Author Topic: Short Order Refactoring  (Read 13223 times)

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Offline cylonmaker2053

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but it's a loan from yourself, right? you're lending yourself your own BTS by going simultaneously long and short; however, you're actually locking up more BTS as collateral than you're borrowing, so wouldn't you be holding less BTS for the duration of the loan to yourself than had you done nothing?
No, its not a loan from yourself - its a loan from the person who buys your bitUSD. Let me explain...

Let's say the collateral requirement for shorts is 100% - i.e. every $1 bitUSD has minimum $2 BTS in collateral.
And let's say you have $2 of BTS you want to keep, but you're not currently using. You can retain your exposure to the BTS, and use it as equity to raise funds for you to use elsewhere.

So you use the $2 of BTS to simultaneously open a long and a short. The $2 of BTS now sits in the collateral pool.

Now you can sell the bitUSD on whatever exchange you like, and for whatever asset it trades against, to raise funds. If bitUSD trades against USD on an external exchange, you can sell it directly for USD. If it trades against BTC, you can sell it for BTC.

[/quote]

so your short position is using 2 BTS to borrow 1 BTS ...you have 3 BTS today from the trade, 2 locked in collateral and 1 for use.

then you go long 1 BTS worth of bitUSD, so you have net 1 BTS worth of bitUSD that you can use for something and you still have your original 2 BTS locked up in collateral. ok, i get it now...you'd be playing with the borrowed BTS, converting it to whatever bitasset (or anything else you can trade it for) for the duration of the short.

I FINALLY GET IT :)

i was viewing the borrowed BTS as being locked up in the blockchain collateral process, which was incorrect. thx!

Offline starspirit

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@starspirit, i think if you buy your own short you've just covered your position, but you still have collateral posted to the blockchain, so you actually have less BTS available than before you opened the positions. When you close your short you give back the BTS you borrowed from yourself (net interest exchange to yourself and fees to the network), and your collateral is released. Overall, you've lost 2 BTS in fees without any gain.

When i short to myself i'm doing that to roll an open short forward another 30 days, that's all.
When you self-create and self-cancel the short there are small transaction fees involved. Its what you do in the middle that earns your reward, whether that's the returns on another asset you funded, market-making income, yield income, or other utility.

sorry i'm a little on the slow side tonight...

so i short bitUSD and buy my own short ...i have an open short and some bitUSD i can go run amok with, but i've traded my collateral BTS for the short and i've traded BTS for the long...i'm sitting on 2x less BTS and have half that BTS-equiv amount of bitUSD to do something with. would i have been better just using my BTS to buy bitUSD? or actually, wouldn't i just have been better off doing nothing and keeping my original BTS to fund whatever else i wanted?
If you sold BTS to buy bitUSD, you have given up some of your BTS exposure, and might miss potential gains. If instead you use the BTS as collateral to create a bitUSD (to use for whatever purpose you want), you have not reduced your BTS exposure at all. You've just used your equity to get a loan. So you keep any gains on BTS, as well as have a loan to do with as you please (like investing in more BTS, or in some other investment).

If you did nothing and kept the original BTS in your wallet, you couldn't use this to fund anything.

but it's a loan from yourself, right? you're lending yourself your own BTS by going simultaneously long and short; however, you're actually locking up more BTS as collateral than you're borrowing, so wouldn't you be holding less BTS for the duration of the loan to yourself than had you done nothing?
No, its not a loan from yourself - its a loan from the person who buys your bitUSD. Let me explain...

Let's say the collateral requirement for shorts is 100% - i.e. every $1 bitUSD has minimum $2 BTS in collateral.
And let's say you have $2 of BTS you want to keep, but you're not currently using. You can retain your exposure to the BTS, and use it as equity to raise funds for you to use elsewhere.

So you use the $2 of BTS to simultaneously open a long and a short. The $2 of BTS now sits in the collateral pool.

Now you can sell the bitUSD on whatever exchange you like, and for whatever asset it trades against, to raise funds. If bitUSD trades against USD on an external exchange, you can sell it directly for USD. If it trades against BTC, you can sell it for BTC.

If the bitUSD only trade against BTS (and I think this is the source of your confusion), then you can sell it for BTS. But even in this case, you are not borrowing your own BTS - that BTS still sits in the collateral pool backing the bitUSD. You have in fact at this point received additional BTS provided by the bitUSD buyer, giving you a leveraged position (you have $3 of exposure now) unless you convert it to something else. You don't need to keep the BTS proceeds, you can exchange them for whatever you want, and still have $2 of BTS in the collateral pool.

