Author Topic: BitAsset 2.0 Requirements & Implied Design  (Read 48475 times)

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Offline bytemaster

Another point for Merchants:

1) Offer to accept BitUSD at face value and you get to keep the premium (a couple of percent).   Hence, rather than Credit Cards which the merchant pays 3% with BitUSD they can earn up to 3%.   
2) Offer a 3% discount for paying in BitUSD and thus generate more business. 

Either way, merchants now have incentive to accept BitUSD at face value *AND* to promote it as the preferred means of payment.
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Offline bytemaster

tl;dr
HOW to guarantee that each bitUSD could be changed back to one-USD-worth of BTS in a black swan event, especially when there is a daily % set?

Black swan has BitUSD converted to BTS... no more guarantee.
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Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline bytemaster

BM, you mentioned in a hangout a couple weeks back that you thought feeds only needed to be accurate "within 5% to 10%" of market price, because their primary role was detecting a black swan scenario.

What is your new objective for accuracy, and how confident can the network feel that such a feed will be  reliably available?

Under this system the feed accuracy becomes very important in reducing the spread above the feed.   In other words, shorts will factor the feed error into their pricing.  In other words BitUSD is pegged to the feed and shorts will price it accordingly.   The more error in the feed, the higher the risk to shorts.   Fortunately, I believe the feed can be made trust worth and accurate enough that feed error will be in the noise.
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Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline abit

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tl;dr
HOW to guarantee that each bitUSD could be changed back to one-USD-worth of BTS in a black swan event, especially when there is a daily % set?
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Offline liondani

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zerosum

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I think you've made a very good case how these changes to BitAssets are an improvement over the existing version, but you haven't addressed if it is necessary or worth the time to implement (3rd critique). You also haven't mentioned the cost to implement it, in terms of development resources required, impact on current deliverables or opportunity costs (the value of what isn't done or slips due to the effort of implementing this proposal).

Every day delayed in getting to 1.0, assuming it will have the impact you believe it will, is a day a competitor may find an advantage over us, by releasing a competing software product or my sheer marketing might that everyone listens to that persuades investors to invest somewhere other than the BitShares ecosystem. The case for that persuasion is much easier to make in the absence of a quality UX.

The changes you propose for BitAssets, although an improvement, aren't likely to have much if any impact on the BitShares marketcap or adoption. It's gonna take substantive, visible changes in the software, and for the last 6 months they have not materialized.

At this point I just want to see functional stability (it's hard to write a book with all these changes!), and a slow leak / hint of the hard core changes we're all waiting to see deployed. I recognize you & the dev team are in a tough spot and you're walking a fine line on the right level of disclosure. I'm merely vocalizing what many here are waiting for, and expressing my concern about being "laser focused" on the hard core changes that WILL impact adoption and marketcap.

I'm not going anywhere, I'll be one of those that go down with this ship if need be, because I'm totally on board with our mission, the fight for financial freedom BitShares represents, damn the torpedoes and icebergs get the hell out of our way.
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zerosum

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Sorry - saw this after I posted:
https://bitsharestalk.org/index.php/topic,16127.msg206725.html#msg206725

Is there an arbitrage opportunity for shorts? I only see implicit ones, which makes me concerned that there may be uncorrectable hyper-deflation if there is a run on bitUSD. What is the explicit market pressure returning shorts back to the feed?

If there is ever an under-supply of bitUSD, no one will execute forced calls - and the price will be running up fast that people will be scared of shorting since they will get burned and nothing is pushing it back to the feed. (this is the opposite of black swan, everyone is over-collateralized)

There needs to be an arbitrage opportunity for creation just as there is one for destruction of BTA. The spread of this arbitrage will be a function of liquidity and the cost of executing the arbitrage.

I gave it a little bit of thought after responding to you in the other thread - the answer is arbitrage opportunity do exist => short bitUSD on the BTS exchange and go long real USD...it should make you about 10% sooner or later. BTW in this regard 100% collateral as apposed to the current 200% helps a lot!

