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Offline starspirit

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What is an endogenous price feed and how would it work?
« on: April 23, 2015, 08:52:25 AM »

I would like to understand this concept better that I've seen referred to numerous times, because I'm just not getting what is meant by it. Maybe somebody can help make this concept click into place for me?

My starting point is that the holder of a bitAsset requires some assurance that its value (measured against external assets) will track the value of the real asset. Their key concern is that when they sell the bitAsset, an asset within the system, they receive enough funds that they could buy the real asset outside the system, should they wish to.

So this requires an exchange price of at least one asset inside the system to at least one asset outside the system, in order to make this calculation. This is what I understand as an external or exogenous price feed.

It's been said by many that when liquidity is significant inside the system, that we can move toward an endogenous price feed.

When people refer to an endogenous price feed, being "within the market", what exactly is meant by this? Does this involve a comparison of only the values of tokens that all reside inside the system? If so, I can't see how this provides any information about how any internal token is to be valued outside the system.

Am I understanding the concept correctly?

Thanks.

Offline monsterer

Re: What is an endogenous price feed and how would it work?
« Reply #1 on: April 23, 2015, 09:23:03 AM »
I look at it like this:

e.g. market BTS/bitUSD
feed price is for bitUSD is BTS per USD

*) You cannot trade actual USD on the internal exchange, so we have to look for an external exchange trading USD (this might be via BTC, of course) for that BTS per USD price
*) The internal exchange then receives this price for bitUSD (from the feed) and we can then trade BTS/bitUSD
*) However, due to arbitrage the price of BTS will be affected by trading on the internal exchange
*) This means it might be possible for the price of BTS/bitUSD to be largely controlled by trading on the internal exchange as the liquidity increases

On the limit, this makes the feed price endogenous.
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Offline starspirit

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Re: What is an endogenous price feed and how would it work?
« Reply #2 on: April 23, 2015, 09:42:00 AM »
I look at it like this:

e.g. market BTS/bitUSD
feed price is for bitUSD is BTS per USD

*) You cannot trade actual USD on the internal exchange, so we have to look for an external exchange trading USD (this might be via BTC, of course) for that BTS per USD price
*) The internal exchange then receives this price for bitUSD (from the feed) and we can then trade BTS/bitUSD

Got it so far.


*) However, due to arbitrage the price of BTS will be affected by trading on the internal exchange

Clarify this bit? Which price of BTS (external?) and affected how?

Offline monsterer

Re: What is an endogenous price feed and how would it work?
« Reply #3 on: April 23, 2015, 09:51:19 AM »
Clarify this bit? Which price of BTS (external?) and affected how?

Say BTS on BTS/bitUSD is trading at a discount (compared to bitUSD) on the internal exchange compared to the price of BTS in BTS/USD on an external exchange. Arbitrage means that there is a profit opportunity to buy up the BTS from the internal exchange and sell them on the external exchange, thus affecting the price and therefore the feed price.
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Offline starspirit

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Re: What is an endogenous price feed and how would it work?
« Reply #4 on: April 23, 2015, 10:29:40 PM »
Clarify this bit? Which price of BTS (external?) and affected how?

Say BTS on BTS/bitUSD is trading at a discount (compared to bitUSD) on the internal exchange compared to the price of BTS in BTS/USD on an external exchange. Arbitrage means that there is a profit opportunity to buy up the BTS from the internal exchange and sell them on the external exchange, thus affecting the price and therefore the feed price.
OK, but I think its important to be specific here. That's not quite an arbitrage because you've started in one security (bitUSD) and ended up in a different security (real USD), so you need to take account of their relative pricing before you assume a profit. In principle, you then still need to switch back to bitUSD (where you started) at the market price to complete the cycle, and when you do that I don't see where the arbitrage profit is. Let's take a discount scenario...