The proceeds you receive from the sale of your bitUSD, in whatever form, can always be exchanged into whatever form you prefer, to use in whatever way you see fit. No matter what you use it for, you still have $2 of BTS in the collateral pool (assuming no price change at this point), waiting for you to reclaim it as soon as you buy back the bitUSD to cancel your short.

But let's say you did sell the bitUSD for BTS and kept this position. If BTS doubled in value, then you will only need half the BTS proceeds of your initial bitUSD sale to buy back the same bitUSD. With this bitUSD in hand you can now cancel your original short and free the quantity of BTS you originally placed into the collateral pool. In addition, you have the other half of the BTS proceeds from the initial bitUSD sale to keep as profit. This shows you did not simply borrow your own bitUSD.

Sorry that's a bit long-winded, but hope it helps.

Offline cylonmaker2053

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@starspirit, i think if you buy your own short you've just covered your position, but you still have collateral posted to the blockchain, so you actually have less BTS available than before you opened the positions. When you close your short you give back the BTS you borrowed from yourself (net interest exchange to yourself and fees to the network), and your collateral is released. Overall, you've lost 2 BTS in fees without any gain.

When i short to myself i'm doing that to roll an open short forward another 30 days, that's all.
When you self-create and self-cancel the short there are small transaction fees involved. Its what you do in the middle that earns your reward, whether that's the returns on another asset you funded, market-making income, yield income, or other utility.

sorry i'm a little on the slow side tonight...

so i short bitUSD and buy my own short ...i have an open short and some bitUSD i can go run amok with, but i've traded my collateral BTS for the short and i've traded BTS for the long...i'm sitting on 2x less BTS and have half that BTS-equiv amount of bitUSD to do something with. would i have been better just using my BTS to buy bitUSD? or actually, wouldn't i just have been better off doing nothing and keeping my original BTS to fund whatever else i wanted?
If you sold BTS to buy bitUSD, you have given up some of your BTS exposure, and might miss potential gains. If instead you use the BTS as collateral to create a bitUSD (to use for whatever purpose you want), you have not reduced your BTS exposure at all. You've just used your equity to get a loan. So you keep any gains on BTS, as well as have a loan to do with as you please (like investing in more BTS, or in some other investment).

If you did nothing and kept the original BTS in your wallet, you couldn't use this to fund anything.

but it's a loan from yourself, right? you're lending yourself your own BTS by going simultaneously long and short; however, you're actually locking up more BTS as collateral than you're borrowing, so wouldn't you be holding less BTS for the duration of the loan to yourself than had you done nothing?

Offline starspirit

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@starspirit, i think if you buy your own short you've just covered your position, but you still have collateral posted to the blockchain, so you actually have less BTS available than before you opened the positions. When you close your short you give back the BTS you borrowed from yourself (net interest exchange to yourself and fees to the network), and your collateral is released. Overall, you've lost 2 BTS in fees without any gain.

When i short to myself i'm doing that to roll an open short forward another 30 days, that's all.
When you self-create and self-cancel the short there are small transaction fees involved. Its what you do in the middle that earns your reward, whether that's the returns on another asset you funded, market-making income, yield income, or other utility.

sorry i'm a little on the slow side tonight...

so i short bitUSD and buy my own short ...i have an open short and some bitUSD i can go run amok with, but i've traded my collateral BTS for the short and i've traded BTS for the long...i'm sitting on 2x less BTS and have half that BTS-equiv amount of bitUSD to do something with. would i have been better just using my BTS to buy bitUSD? or actually, wouldn't i just have been better off doing nothing and keeping my original BTS to fund whatever else i wanted?
If you sold BTS to buy bitUSD, you have given up some of your BTS exposure, and might miss potential gains. If instead you use the BTS as collateral to create a bitUSD (to use for whatever purpose you want), you have not reduced your BTS exposure at all. You've just used your equity to get a loan. So you keep any gains on BTS, as well as have a loan to do with as you please (like investing in more BTS, or in some other investment).

If you did nothing and kept the original BTS in your wallet, you couldn't use this to fund anything.

Offline cylonmaker2053

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@starspirit, i think if you buy your own short you've just covered your position, but you still have collateral posted to the blockchain, so you actually have less BTS available than before you opened the positions. When you close your short you give back the BTS you borrowed from yourself (net interest exchange to yourself and fees to the network), and your collateral is released. Overall, you've lost 2 BTS in fees without any gain.

