BitAsset 2.0 Requirements & Implied Design

[merivercap]

Yeah I may have said before that a range of 1 - 1.2 was fine, but I always preferred a range of .9 to 1.1.

The local trade will be 1:1 so everything should fluctuate around 1 not 1.1.   I would call the current design bitUSD Plus and treat it like a separate coin and if merchants and others like the premium then that's fine there might be liquidity.   I have my doubts with consumers and think it will hinder liqudity and a regular bitUSD that fluctuates around 1 is by far my preference.  Hence I would like to see two Smartcoins if possible and I would like to promote a regular bitUSD that fluctuates around 1, not above 1.   

Note: I think the other motivation behind the floor is that in previous designs there were great discounts and premiums without liquidity so this seems to be a recompensation to enforce some kind of peg.  I would rather see a weak peg using the margin calls at the price feed as training wheels, not a permanent forced settlement feature.  Thanks.

[bytemaster]

1)  When I mean 'stable' I just meant generally pegged, but I'm using the word loosely so we may not really differ in opinion.  I don't really care that bitUSD fluctuates between $0.90 and $1.10 and I don't think bitUSD holders will care either, although adding the floor in the current design so prices fluctuate between $1.00 and $1.20 seems fine.

@Bytemаsteг
I remember from the beginning our target is peg at price 1.0 +/- 0.01
so everybody can be a market maker, sell at price more than 1.0, buy at price less than 1.0
and users can use bitUSD for payment just like 1.0 fiat USD

I want ask you if this is your new plan, peg at price from $1.0 to $1.2?
I want know how to use this bitUSD for payment, why I pay bitUSD to others when bitUSD's price always more than 1?
as a  gateway, what's the price to sell bitUSD, and what's the price to buy bitUSD?

It is always a good deal to buy BitUSD for $1.00
It is always a good idea to sell BitUSD for as much as possible.
As a gateway, I would have a buy wall at $1.00 and then sell whatever inventory I get on the market... this would be the safest bet, but will probably result in the Gateway not having much BitUSD.
As a merchant, you "buy" bitUSD with a dollar's worth of merchandise.

The market must discover the price premium, I obviously want it to be as close to $1.00 as possible, but I have no idea what kind of premium shorts will demand and it will change over time depending upon how many people are selling BitUSD, how many are shorting, and how many are buying.  Until the market discovers the equilibrium we will have to wait and see.  It would probably be helpful to have a graph of the premium relative to the feed over time.

[alt]

1)  When I mean 'stable' I just meant generally pegged, but I'm using the word loosely so we may not really differ in opinion.  I don't really care that bitUSD fluctuates between $0.90 and $1.10 and I don't think bitUSD holders will care either, although adding the floor in the current design so prices fluctuate between $1.00 and $1.20 seems fine.

@Bytemаsteг
I remember from the beginning our target is peg at price 1.0 +/- 0.01
so everybody can be a market maker, sell at price more than 1.0, buy at price less than 1.0
and users can use bitUSD for payment just like 1.0 fiat USD

I want ask you if this is your new plan, peg at price from $1.0 to $1.2?
I want know how to use this bitUSD for payment, why I pay bitUSD to others when bitUSD's price always more than 1?
as a  gateway, what's the price to sell bitUSD, and what's the price to buy bitUSD?

[bytemaster]

BM
- is a flexible yield mechanism off the cards for the moment?
- is there a way that private issuers can take a profit?

No yield except via bond markets
Private issuers can set (and keep) the market trading fees.

[merivercap]

"undercollateralized positions" are always force settled instantly by margin call (walking the book, no feed involved)

Private BitAssets can set:
maintenance collateral level  > 100%
collateral type
force settlement delay (or disable force settlement)
issuer initiated global settlement
fee imposed for forced settlement
pick any algorithm for establishing the settlement price as published by feed producers
maximum daily forced settlement amount 0 to 100% of supply

"undercollateralized positions" are always force settled instantly by margin call (walking the book, no feed involved)- Great.  End of each day or what time period is collateral checked?  Might be good to shorten the time period to one minute to allow more leverage in the future.  I think some forex platforms have 200:1 leverage because they can settle in a matter of seconds/minutes.  Good for liquidity & trading fees. 

maintenance collateral level  > 100% - Great.. btw what about <100% ?  Might eventually be useful for leverage in certain Privatized BitAssets alongside shorter time periods.

force settlement delay (or disable force settlement) - Great

issuer initiated global settlement - Is this for one time events or can the system be automated to force a daily settle?  Or even settling by the minute?   

fee imposed for forced settlement - Ok

pick any algorithm for establishing the settlement price as published by feed producers   - Ok

maximum daily forced settlement amount 0 to 100% of supply - Ok

BTW It may be nice to be able to have the option to get margin calls to automatically settle at the feed.  I'd like to experiment with that option because I would probably start by having no forced settlement at all so there would be no link to the external markets much like the very original design.  It may not be necessary, but that option would be nice. 

