Somebody needs to bear the burden of the amount of shortfall of the under-collateralised (<100% debt coverage) shorts. Its fine for the longs to bear this, but they should not have to bear any more than this amount. My issue with the proposed approach is that most of the other shorts may well still have enough collateral to cover their full debt, but they are getting a windfall gain because there were one or more shorts who triggered a black swan. This windfall gain of course, comes at the expense of the longs. It may even be the case that the under-collateralised short is very very small, but triggers a very large and unnecessary cross transfer between the longs and shorts.
Oh this is a good point. I would like clarification on this as well.
I am afraid that the code might be currently set up to settle all margin positions at the swan price defined as the ratio between the collateral and debt of the least collateralized margin position at the moment of black swan. But what it should do (as you already mentioned starspirit, but let me be a little more explicit in the description) is settle all margin positions with sufficient collateral at the feed price (taking the collateral paid for the settlement and putting it into the settlement pool, and the remaining collateral for each of these margin positions goes to their respective owners), and then for all other margin positions that do not have sufficient collateral it should just move all of their collateral into the settlement pool and consider their debt paid off. The ratio of the total debt owed of all margin positions when the black swan occurred to the total collateral added into the settlement pool is the new immutable settlement price that is then used for when longs redeem their fraction of the collateral from the settlement pool at their leisure.
(bump) just checking the dev team have noted this (?)
I was also just wondering whether black swans always need to result in a liquidation event. There may be a way to let the token trade on in a fair manner, and still give the under-collaterisation time to resolve itself (i.e. if the collateral recovered in value). Maybe there might be some flexibility in how privatised Smartcoins choose to deal with black swans.
My understanding is the main reason for the liquidation event is so that all longs get equal treatment. In the absence of such an event, if margin calls or settlements continued to occur at the feed price, the longs first in the queue to sell would get favoured treatment over the slower-to-move longs, as can often happen in a bank run.
But what if under-collateralised or black-swan status does not result in liquidation, but a price limit on all margin calls and settlements set in the same way as the liquidation value would have been set (this could be a public NAV figure alongside the feed price)? In this way, nobody gets more than their fair share, and there is a prospect of collateral recovery, especially if the collateral were experiencing a transient flash crash. While its true that a number of the margin calls will not be filled at the lower price, this does not leave longs any more exposed to further downside in the collateral than they would have been had the liquidation event been initiated. In fact, it could well be less, because some of the shorts may still be over-collateralised, providing some additional buffer against further downside (in contrast, these would be immediately closed out in the liquidation event).
It may be that the market is still a zombie if under-collateralisation persisted, resulting in no new supply, or is forever tainted by the event even if a recovery occurs, in which case closure can still be initiated through a global settlement, but that can be decided separately and after the event.
Its just a quick thought - not sure yet if I've missed something else that might be an obstacle.
Topic: [BitShares 2.0 Technologies] Price-Stable Cryptocurrencies (Discussion) (Read 7884 times)
