $1 - $0.25 - $0.25 +$0.25)

Total gain until the expiry of  my contract $0.8 (0.25+0.25-0.25+0.55) but settled on a daily basis.

Now with this way you create liquid contracts that can be traded on a daily basis at specific expiry dates (1 month, 1 Q. 6M, 1Y). This way we create a forward curve for BTSBitUSD.

Benefits:
Increased liquidity
Hedging of BTS exposure
Shorts will cover sooner
Bitshares becomes the first decentralized clearing house for bitassets (I always thought BTS as a big derivative clearing house)

Negatives:
I can't think any..

[mf-tzo]

What about creating Forward Bitasset Agreements, I will call them FBAs as follows:

One can go long or short in bitusd and take a position for the USD via FBA USD

Settlement is once per month at month end.

Settlement price at month end is the average of daily feed prices.

FBAs are traded daily for the current month, the next month and the next etc.. i.e. we can trade FBA up to 5 years.

Ideally we should trade the current month, the current Quarter, the remaining Quarters and the Next year. No point more than that in crypto space for the time beeing.

The above will create on a daily basis a forward curve for the bitUSD:BTS price and will increase liquidity and demand for bitusd and BTS..

The blockchain will be the clearing house for all the FBAs..In order to avoid failure of settlement the system will do a daily mark to market for the owner of the FBAs and do automatically a margin call if the daily m2m is negative or release of funds if positive on a daily basis. This way all FBAs even if they are for a future date, in reality are cleared on a daily basis...

Any thoughts?

[bytemaster]

@ BM..I suggest you read my post about FBA USD below..It is easy and straight forward..This will eliminate the need for the 30 days covering the short and will certainly increase liquidity and will eliminate all the current problems...From where I come I saw this happened. It is a proven theory.

Feed prices will create a fair settlement of the agreements which will be cleared on a daily basis.I am really bad in explaining things but I pretty sure it is the best solution to increase liquidity. Do I need to go in more details on how this works or this is clear but you don't think it is what we need?

What post about FBA? 

[mf-tzo]

@ BM..I suggest you read my post about FBA USD below..It is easy and straight forward..This will eliminate the need for the 30 days covering the short and will certainly increase liquidity and will eliminate all the current problems...From where I come I saw this happened. It is a proven theory.

Feed prices will create a fair settlement of the agreements which will be cleared on a daily basis.I am really bad in explaining things but I pretty sure it is the best solution to increase liquidity. Do I need to go in more details on how this works or this is clear but you don't think it is what we need?

 

[bytemaster]

bytemaster, would you elaborate in which aspect(s) are bitshare(s) lacking, and whether the current design has nonrecoverable fatal flaws?

ditto

Observations over the past 6 months have taught me a lot:

1) Yield harvesting makes yield inconsequential
2) Interest is easily avoided anytime there is no demand to sell at the feed
3) Forced covering every 30 days puts a lot of unnecessary dependence upon the price feed and scares away shorts
4) Long positions can hold out forever if they are large enough and concentrated enough to collude which means shorts are unable to exit at reasonable prices
5) All of the above cause negative outcomes for shorts in bear markets for BTS.

It is all caused by asymmetry in being forced to cover.  I want to simplify each individual asset so that both parties take symmetric risks.

[merivercap]

If the problem is the settlement price for the CFD, why not use the mid-market rate between bid & asks based on volume in the order book?

It is a common social convention to split the difference whenever there is a disagreement on price.

I was going to add also if you use the mid-market rate between bid & asks for settlement it would be hard to manipulate the order book because you would have to place orders on the book to sway pricing one way or the other and you would effectively bring more liquidity to the market.   You will be 'making' the market and providing liquidity if you tried to manipulate the market and that helps with price discovery even more. 

Also rather than having an expiration date, why not just mark-to-market daily?  Hence both short & long have liquidity and everyone will effectively have the CFD contracts rolled over daily automatically and have fungibility.   The problem may be if there will be enough stable supply of bitAssets to meet demand.  If you have enough BTS you can short bitAssets into existence so if your business relies on having a fixed supply of bitAssets you can make sure you have enough BTS to cover any supply shortfalls in bitAssets. 