When i short to myself i'm doing that to roll an open short forward another 30 days, that's all.
When you self-create and self-cancel the short there are small transaction fees involved. Its what you do in the middle that earns your reward, whether that's the returns on another asset you funded, market-making income, yield income, or other utility.

sorry i'm a little on the slow side tonight...

so i short bitUSD and buy my own short ...i have an open short and some bitUSD i can go run amok with, but i've traded my collateral BTS for the short and i've traded BTS for the long...i'm sitting on 2x less BTS and have half that BTS-equiv amount of bitUSD to do something with. would i have been better just using my BTS to buy bitUSD? or actually, wouldn't i just have been better off doing nothing and keeping my original BTS to fund whatever else i wanted?

Offline starspirit

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@starspirit, i think if you buy your own short you've just covered your position, but you still have collateral posted to the blockchain, so you actually have less BTS available than before you opened the positions. When you close your short you give back the BTS you borrowed from yourself (net interest exchange to yourself and fees to the network), and your collateral is released. Overall, you've lost 2 BTS in fees without any gain.

When i short to myself i'm doing that to roll an open short forward another 30 days, that's all.
When you self-create and self-cancel the short there are small transaction fees involved. Its what you do in the middle that earns your reward, whether that's the returns on another asset you funded, market-making income, yield income, or other utility.

Offline cylonmaker2053

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@starspirit, i think if you buy your own short you've just covered your position, but you still have collateral posted to the blockchain, so you actually have less BTS available than before you opened the positions. When you close your short you give back the BTS you borrowed from yourself (net interest exchange to yourself and fees to the network), and your collateral is released. Overall, you've lost 2 BTS in fees without any gain.

When i short to myself i'm doing that to roll an open short forward another 30 days, that's all.

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And I'm hoping certain other mechanics will also be made more convenient too, like self-cancelling and closing the loan from the collateral.

How can the close from collateral part work together with the need for the bitAsset to persist? If you self create a bitAsset, then sell it, then close by collateral, the system leaks bitAssets, doesn't it?

No, you'd just be using the collateral to purchase the necessary bitAsset to cover the order from the market.  Same as you do now, but also allowing you to use the tied up collateral to make the purchase.

Offline pc

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How can the close from collateral part work together with the need for the bitAsset to persist? If you self create a bitAsset, then sell it, then close by collateral, the system leaks bitAssets, doesn't it?

I think he means that the collateral can be used to buy the bitAssets with which the position is closed.
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Offline monsterer

And I'm hoping certain other mechanics will also be made more convenient too, like self-cancelling and closing the loan from the collateral.

How can the close from collateral part work together with the need for the bitAsset to persist? If you self create a bitAsset, then sell it, then close by collateral, the system leaks bitAssets, doesn't it?
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Offline starspirit

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What is the purpose of shorting to oneself?

This was a question raised in the Hangout. Bytemaster gave an answer on this which I would like to expand upon.

When you self-create the short, you can sell the long for whatever asset in whatever market you like. You can think of this like a general purpose (collateralised) loan. What you do with this loan, and where you invest your proceeds, is up to you. All the while, the BTS (or other crypto collateral) that you wish to keep owning is stored as collateral for your loan, and your primary obligation is to ensure it is always adequate. You also need to be prepared to be force settled if it is too low.

What can you use these borrowed proceeds for? Here are some potential uses:

1. Shorting the Smartcoin asset: Sell the Smartcoin for some form of stable currency. Then you have something like a traditional short, but with less leverage.

2. Market making: This is effectively a way to earn income for supporting the market for the Smartcoin. Sell the Smartcoin for the real underlying asset. If you do this when the Smartcoin is at a premium, then switch back to the Smartcoin when it is at a discount, and repeat, then you effectively earn market-making income on your borrowed funds. [In practice this can be a little more complex than it sounds, though not insurmountable. If the Smartcoin does not trade directly against the real asset, there may be an extra trading step, or possibly the need to offset positions on two different exchanges.]

3. Yield arbitrage:  If the Smartcoin does not offer a yield and the real asset does, sell the Smartcoin for the real asset and hold to pick up the interest rate differential.

4. Leveraging crypto or BTS:  Sell the Smartcoin for BTS or any other crypto, and you have effectively leveraged your crypto portfolio. You can even enhance your leverage to BTS further by using newly purchased BTS for new self-created shorts [credit for this idea goes to arhag]

5. Personal loan: Want money for a car or new dishwasher, but want to keep your BTS? Use your BTS to self-create a loan, sell the Smartcoin, take it out of the system for real currency, and spend. [Make sure you are able to keep up the collateral though, or you risk losing some of it on a margin call!].