Let's suppose the market consensus is that a bitUSD is worth less than a real USD, maybe 0.90 USD. On the internal exchange, a bitUSD will exchange for $0.90 of BTS (measured in real dollars). And on the external exchange, a bitUSD will also exchange for $0.90 of BTS or $0.90 real USD. Because they trade the same level inside and outside there is no arbitrage, is there?

Even if traders inside the exchange believed unrelentingly in the parity of the bitUSD, and exchange it internally for $1.00 of BTS, the arbitrage is to buy bitUSD outside and sell it inside, a behaviour that will cause the bitUSD prices inside and outside to converge somewhere between $0.90 and $1.00 of a USD, which is still a discount. And I'm not sure how this has an impact on the external price of BTS at all.

Are we on the same page, or am I on a tangent?

Offline joele

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Re: What is an endogenous price feed and how would it work?
« Reply #5 on: April 24, 2015, 12:43:19 AM »
I'm thinking that Bitshares will create an hedging BOT to correct the price.
This hedging BOT is an investment offer that earn interest.

Offline starspirit

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Re: What is an endogenous price feed and how would it work?
« Reply #6 on: April 24, 2015, 12:49:36 AM »
I'm thinking that Bitshares will create an hedging BOT to correct the price.
This hedging BOT is an investment offer that earn interest.
I think its the action that is important, not the agent. Do you see how the hedging bot might correct the price in the scenario above?

Offline joele

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Re: What is an endogenous price feed and how would it work?
« Reply #7 on: April 24, 2015, 01:54:42 AM »
I'm thinking that Bitshares will create an hedging BOT to correct the price.
This hedging BOT is an investment offer that earn interest.
I think its the action that is important, not the agent. Do you see how the hedging bot might correct the price in the scenario above?

The BOT has short orders that will buy orders below the feed to correct the internal price, the external exchange will follow the internal price then.

or

The BOT will close all sell orders below feed and close all buy orders above feed price.

or

The BOT has large amount of buy and sell orders, just like what NUbits is doing.

Just my 2cents
« Last Edit: April 24, 2015, 02:05:48 AM by joele »

Offline starspirit

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Re: What is an endogenous price feed and how would it work?
« Reply #8 on: April 24, 2015, 02:11:26 AM »
I'm thinking that Bitshares will create an hedging BOT to correct the price.
This hedging BOT is an investment offer that earn interest.
I think its the action that is important, not the agent. Do you see how the hedging bot might correct the price in the scenario above?
The BOT has large amount of buy and sell orders, just like NUbits is doing.
In this scenario, the bot would need to make a market such that trades are equally likely to go both ways on its book. So it needs to make a market around the level people are comfortable paying, which is $0.90 in this scenario. Market-making like this cannot force the price to peg, unless the market-maker is willing to sometimes oppose the natural direction of the market and make significant losses. Think about central banks that try to peg their currencies when the market wants to go another direction.


The BOT has short orders that will buy orders below the feed to correct the internal price, the external exchange will follow the internal price then.

or

The BOT will close all sell orders below feed and close all buy orders above feed price.


On these joele, I find your meaning a bit fuzzy, would you care to elaborate? What specific actions would the bot be taking? For example "it would buy the internal bitUSD for $0.90 of BTS, and sell for..[ ] on the  [ ]"


Offline joele

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Re: What is an endogenous price feed and how would it work?
« Reply #9 on: April 24, 2015, 03:15:34 AM »
The BOT has short orders that will buy orders below the feed to correct the internal price, the external exchange will follow the internal price then.

or

The BOT will close all sell orders below feed and close all buy orders above feed price.


On these joele, I find your meaning a bit fuzzy, would you care to elaborate? What specific actions would the bot be taking? For example "it would buy the internal bitUSD for $0.90 of BTS, and sell for..[ ] on the  [ ]"


Like Bot will buy internal bitUSD any orders below the $0.99 of BTS and will have buy walls, and has a sell order above $1.01 of bts.
or a BOT can remove all internal sell orders below the $0.99 of BTS, then if no sell orders below the feed, buy orders will eventually normalize.

