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Offline brucelawton

Some questions about the MPA peg mechanism
« on: June 02, 2015, 08:59:16 PM »

I am sure that somewhere on these forums at least some of these questions have been answered, but my searches have not revealed satisfactory answers. If anyone can point me in the right direction, of course that is appreciated as much as a direct answer.

My question is as follows:

There seems to be a crucial asymmetry here. Shorts are required to cover every 30 days, and yet bitUSD holders need not sell... Ever. If  bitUSD is intended to be used as a saving/spending tool rather than a speculative one, there will surely be a significant quantity of bitUSD floating around that no one (at least initially) intends to sell.
 
Ergo, and from what I understand this is indeed happening, it seems like there will be an accumulation of buy orders for bitUSD coming just from the shorts to cover their positions, and there will necessarily not be enough supply to meet the demand. How will this not drive the price of bitUSD above $1?

At first glance this might not seem to be a problem, but that would not only mean that we don't have a working peg (which defeats the purpose of this whole enterprise) but that shorting becomes a losing proposition in anything other than a protracted BTS bull market. This means a further contraction of the money supply as fewer bitUSD are generated, and we see a runaway short squeeze. This further destabilizes bitUSD and destroys its utility as a stable store of value.

It seems that the above situation could be triggered very easily, but would be nearly impossible to fix.

What am I missing?

Offline xeroc

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Re: Some questions about the MPA peg mechanism
« Reply #1 on: June 03, 2015, 06:29:56 AM »
Welcome brucelawton,

The current BitAsset 1.0 system will be upgraded to BitAsset 2.0.
It seems you have a good understanding of the economics. Maybe you can join the discussions here:
https://bitsharestalk.org/index.php/topic,16127.0.html
https://bitsharestalk.org/index.php/topic,16143.0.html
Give BitShares a try! Use the http://testnet.bitshares.eu provided by http://bitshares.eu

Offline svk

Re: Some questions about the MPA peg mechanism
« Reply #2 on: June 03, 2015, 07:57:22 AM »
I agree it's a bit lopsided in terms of incentives, but as Xeroc mentioned this should get addresses in bitAssets 2.0. You can actually see it in action right now in the BTS/USD internal market which has about $68k worth of expired shorts sitting at the price feed. There aren't enough sellers for the shorts to acquire the USD needed to cover, so they're just waiting.

http://bitsharesblocks.com/asset/orderbook?asset=USD

While this does skew the market slightly, because they are limited by the feed price it doesn't drive the price up too far. Also keep in mind that the bitUSD internal market got a bit screwed by covering bugs that were fixed with the latest release, the issues we see now are at least in part due to those problems.
Worker: dev.bitsharesblocks

Offline brucelawton

Re: Some questions about the MPA peg mechanism
« Reply #3 on: June 03, 2015, 07:57:49 PM »
Thanks for the replies, and thanks in particular to pointing me toward those 2.0 proposals.

I like Bytemaster's proposal a lot.

It seems like depending on the demand for currency to drive demand for BitUSD and giving up the interest (though that would of course have been nice for the lones) gives shorts a much better deal, and on top of that allowing shorts to avoid forced covers simply by adding more collateral than the next person in line is a smart strategy. It gives BTS Bulls a way to lever their position without paying interest, which is probably a good deal despite the risk of a forced cover.

 

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