Offline Chronos

BM, you mentioned in a hangout a couple weeks back that you thought feeds only needed to be accurate "within 5% to 10%" of market price, because their primary role was detecting a black swan scenario.

What is your new objective for accuracy, and how confident can the network feel that such a feed will be  reliably available?

Offline Thom

I think you've made a very good case how these changes to BitAssets are an improvement over the existing version, but you haven't addressed if it is necessary or worth the time to implement (3rd critique). You also haven't mentioned the cost to implement it, in terms of development resources required, impact on current deliverables or opportunity costs (the value of what isn't done or slips due to the effort of implementing this proposal).

Every day delayed in getting to 1.0, assuming it will have the impact you believe it will, is a day a competitor may find an advantage over us, by releasing a competing software product or my sheer marketing might that everyone listens to that persuades investors to invest somewhere other than the BitShares ecosystem. The case for that persuasion is much easier to make in the absence of a quality UX.

The changes you propose for BitAssets, although an improvement, aren't likely to have much if any impact on the BitShares marketcap or adoption. It's gonna take substantive, visible changes in the software, and for the last 6 months they have not materialized.

At this point I just want to see functional stability (it's hard to write a book with all these changes!), and a slow leak / hint of the hard core changes we're all waiting to see deployed. I recognize you & the dev team are in a tough spot and you're walking a fine line on the right level of disclosure. I'm merely vocalizing what many here are waiting for, and expressing my concern about being "laser focused" on the hard core changes that WILL impact adoption and marketcap.

I'm not going anywhere, I'll be one of those that go down with this ship if need be, because I'm totally on board with our mission, the fight for financial freedom BitShares represents, damn the torpedoes and icebergs get the hell out of our way.
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Offline maqifrnswa

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Sorry - saw this after I posted:
https://bitsharestalk.org/index.php/topic,16127.msg206725.html#msg206725

Is there an arbitrage opportunity for shorts? I only see implicit ones, which makes me concerned that there may be uncorrectable hyper-deflation if there is a run on bitUSD. What is the explicit market pressure returning shorts back to the feed?

If there is ever an under-supply of bitUSD, no one will execute forced calls - and the price will be running up fast that people will be scared of shorting since they will get burned and nothing is pushing it back to the feed. (this is the opposite of black swan, everyone is over-collateralized)

There needs to be an arbitrage opportunity for creation just as there is one for destruction of BTA. The spread of this arbitrage will be a function of liquidity and the cost of executing the arbitrage.
« Last Edit: May 04, 2015, 03:40:22 pm by maqifrnswa »
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Offline Musewhale

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great, good idea, i like it, just do it.
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Offline joele

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zerosum

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Are you saying you agree that - 1.immidiate ,  2.no testriction to the amount of sttlement, 3. At 100% the feed price would be better?
I think i like it more, even with the risks involving the feed error.


In a bull market the shorts will have the ability to short below the peg virtually illiminated. Any attempt to short(or regular sell bitUsd) will result in immediate reguest for settlement. That i am ready to call an actual floor at$1.00/bitUSD.
Plus, in bull market The shorts will have no other tool to compete,but provide more collateral!- nice side effect.
« Last Edit: May 04, 2015, 02:22:54 pm by tonyk2 »

Offline bytemaster

In this post I introduced some economic analysis: https://bitsharestalk.org/index.php/topic,16127.0.html

It has been nicely summed up by Thom.

  • Buying 1 BitUSD should always be the most cost effective means to purchase BTS
  • USD : BitUSD market price + BitUSD : BTS market price should be factored into the BTS : USD price feed
  • It is far better for price feeds to error in the favor of BitUSD holders than in the favor of shorts
  • Cashing out of BTS should be done more efficiently (for USD through other channels) than using BitUSD
  • Creating BitUSD will *should* always cost more than $1.00
  • BitUSD will initially be created by individuals who want to stay in a crypto currency but wish to have a price floor.


