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Offline bytemaster

Short Order Refactoring
« on: June 16, 2015, 03:12:17 PM »

Under BitAssets 2.0 all that matters is that you maintain sufficient collateral.  Initial collateral is effectively meaningless.   Users could at any time short to themselves and then manually reduce their collateral.   

In the interest of simplifying the protocol and the user experience I propose the following:

1. Get rid of "short orders" entirely
2. Allow users to borrow any amount of BitUSD by locking up collateral.
3. Margin call the positions like always
4. Users can adjust their debt and collateral at any time provided the ratio between the two is sufficient.

To "short" you would first borrow the BitUSD and then place a standard limit order.   

This would greatly simplify all market operations and history and result in fewer potential bugs. 

I wanted to run the concept by everyone before committing to the approach.
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.

Offline Erlich Bachman

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Re: Short Order Refactoring
« Reply #1 on: June 16, 2015, 03:20:14 PM »
I like it.  Especially if it helps BitShares run more efficiently.  And since shorting is all about managing collateral anyway now (BTS2.0), then conceptually, nothing has actually changed.

All I need to do to short a smart coin is borrow some then sell it on the market.

You make the shorting process a 2 step process, which is what it is supposed to be in real life, however, with the advent of Naked Shorting, nobody sources the actual security anymore.  This brings us all back to the Austrian Economic roots of non-fractional reserve securities trade.

Basic, simple, elegant, intuitive, easy to comprehend, and easier to teach. 
« Last Edit: June 16, 2015, 03:28:53 PM by Erlich Bachman »
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Offline Bitcoinfan

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Re: Short Order Refactoring
« Reply #2 on: June 16, 2015, 03:26:58 PM »

1. Get rid of "short orders" entirely
2. Allow users to borrow any amount of BitUSD by locking up collateral.
3. Margin call the positions like always
4. Users can adjust their debt and collateral at any time provided the ratio between the two is sufficient.

To "short" you would first borrow the BitUSD and then place a standard limit order.   

This would greatly simplify all market operations and history and result in fewer potential bugs. 

I wanted to run the concept by everyone before committing to the approach.

1. How would then longs be collateralized?  Who's providing the upside gains if shorts are no longer doing that?  How will Smartcoins come into existence then?
3. Why reintroduce margin positions again?  Will this margin call be separate from a forced settlement, so they are only applied to shorts and not to long positions? 

Offline bytemaster

Re: Short Order Refactoring
« Reply #3 on: June 16, 2015, 03:30:57 PM »

1. Get rid of "short orders" entirely
2. Allow users to borrow any amount of BitUSD by locking up collateral.
3. Margin call the positions like always
4. Users can adjust their debt and collateral at any time provided the ratio between the two is sufficient.

To "short" you would first borrow the BitUSD and then place a standard limit order.   

This would greatly simplify all market operations and history and result in fewer potential bugs. 

I wanted to run the concept by everyone before committing to the approach.

1. How would then longs be collateralized?  Who's providing the upside gains if shorts are no longer doing that?  How will Smartcoins come into existence then?
3. Why reintroduce margin positions again?  Will this margin call be separate from a forced settlement, so they are only applied to shorts and not to long positions?

When you borrow you put up the collateral and the end result is that you are "short" and "long" at the same time. 
Then you place a limit order and sell on the market.

The peg works like always.  Margin calls are unchanged.
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.

Offline Erlich Bachman

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Re: Short Order Refactoring
« Reply #4 on: June 16, 2015, 03:34:39 PM »
1. How would then longs be collateralized? 

Their investment plus the collateral put up by the shorts

Who's providing the upside gains if shorts are no longer doing that?
gains by whom?

How will Smartcoins come into existence then?

Shorts borrow any amount by locking up collateral (remember that least collateralized shorts get called first during arbitration).  Actually, there would probably be a leverage limit here based on the feed price to total amount requested to borrow ratio, eh BM?
« Last Edit: June 16, 2015, 03:38:52 PM by Erlich Bachman »
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Offline tonyk

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Re: Short Order Refactoring
« Reply #5 on: June 16, 2015, 03:37:11 PM »
OP is fine with me.

What about the other odd order - the cover order?

Are those just gonna buy @ feed price? Maybe ordered by the smallest collateral first? Or is it still too much to ask for  "Ordered by A then ordered by B"?
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline arhag

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Re: Short Order Refactoring
« Reply #6 on: June 16, 2015, 03:41:18 PM »
4. Users can adjust their debt and collateral at any time provided the ratio between the two is sufficient.

To "short" you would first borrow the BitUSD and then place a standard limit order.   

Great. This makes it easy (and cheaper) to better simulate a short sell order without excessive soft-collateral funds. You can put up nearly all of the BTS (excluding some to pay for fees) into a short position and get a good amount of BitUSD out of it (not too much to have a high enough collateral value to debt value ratio that makes it unlikely to be margin called or force called from redemption). Then you can sell the BitUSD for more BTS which is then moved back into the short position to increase the debt and then take that extra BitUSD and sell it again. If we assume the value of the initial debt is 50% of the value of the initial collateral and the prices don't change much during this process, then the BitUSD amount will halve with each round. In just a few rounds, it becomes negligible to extract and sell any more debt from the short position. Furthermore, adjusting the ratio at a later point only requires transactions dealing with one short position rather than multiple ones (for example, a new short position created with each round in the process described earlier).