This is not advice to do any of these things of course, you have to understand the risks and your own financial situation and capacity. But you can see that utility is very flexible. As bytemaster said, these possibilities are not really new because in theory you could do all of this before. But the new process will make self-creation easier and more convenient. And I'm hoping certain other mechanics will also be made more convenient too, like self-cancelling and closing the loan from the collateral.
« Last Edit: June 21, 2015, 12:38:01 am by starspirit »

Offline xeroc

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In some other thread BM showed the set of fees that are possible in bts2 .. not sure if your case is among them .. maybe someone else can post the link .. i am currently mobile

Offline topcandle

Borrow bitAsset from network fee
sell asset in dex fee

Yeah Similar to my post.  Couldn't this be extended for leveraged longs as well, and not just a leveraged short?
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Offline xeroc

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Borrow bitAsset from network fee
sell asset in dex fee

Offline topcandle

The only real change I see in the OP is that a short-sell now has to potentially pay two (different) fees in contrast to one fee atm .. though this only makes the DAC more proditable (depending on the ACTUAL fees)

 Debt interest fee and a short sell fee?
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Offline xeroc

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The only real change I see in the OP is that a short-sell now has to potentially pay two (different) fees in contrast to one fee atm .. though this only makes the DAC more proditable (depending on the ACTUAL fees)

Offline arhag

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{Disclaimer} I did not get toast/Runes big break through idea that interest is bigger than collateral, so...take the above with a grain of salt!!!

Yeah, I'm not sure what any of that has to do with the changes discussed in this thread.

As far as I understand (and I am really not sure if I do), he is just talking about how things break down and require changes when something like BitUSD becomes the unit of account for goods and services (meaning when we have succeeded in world domination :P). That is a very interesting discussion to me and would love to hear more about your thoughts, toast, about what the new system would need to look like and how the transition from the old system to new system could happen.

Offline tonyk

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Ha ha, several of you went to some pretty big exaggerations in this thread, for sure...

Calm down!

This changes nothing... but simplifies the market (order) matching by combining operations. The rest of the perceived benefits are just in your heads boys.


{Disclaimer} I did not get toast/Runes big break through idea that interest is bigger than collateral, so...take the above with a grain of salt!!!

« Last Edit: June 18, 2015, 01:10:48 am by tonyk »
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline toast

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This was the first step in a line of reasoning that caused Rune to conclude that BTS and maker are both central banks and the collateral is incidental. It's just that leveraged trading is one of the only cases where we can get excess collateral for a loan put down voluntarily. At a large enough scale (like took-over-the-world scale), any particular bitasset must detach and the exchange CFD mechanism has to be replaced with a mechanism that lets price float but controls interest based on consumer price feeds.  (edit: actually mb you can use the exchange CFD against the price index itself if the stuff in the index is super liquid)
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Offline svk

Not having the third order box for shorting is great as well because it makes the trading interface look more like a traditional interface, and frees up some real-estate. Of course we need to present the new borrowing feature but I much prefer this flow.
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Breaking out the shorting operations into discrete transactions is fantastic. The single short/cover operations of old could still be implemented in the client. I like the idea of breaking out what could be a client side feature/batch and what the blockchain should field. The more that can be pushed to client side the less bloat in the blockchain. Reminds me of programing in assembly where you have to do the extra work of building each operation but it is extremely lean and fast.
This.
back to the KISS principle!

+5% for the OP

Offline Riverhead


Breaking out the shorting operations into discrete transactions is fantastic. The single short/cover operations of old could still be implemented in the client. I like the idea of breaking out what could be a client side feature/batch and what the blockchain should field. The more that can be pushed to client side the less bloat in the blockchain. Reminds me of programing in assembly where you have to do the extra work of building each operation but it is extremely lean and fast.
« Last Edit: June 17, 2015, 09:34:20 am by Riverhead »

Offline starspirit

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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).

arhag, you just filled a gap in my own thinking. I realised that self-creating a short and selling the long for BTS meant that the short did not have as much leverage to BTS as under the current approach of short-selling directly into the market. I felt though that the equivalent outcome should still be possible, and now you've described that process so thanks. So in theory there should be no loss from the new approach even if the borrower's motive is still to leverage BTS as much as possible (although its a bit less convenient).

Offline starspirit

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I support this change. I also believe we need to shift the paradigm even further:

1. The old CFD metaphor is obsolete and will only confuse things going forward. Smartcoins are no longer brought into existence by BTS bulls wanting leverage. They are brought into existence by borrowers of the asset, who simply offer BTS as collateral. They can then sell the asset and use those funds for any purpose they desire. Buying BTS for leverage is just one of those many uses. Perhaps we should be promoting SmartCoins in a more relevant way.