Finally the available bitAsset supply should ultimately be tied to the fundamental value of the collateral:  BTS, the organization/DAC that receives BTS via transaction fees as 'revenue' and whose 'income' is revenue minus 'expenses' (ie. delegate fees) that results in 'profit' to members or 'stakeholders'.   Because income for a growth company is not necessarily desired and investors would usually want 'profits' poured back into grow the company you can use price to sales (ie. revenue) P/S as a better rough proxy for estimating the value of the DAC rather than P/E. (You can also use a discounted cash flow (DCF) model for valuation if you wanted.)  The maximum P/S ratio of Facebook & Twitter in the trailing twelve month (TTM) is about 25 so that might be the max P/S you would use to estimate the max value of BTS (The US stock market is overvalued btw.  On the other hand Facebook/Twitter is already past the mid-point of it's S-curve growth so they may be somewhat conservative comparisons)

Hence it would be good to have higher collateral when the bitAsset supply is too great relative to the value of the collateral based on P/S to prevent bubbles and lower collateral requirements when the value of the collateral is much higher relative to the bitAsset supply.

[speedy]

To guarantee redeemability to the shorts why not just make BitUSD that hasnt moved for a year expire? You could offer the option to pay a tiny extra transaction fee if you really want to hold BitUSD forever, but most people probably would never need this. Anyone who trusts that BitUSD really works is long term bullish on BTS so would not want to hold BitUSD for an entire year anyway.

Then every day you have up to 1/365 of all BitUSD being sold back. This would at least partially help shorters who need to cover.

This is a lot simpler than creating multiple phased BitUSD markets.

[mf-tzo]

What about creating Forward Bitasset Agreements, I will call them FBAs as follows:

One can go long or short in bitusd and take a position for the USD via FBA USD

Settlement is once per month at month end.

Settlement price at month end is the average of daily feed prices.

FBAs are traded daily for the current month, the next month and the next etc.. i.e. we can trade FBA up to 5 years.

Ideally we should trade the current month, the current Quarter, the remaining Quarters and the Next year. No point more than that in crypto space for the time beeing.

The above will create on a daily basis a forward curve for the bitUSD:BTS price and will increase liquidity and demand for bitusd and BTS..

The blockchain will be the clearing house for all the FBAs..In order to avoid failure of settlement the system will do a daily mark to market for the owner of the FBAs and do automatically a margin call if the daily m2m is negative or release of funds if positive on a daily basis. This way all FBAs even if they are for a future date, in reality are cleared on a daily basis...

Any thoughts? 

[Bitcoinfan]

bytemaster, would you elaborate in which aspect(s) are bitshare(s) lacking, and whether the current design has nonrecoverable fatal flaws?

ditto

[karnal]

bytemaster, would you elaborate in which aspect(s) are bitshare(s) lacking, and whether the current design has nonrecoverable fatal flaws?

[luckybit]

It's too early to focus on stability. The focus probably should be on future proofing the technology because right now no one is buying crypto anyway. Even Bitcoins aren't selling much so who are the new customers going to be?

I realize this could change pretty fast but right now we are at all time low Bitcoin prices if you're thinking about it the typical pattern. This is basically the best time to buy Bitcoin but at the same time that is also the worst time to buy anything else but Bitcoin and people don't even have enough sense to buy Bitcoin.

Conclusion? Focus should be on innovation rather than chasing mass adoption. We might not see mass adoption happen until summer 2016.

[bytemaster]

Thanks for all of the feedback.   My take away is the following:

1) Tax implications could become a mess
2) It certainly isn't simpler when you look at 3 assets instead of 1, though each CFD is simpler.
3) The individual CFDs may not trade 1:1 as expected.

Overall a single CFD may be good for day traders and those looking for a low risk way to hold USD short term, but long term holding is not as viable and it wouldn't make as good of a currency.

Primary goal I am trying to figure out is how to simplify the price feed, roll over, etc.   

[pc]

Being forced to roll over twice a year might be a no-go when you're in a jurisdiction where trades are taxed.

[zerosum]

you said "simple" , it is not!

i would have to read it multiple times to undestand it. I am not native speaker, so.....

everytime the market is not behavior "fine" we change something??


we need to discuss 200% collateral and the 30 day rule.

I agree. With this new thing expect a stable client by 2027...

[Shentist]

you said "simple" , it is not!

i would have to read it multiple times to undestand it. I am not native speaker, so.....

everytime the market is not behavior "fine" we change something??

I think this is not a good solution. In my view the market circle of long and short is broken, because you can't go "long" bitUSD

what about:

1. make it possible to go "short" bitshares or "long" bitUSD. So i could go long the same way i go short "bitUSD" but i need bitUSD to make this
2. the output of this contract would be "bitBTS" and the holders will get a yield from the "shorters"
3. now we have a fully function cycle of long and shorts in the market and someone who want to go long bitUSD he has to buy some on the internal market

and

we need to discuss 200% collateral and the 30 day rule. I would love to replace it with something simpler. Maybe after 30 days the interest will get paid and the collateral will get adjust to the collateral at this
point in time.

4. we should also consider to do "shorts" and "longs" x % away from the feed price