[starspirit]

Hey Bytemaster,
I just listened to the May 15th Mumble Hangout and your comments about the premium vs fee.  I think it's an interesting trade-off between the two choices, but I wanted to step back a bit and think about why there is a premium in the first place.  I was wondering if the premium is possibly because of the option value the long BitUSD holder has vs the short BitUSD in the current design and will have in the proposed design.   The higher the forced settlement amount, the higher the option value the long BitUSD holder has.  With no user-generated forced settlement, the premium value may be small. 

Right now I would rather have  no user-generated forced-settlement and instead automatic forced-settlement of undercollateralized short BitUSD holders.  Hence shorts can more easily manage their positions to sustain a long-term BitUSD supply and BitUSD holders will be more confident there will be a predictable supply available to buy.

My question is what specific parameters can you adjust with Privatized BitAssets? 
It would be great to be able to:
-adjust user-generated forced-settlement to zero. 
-force-settle undercollateralized positions at the feed daily
-keep collateral at 100% as proposed.

I hope the above is all possible?

Also is there any way you can algorithmically change parameters (ie. collateral) based on market conditions? 

Lastly what is the cost to set up Privatized BitAssets?  Thanks!

"undercollateralized positions" are always force settled instantly by margin call (walking the book, no feed involved)

Private BitAssets can set:
maintenance collateral level  > 100%
collateral type
force settlement delay (or disable force settlement)
issuer initiated global settlement
fee imposed for forced settlement
pick any algorithm for establishing the settlement price as published by feed producers
maximum daily forced settlement amount 0 to 100% of supply

BM
- is a flexible yield mechanism off the cards for the moment?
- is there a way that private issuers can take a profit?

[merivercap]

"undercollateralized positions" are always force settled instantly by margin call (walking the book, no feed involved)

Private BitAssets can set:
maintenance collateral level  > 100%
collateral type
force settlement delay (or disable force settlement)
issuer initiated global settlement
fee imposed for forced settlement
pick any algorithm for establishing the settlement price as published by feed producers
maximum daily forced settlement amount 0 to 100% of supply

"undercollateralized positions" are always force settled instantly by margin call (walking the book, no feed involved)- Great.  End of each day or what time period is collateral checked?  Might be good to shorten the time period to one minute to allow more leverage in the future.  I think some forex platforms have 200:1 leverage because they can settle in a matter of seconds/minutes.  Good for liquidity & trading fees. 

maintenance collateral level  > 100% - Great.. btw what about <100% ?  Might eventually be useful for leverage in certain Privatized BitAssets alongside shorter time periods.

force settlement delay (or disable force settlement) - Great

issuer initiated global settlement - Is this for one time events or can the system be automated to force a daily settle?  Or even settling by the minute?   

fee imposed for forced settlement - Ok

pick any algorithm for establishing the settlement price as published by feed producers   - Ok

maximum daily forced settlement amount 0 to 100% of supply - Ok

[bytemaster]

Hey Bytemaster,
I just listened to the May 15th Mumble Hangout and your comments about the premium vs fee.  I think it's an interesting trade-off between the two choices, but I wanted to step back a bit and think about why there is a premium in the first place.  I was wondering if the premium is possibly because of the option value the long BitUSD holder has vs the short BitUSD in the current design and will have in the proposed design.   The higher the forced settlement amount, the higher the option value the long BitUSD holder has.  With no user-generated forced settlement, the premium value may be small. 

Right now I would rather have  no user-generated forced-settlement and instead automatic forced-settlement of undercollateralized short BitUSD holders.  Hence shorts can more easily manage their positions to sustain a long-term BitUSD supply and BitUSD holders will be more confident there will be a predictable supply available to buy.

My question is what specific parameters can you adjust with Privatized BitAssets? 
It would be great to be able to:
-adjust user-generated forced-settlement to zero. 
-force-settle undercollateralized positions at the feed daily
-keep collateral at 100% as proposed.