Two which the main critiques were:

1. An assumption that BitAssets 2.0 depends upon USD/BitUSD gateways  (false assumption)
2. I didn't say *how* to achieve all of the *shoulds*
3. I need to be laser focused and this whole discussion is a distraction and BitAssets 1.0 is "just fine".

Now I would like to respond:

BTA 2.0 approach does not depend upon USD/BitUSD gateways, it merely indicates that if there was a market between BitUSD and IOU USD that it should trade at 1.00 or greater at all times assuming the IOU was from a reliable source.    If we assume that there is an IOU USD issuer on the blockchain, that means that traders have two ways to get into BTS:  Buy BitUSD and Sell for BTS and Buy BTS directly with their USD.   Both markets would occur on the blockchain.    Given the existence of both markets and our target of making sure that BitUSD is always worth *AT LEAST* $1.00 then buying BitUSD for $1.00 should always be a win (or at least equal) if your goal is to buy BTS. 

Lets assume that the on chain IOU USD vs BTS market was very liquid and its 1hr moving average was used as the price feed.  What incentive would someone with USD have to buy BitUSD first?   

1.  They must pay IOU USD Trading Fees Either Way
2.  They must pay BitUSD trading fees *if* they go through BitUSD
3.  Going through BitUSD allows them to "buy" without slippage if they buy in large quantities
4.  They are free from counter party risk while trading.

Based upon these points the following things would result in me just buying BTS directly with USD rather than buying BitUSD first.
1.  High trading fees for BitUSD would make two hops more expensive
2.  A lag/time delay
3.  I can get more BTS via IOU USD than via BitUSD

Based upon this analysis I would do the following:

1. 0% fee for forced liquidation
2. As short as possible, I think instant forced settlement at the feed is the way to go.
3. Allow all BitUSD to be force liquidated at the feed at any time.
4. very low trading fees for BitUSD assets

What these rules would imply for the BitUSD shorts:
1. Don't sell below the feed.
2. Don't sell within the error range of the feed
3. Maintain high collateral at all times to minimize risk of being called.
4. There is an implicit "no shorting below the feed" rule.
5. Shorts may have to sell above the feed, but they also have to cover above the feed thus the position is USD neutral
6. In addition to USD price change risk, shorts also face premium change risk that could go for or against them. 

What these rules would imply for BitUSD longs:
1. To buy the first BitUSD requires you to pay to cover the shorts risks... a premium equal to the feed error / other factors
2. You can likely sell your BitUSD for a similar premium thus you are still protected from volatility and the "premium" doesn't matter to traders/hedgers.   
3. You can easily sell your BitUSD for USD at 1:1 to someone looking to buy BTS (they profit by the premium on internal market).
4. You would almost never request forced settlement because you would end up forfeiting the premium. 

What these rules would imply for the Price Feed:
1. The less error it has the lower the premium on the internal market.
2. Shorts carry 99% of the price-feed risk, shorts can be forced to cover at the feed.
3. Longs carry ~0% of the price feed risk, if the feed is manipulated too low they can just refuse to sell.

What the outside world would see:
1. BitUSD always trades for more than $1.00 worth of BTS.
2. BitUSD : IOU USD market is the most liquid / lowest spread
3. BitUSD has the lowest trading fees agains BTS
4. If I accept BitUSD as payment I know I can sell it for $1.00 (or more) worth of value.

In a bull market BitUSD is still not sold below the feed due to instant forced settlement
In a bear market the premium for creating new BitUSD goes up.

In conclusion I would like to submit that from a traders perspective BitUSD constantly trading a couple percent above USD against BTS is just as good as trading near 0% because the RELATIVE price movements are all the same.    From the perspective of merchants and everyone else you want them to know that 1 BitUSD to USD is the floor and ALWAYS a safe price to exchange at.   
For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.