What is a bitUSD? Its a transferable token that represents a collateralised USD loan to a set of borrowers.

2. A primary use of such borrowing should be making markets in the Smartcoins. By self-creating the Smartcoin, the user can switch their long position between the Smartcoin and the real underlying asset as relative prices move, without ever changing the number of BTS they hold (and now use as collateral). Their only requirement is to ensure their collateral remains sufficient.

I've previously commented on each of the above, for example here... https://bitsharestalk.org/index.php/topic,16427.msg210011.html#msg210011

There are some further possibilities this approach opens up. For example:

3. There is scope for much greater flexibility on collateral, given it is controlled exclusively by the shorts. That is, the collateral is completely independent of what the Smartcoin trades against in the free market. It could be BTS, or a BTC or USD substitute, or even a portfolio of collateral tokens. This would open up the architecture of Smartcoins, increasing the potential range of users on both sides of the coin. For further comments on the concept of Flexible Collateral, see:
https://bitsharestalk.org/index.php/topic,16326.msg208798.html#msg208798, and
By the way starspirit, I don't see how the BitAssets backed by a mix of collateral types would be fungible unless a fixed mix ratio was specified as part of the BitAsset definition that all shorts of that privatized BitAsset had to satisfy. And in that case, I would imagine the only practical way to short new BitAssets with mixed backing collateral into existence would be through a self-short. The logic for margin calls would also get more complicated with mixed collateral.
Correct. With self-shorting and self-cancellation, shorts get to control the mix of collateral they want. I've been working on just such a structure. Collateral can then be completely independent of the markets in which the token trades. Also margin calls could be satisfied by applying each collateral token in sequence to covering the debt until it is satisfied, and then returning the residual collateral tokens to the short. This sequence could even be determined by the short.
Also, in case it wasn't clear in my answer, no, you don't require a fixed mix ratio. The shorts could change the mix of collateral as they please, as long as they met the minimum coverage conditions.

[Edit: Offering collateral flexibility like this admittedly comes with some complexity though, notably in dealing with settlements and covers].

Bottom line - the OP is the right way to go, but there is a lot more possibility than you are thinking yet.
« Last Edit: June 17, 2015, 02:41:51 am by starspirit »

Offline monsterer

Any way this can be made symmetrical, so you can lock up bitAssets to create BTS at the feed?
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Offline maqifrnswa

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This could be the mechanism that would allow arbitrage towards the feed - it could be the missing link!

When BTS:BTA is greater than the feed, I can generate BTA for cheaper than I can buy them on the market, then sell them on the market for profit, which returns the price to the feed! You are rewarded for "fixing" the feed when BTA is under-supplied!
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Offline svk

Great idea! Worth implementing just because of how much easier it becomes to explain the process!
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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.

Hmmm... sounds good, but I need some clarification.  I assume all the margin calls should be settled and it seems the 'call limit' allows walking the book until a certain price.  And thereafter? 
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Offline roadscape

Sounds great... Is there any conceivable downside to this refactoring?

edit: After re-reading it seems the main caveat is that to be completely short requires multiple iterations of selling your newly-created longs for extra collateral, as arhag described.
« Last Edit: June 18, 2015, 05:46:51 pm by roadscape »
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Yup, I always had trouble figuring out what exactly the hell was happening when a short was opened, etc. I mean I had a general idea, but the way it was presented was intimidating for newbie traders. I'll support anything to make it less intimidating/confusing to the noggin.

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Offline Ander

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I think this means....essentially all shorts will be 'shorting to yourself'.  But done in a way that is easier to understand, and requires 1 order instead of 2?  This is pretty much what was happening anyway already, so this just makes it easier.  No more people complaining about not being able to short, or cover, hopefully.
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Offline oldman

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I support the OP - go for it!

Offline merivercap

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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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Xeldal

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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 bytemaster

Doesn't this mean there is infinite bitUSD liquidity available at the feed price?

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

Doesn't this mean there is infinite bitUSD liquidity available at the feed price?
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Offline ag

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this does mean users can more easily effectively short below the peg. I think it's generally a good idea.

Offline Bitcoinfan

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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 Chronos

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 bytemaster

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.
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Offline arhag

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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 tonyk

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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 Erlich Bachman

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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 bytemaster


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 Bitcoinfan

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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 Erlich Bachman

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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 »
You own the network, but who pays for development?

Offline bytemaster

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.