Yes, there may be a loss doing this, thus there is a 30 days price settlement notice kinda bluff to traders to correct the price.

Just my 2cents
« Last Edit: April 24, 2015, 04:30:03 AM by joele »

Offline starspirit

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Re: What is an endogenous price feed and how would it work?
« Reply #10 on: April 24, 2015, 05:49:47 AM »
The BOT has short orders that will buy orders below the feed to correct the internal price, the external exchange will follow the internal price then.

or

The BOT will close all sell orders below feed and close all buy orders above feed price.


On these joele, I find your meaning a bit fuzzy, would you care to elaborate? What specific actions would the bot be taking? For example "it would buy the internal bitUSD for $0.90 of BTS, and sell for..[ ] on the  [ ]"


Like Bot will buy internal bitUSD any orders below the $0.99 of BTS and will have buy walls, and has a sell order above $1.01 of bts.
or a BOT can remove all internal sell orders below the $0.99 of BTS, then if no sell orders below the feed, buy orders will eventually normalize.

Yes, there may be a loss doing this, thus there is a 30 days price settlement notice kinda bluff to traders to correct the price.

Just my 2cents
I think that would be an almost certain loss. In the scenario I gave where the market's valuation of bitUSD is $0.90, the bot buys all the internal bitUSD up to $0.99, it will end up owning most of the bitUSD available, and there will be no buyers at $1.01+. They will be forced to sell at $0.90 again to get rid of it all, and make a very big loss.

"kinda bluff" sounds "kinda dodgy"?  ;)

Offline monsterer

Re: What is an endogenous price feed and how would it work?
« Reply #11 on: April 24, 2015, 09:13:31 AM »
Even if traders inside the exchange believed unrelentingly in the parity of the bitUSD, and exchange it internally for $1.00 of BTS, the arbitrage is to buy bitUSD outside and sell it inside, a behaviour that will cause the bitUSD prices inside and outside to converge somewhere between $0.90 and $1.00 of a USD, which is still a discount. And I'm not sure how this has an impact on the external price of BTS at all.

Are we on the same page, or am I on a tangent?

If the inside and outside prices converge, by definition the outside price of BTS has in fact been effected by the internal pricing?
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Offline starspirit

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Re: What is an endogenous price feed and how would it work?
« Reply #12 on: April 24, 2015, 09:30:40 AM »
Even if traders inside the exchange believed unrelentingly in the parity of the bitUSD, and exchange it internally for $1.00 of BTS, the arbitrage is to buy bitUSD outside and sell it inside, a behaviour that will cause the bitUSD prices inside and outside to converge somewhere between $0.90 and $1.00 of a USD, which is still a discount. And I'm not sure how this has an impact on the external price of BTS at all.

Are we on the same page, or am I on a tangent?

If the inside and outside prices converge, by definition the outside price of BTS has in fact been effected by the internal pricing?
Only relative to a bitUSD. But not relative to a real USD. Which is all that holders care about when they take their settlement receipts and go to buy the real USD they wanted to track all along.

Offline monsterer

Re: What is an endogenous price feed and how would it work?
« Reply #13 on: April 24, 2015, 09:34:38 AM »
Only relative to a bitUSD. But not relative to a real USD. Which is all that holders care about when they take their settlement receipts and go to buy the real USD they wanted to track all along.

What if the external exchange has a BTS/USD and BTS/bitUSD markets? Isn't it possible that a change in one leads to a change in the other?
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Offline starspirit

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Re: What is an endogenous price feed and how would it work?
« Reply #14 on: April 25, 2015, 12:07:45 PM »
Only relative to a bitUSD. But not relative to a real USD. Which is all that holders care about when they take their settlement receipts and go to buy the real USD they wanted to track all along.

What if the external exchange has a BTS/USD and BTS/bitUSD markets? Isn't it possible that a change in one leads to a change in the other?
not really sure how. monsterer, I thank yourself and joele for the dialogue, but for now I still feel the evidence is lacking for this concept, and so I must continue to reject it.

 

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