I hope the above is all possible?

Also is there any way you can algorithmically change parameters (ie. collateral) based on market conditions? 

Lastly what is the cost to set up Privatized BitAssets?  Thanks!

"undercollateralized positions" are always force settled instantly by margin call (walking the book, no feed involved)

Private BitAssets can set:
maintenance collateral level  > 100%
collateral type
force settlement delay (or disable force settlement)
issuer initiated global settlement
fee imposed for forced settlement
pick any algorithm for establishing the settlement price as published by feed producers
maximum daily forced settlement amount 0 to 100% of supply





 

[merivercap]

Hey Bytemaster,
I just listened to the May 15th Mumble Hangout and your comments about the premium vs fee.  I think it's an interesting trade-off between the two choices, but I wanted to step back a bit and think about why there is a premium in the first place.  I was wondering if the premium is possibly because of the option value the long BitUSD holder has vs the short BitUSD in the current design and will have in the proposed design.   The higher the forced settlement amount, the higher the option value the long BitUSD holder has.  With no user-generated forced settlement, the premium value may be small. 

Right now I would rather have  no user-generated forced-settlement and instead automatic forced-settlement of undercollateralized short BitUSD holders.  Hence shorts can more easily manage their positions to sustain a long-term BitUSD supply and BitUSD holders will be more confident there will be a predictable supply available to buy.

My question is what specific parameters can you adjust with Privatized BitAssets? 
It would be great to be able to:
-adjust user-generated forced-settlement to zero. 
-force-settle undercollateralized positions at the feed daily
-keep collateral at 100% as proposed.

I hope the above is all possible?

Also is there any way you can algorithmically change parameters (ie. collateral) based on market conditions? 

Lastly what is the cost to set up Privatized BitAssets?  Thanks!

[starspirit]

bytemaster,

What about this solution to please everyone?

1. Have bitUSD centred on parity (there is a liquidity spread around parity)

2. Create a couponUSD for merchant use that is convertible both ways by the block-chain at 1.06 bitUSD

If users want to use bitUSD with external merchants, they convert bitUSD to couponUSD at a 6% premium and spend it. The payment processor then converts the couponUSD back to bitUSD, sells bitUSD for USD near parity, pays the merchant and keeps the extra 6%+/-.

The advantages of this approach are:

i) We still have a parity centred bitUSD that has greater utility in a broad swathe of applications
ii) Payment processors facilitating trade with merchants are satisfied they get their cut
iii) The free market can determine what relative demand there is for both bitUSD and couponUSD
iv) It makes more sense to the market that bitUSD tracks a dollar, and there is a separate coupon program for dealing with merchants

The liquidity spread is no greater than the liquidity spread that would be experienced if we tried to create a bitUSD that trades around a 6% premium, because the same liquidity issues you raise exist whether we choose to centre trading around $1.00, $1.06 or any other level. So payment processors experience profit risk in the size of their cut that is also no greater than would be the case by using a bitUSD centred on $1.06.

[As an aside, for those arguing that a bitUSD should trade at a premium to $1 because it is a premium means of payment, it should be clear from the above that this is a bogus argument. A bitUSD retains all the same benefits whether it is centred around $1 or $1.06. In the approach above, the coupon instrument is not better than a bitUSD, it is simply an instrument to ensure payment facilitators get their cut.]

bytemaster, any thoughts on this? Might this be a way to meet both needs without compromise?

I think it would get gamed, it is an extra step to pay a fee that would be easier for merchants to just add a 6% fee to their bill.

Unsure exactly what you mean.
Isn't the extra step just an instantaneous block-chain conversion? If so this could even be done automatically on receipt by the merchant payment processor (i.e. coupon USD is one-time-use).
How would this get gamed? i.e. who potentially loses?

[maqifrnswa]

77K buy wall are expired shorts waiting to be filled. Meanwhile the current bitUSD holders are not willing to sell at the feed price, hence the buy wall.  There's a big premium to buy bitUSD right now.

How to fix this?

That's what the discussion is all about. Right now, it says that if you could sell 1 bitUSD for at least 1 dollar, there must be a premium charged by those creating a bitUSD. That's just the market, there is nothing to fix.

However, the question is that this system might not allow for any real liquidity, which is BM's concern. So rules can be changed to create liquidity (as long as you don't ever violate the fundamental rules of creating bitUSD when there is an oversupply or destroying bitUSD when there is an undersupply).