Obviously, this multiple round process is more hands-on and uses more transaction fees than just placing a single short sell order. But the cost and inconvenience shouldn't be much and it greatly simplifies the code so it seems worth it.

Also, a similar (but reversed) process could be used to simulate a cover process by starting with a small amount of the collateral asset outside of the short position.


3. Margin call the positions like always

Do margin calls still buy up any BitAsset sell orders up to 10% above (in collateral asset per BitAsset price) the feed price? What if there are not enough sell orders to meet the margin call demand. Do the remaining amounts sit as an order that is 10% offset from the price feed (even as the price feed changes)? What do you think about adjusting the limit price offset from the feed price of the margin call order as a function of the collateral value to debt value ratio? So if that ratio is above the maintenance threshold, no margin call occurs. But as the ratio drops below the maintenance threshold and approaches 1, the maximum offset from the feed price that the margin call is willing to sell the collateral asset for BitAssets to cover the debt increases according to some monotonic function.
« Last Edit: June 16, 2015, 03:43:41 PM by arhag »

Offline bytemaster

Re: Short Order Refactoring
« Reply #7 on: June 16, 2015, 03:47:36 PM »
Margin calls due to insufficient collateral will execute up to the "call limit" which is a second price provided in the feed.   This allows each BitAsset (Smartcoin) to define how much the book may be walked when executing a margin call.
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.

Offline Chronos

Re: Short Order Refactoring
« Reply #8 on: June 16, 2015, 03:55:54 PM »
I've been campaigning (rather silently, to myself) for this idea for a while now. Here's one of my earlier posts:

What if shorting were a single button "short x of BTS" that automatically shorted at feed price to yourself?

I think this is a great move. Simpler, easier to understand, easier to teach, easier to use, same market result.

Offline Bitcoinfan

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Re: Short Order Refactoring
« Reply #9 on: June 16, 2015, 04:09:19 PM »

1. Get rid of "short orders" entirely
2. Allow users to borrow any amount of BitUSD by locking up collateral.
3. Margin call the positions like always
4. Users can adjust their debt and collateral at any time provided the ratio between the two is sufficient.

To "short" you would first borrow the BitUSD and then place a standard limit order.   

This would greatly simplify all market operations and history and result in fewer potential bugs. 

I wanted to run the concept by everyone before committing to the approach.

1. How would then longs be collateralized?  Who's providing the upside gains if shorts are no longer doing that?  How will Smartcoins come into existence then?
3. Why reintroduce margin positions again?  Will this margin call be separate from a forced settlement, so they are only applied to shorts and not to long positions?

When you borrow you put up the collateral and the end result is that you are "short" and "long" at the same time. 
Then you place a limit order and sell on the market.

The peg works like always.  Margin calls are unchanged.

I'll need help trying to understand this.  How does a Bitasset come into existence?  Is it still when both a long bettor and a short bettor have a matched trade?  If not, and a long is just stand-alone, what happens when the price of a bitasset rises?  Where does that gains come from, if there is no opposite side of the bet (since shorts are getting removed entirely)?
« Last Edit: June 16, 2015, 04:13:07 PM by Bitcoinfan »

Offline ag

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Re: Short Order Refactoring
« Reply #10 on: June 16, 2015, 04:13:27 PM »
this does mean users can more easily effectively short below the peg. I think it's generally a good idea.

Offline monsterer

Re: Short Order Refactoring
« Reply #11 on: June 16, 2015, 04:17:45 PM »
Doesn't this mean there is infinite bitUSD liquidity available at the feed price?
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Offline bytemaster

Re: Short Order Refactoring
« Reply #12 on: June 16, 2015, 04:35:56 PM »
Doesn't this mean there is infinite bitUSD liquidity available at the feed price?

no... this changes nothing with respect to liquidity.
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.

Offline Xeldal

Re: Short Order Refactoring
« Reply #13 on: June 16, 2015, 04:40:53 PM »
Doesn't this mean there is infinite bitUSD liquidity available at the feed price?

It still requires you to lock up collateral to borrow these bitUSD, and you will be subject to the same margin requirements. 

The same conditions exist now.  I can short to myself with 'infinite liquidity' as long as I have more BTS to lock up.

This new process just breaks up 1 step (shorting) into 2 steps (borrowing & selling) ... same end result, but much easier to work with and understand.   

In addition it removes a step if you just want to borrow.  currently 2 steps (short & buy from yourself)  changed to 1 step (just borrow).  I like it.
« Last Edit: June 16, 2015, 04:43:04 PM by Xeldal »

Offline merivercap

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Re: Short Order Refactoring
« Reply #14 on: June 16, 2015, 04:48:25 PM »
Under BitAssets 2.0 all that matters is that you maintain sufficient collateral.  Initial collateral is effectively meaningless.   Users could at any time short to themselves and then manually reduce their collateral.   

In the interest of simplifying the protocol and the user experience I propose the following:

1. Get rid of "short orders" entirely
2. Allow users to borrow any amount of BitUSD by locking up collateral.
3. Margin call the positions like always
4. Users can adjust their debt and collateral at any time provided the ratio between the two is sufficient.

To "short" you would first borrow the BitUSD and then place a standard limit order.   

This would greatly simplify all market operations and history and result in fewer potential bugs. 

I wanted to run the concept by everyone before committing to the approach.

Yes!  Thought along the same lines too before!

You can create BitUSD & BitAssets by simply posting the sufficient matching value in collateral!  That's pretty much it!
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