[karnal]

77K buy wall are expired shorts waiting to be filled. Meanwhile the current bitUSD holders are not willing to sell at the feed price, hence the buy wall.  There's a big premium to buy bitUSD right now.

How to fix this?

[bytemaster]

bytemaster,

What about this solution to please everyone?

1. Have bitUSD centred on parity (there is a liquidity spread around parity)

2. Create a couponUSD for merchant use that is convertible both ways by the block-chain at 1.06 bitUSD

If users want to use bitUSD with external merchants, they convert bitUSD to couponUSD at a 6% premium and spend it. The payment processor then converts the couponUSD back to bitUSD, sells bitUSD for USD near parity, pays the merchant and keeps the extra 6%+/-.

The advantages of this approach are:

i) We still have a parity centred bitUSD that has greater utility in a broad swathe of applications
ii) Payment processors facilitating trade with merchants are satisfied they get their cut
iii) The free market can determine what relative demand there is for both bitUSD and couponUSD
iv) It makes more sense to the market that bitUSD tracks a dollar, and there is a separate coupon program for dealing with merchants

The liquidity spread is no greater than the liquidity spread that would be experienced if we tried to create a bitUSD that trades around a 6% premium, because the same liquidity issues you raise exist whether we choose to centre trading around $1.00, $1.06 or any other level. So payment processors experience profit risk in the size of their cut that is also no greater than would be the case by using a bitUSD centred on $1.06.

[As an aside, for those arguing that a bitUSD should trade at a premium to $1 because it is a premium means of payment, it should be clear from the above that this is a bogus argument. A bitUSD retains all the same benefits whether it is centred around $1 or $1.06. In the approach above, the coupon instrument is not better than a bitUSD, it is simply an instrument to ensure payment facilitators get their cut.]

bytemaster, any thoughts on this? Might this be a way to meet both needs without compromise?

I think it would get gamed, it is an extra step to pay a fee that would be easier for merchants to just add a 6% fee to their bill.

[starspirit]

bytemaster,

What about this solution to please everyone?

1. Have bitUSD centred on parity (there is a liquidity spread around parity)

2. Create a couponUSD for merchant use that is convertible both ways by the block-chain at 1.06 bitUSD

If users want to use bitUSD with external merchants, they convert bitUSD to couponUSD at a 6% premium and spend it. The payment processor then converts the couponUSD back to bitUSD, sells bitUSD for USD near parity, pays the merchant and keeps the extra 6%+/-.

The advantages of this approach are:

i) We still have a parity centred bitUSD that has greater utility in a broad swathe of applications
ii) Payment processors facilitating trade with merchants are satisfied they get their cut
iii) The free market can determine what relative demand there is for both bitUSD and couponUSD
iv) It makes more sense to the market that bitUSD tracks a dollar, and there is a separate coupon program for dealing with merchants

The liquidity spread is no greater than the liquidity spread that would be experienced if we tried to create a bitUSD that trades around a 6% premium, because the same liquidity issues you raise exist whether we choose to centre trading around $1.00, $1.06 or any other level. So payment processors experience profit risk in the size of their cut that is also no greater than would be the case by using a bitUSD centred on $1.06.

[As an aside, for those arguing that a bitUSD should trade at a premium to $1 because it is a premium means of payment, it should be clear from the above that this is a bogus argument. A bitUSD retains all the same benefits whether it is centred around $1 or $1.06. In the approach above, the coupon instrument is not better than a bitUSD, it is simply an instrument to ensure payment facilitators get their cut.]

bytemaster, any thoughts on this? Might this be a way to meet both needs without compromise?

[starspirit]

What are your concerns about using feed to adjust premium over the peg?

I don't understand how you intend for it to work. My impression, please correct if its wrong, is that as the premium grows, you drop the price feed below its "fair" price (like a fee on settlements) and as the premium contracts, you lift it back toward the "fair" price (lower the "settlement fee"). Is that correct?

If it is, then I have a concern with it. For any static settlement fee, I agree the average trading price would equilibrate at a different level. The possible problem is that when it is dynamic the market may not price it in because it never comes into force, as here:

...I can't see why the market would price this in. If the market is at a premium, then the settlement mechanism is not needed. By the time the settlement mechanism is needed and used, the price must be at a discount where there is no longer a settlement fee. So there is no need for any settlement fee to ever be paid, nor any buyer to price in the risk of a higher fee, no matter how high the premium. So how would this affect supply or demand?

Reminder to bytemaster- awaiting answer on this.