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Offline gordonhucn

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Confused about the margin call ~
« on: February 14, 2014, 05:29:52 PM »

I don't know if I understand the code in github correctly or accurate enough, correct me if I am not. Some thoughts as below:

How does the market price BTS(in real USD)? It is from the expectation of all players who would trade BTS from/to real cash.
How does the market price bitUSD(in BTS)? It is from the expectation of all players who bet on bitUSD with BTS.

But currently those two prices have nothing in connection except that we hope they can be connected.

What if we use the price of BTS in real USD to deal all margin calls instead of the price of bitUSD? I think that would give a connection to bitUSD and real USD. And someone who pays real USD can finish arbitrages if bitUSD differs from USD to some level.


Offline bytemaster

Re: Confused about the margin call ~
« Reply #1 on: February 14, 2014, 08:47:59 PM »
This is the hardest part for many people to understand until they see it in action.   The reality is that every market player is constantly adjusting their assessment of the value of BitUSD based upon their observations of USD / BTS.   The thing that ties them together is market consensus and this is a concept that takes a degree of intuition to understand. 

Your suggesting is a 'price feed' from a trusted source to be used to settle positions and is what all of our competitors feel is necessary.  But if our hypothesis is correct these feeds are unnecessary.
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Offline Markus

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Re: Confused about the margin call ~
« Reply #2 on: February 15, 2014, 01:57:51 AM »
Both rates will be floating and have their separate markets.

BTS in real USD on external exchanges (from Cryptsy to BTCe etc.)
BTS in BitUSD internally.

What I understand is, if both those markets are liquid arbitrage is possible and will be done to keep the realUSD to bitUSD ratio constant. In a second step just the mere threat of arbitrage being possible should keep the market in track.

If the external market breaks the internal market might lose tracking. Or in other words you won't be able to interpret the BTS/BitUSD ratio in regards to whether it reflects changes value of BTS or BitUSD.

You can see this happening now on MtGox: GoxBTC and GoxUSD are swinging wildly and not tracking realBTC and realUSD very well.

Offline gordonhucn

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Re: Confused about the margin call ~
« Reply #3 on: February 15, 2014, 02:55:30 PM »
Both rates will be floating and have their separate markets.

BTS in real USD on external exchanges (from Cryptsy to BTCe etc.)
BTS in BitUSD internally.

What I understand is, if both those markets are liquid arbitrage is possible and will be done to keep the realUSD to bitUSD ratio constant. In a second step just the mere threat of arbitrage being possible should keep the market in track.

If the external market breaks the internal market might lose tracking. Or in other words you won't be able to interpret the BTS/BitUSD ratio in regards to whether it reflects changes value of BTS or BitUSD.

You can see this happening now on MtGox: GoxBTC and GoxUSD are swinging wildly and not tracking realBTC and realUSD very well.

For goxUSD to keep track of realUSD, gox must be able to settle the IOU they issued. when goxUSD is not settlable then actually it is not tied to realUSD anymore. For people who do the arbitrage of realUSD and bitUSD is based on that they all believe bitUSD and realUSD are highly co-integrated, and they all believe that all players believe that bitUSD and realUSD are highly co-integrated. This will work for a while until a sudden flash crash, in which case that it will be very hard for bitUSD to get back to tracking realUSD. That is why i strongly suggested to do the margin call with realUSD price which will link readUSD to bitUSD even realUSD is never physically exchanged to bitUSD, but the margin system will keep them the same trend. In such a way that the arbitraging people will carry out their business with belief of the system rather than the belief of what people think everyone believes.

Offline gordonhucn

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Re: Confused about the margin call ~
« Reply #4 on: February 15, 2014, 03:09:44 PM »
This is the hardest part for many people to understand until they see it in action.   The reality is that every market player is constantly adjusting their assessment of the value of BitUSD based upon their observations of USD / BTS.   The thing that ties them together is market consensus and this is a concept that takes a degree of intuition to understand. 

Your suggesting is a 'price feed' from a trusted source to be used to settle positions and is what all of our competitors feel is necessary.  But if our hypothesis is correct these feeds are unnecessary.

If we rely on people's believes or confidence , then a sudden flash crash kind of accident will break the belief/confidence and hard to recover. Take a look at all the derivatives, futures and options will have the expected trend going along with the underlying's price because they are settled/executed based on underlying's price, index derivatives are settled with cash rather than index(which is only a concept rather than a physically existed equity) and it works fine because they are settled by "FEED PRICE OF UNDERLYING", it is not only about margin and collateral, it is also about how to finish the strike/execution and settlement. I still think that a "realUSD price feed" from a trusted exchange with suitable volume will be a stronger and more solid foundation for the PEG mechanism. With this simple linkage from realUSD and bitUSD, it will give arbitraging people a guarantee that they will have their profit realized once they do it right, instead of praying for all market participants to believe in the same thing they do.

Offline toast

Re: Confused about the margin call ~
« Reply #5 on: February 15, 2014, 04:49:45 PM »
For goxUSD to keep track of realUSD, gox must be able to settle the IOU they issued. when goxUSD is not settlable then actually it is not tied to realUSD anymore. For people who do the arbitrage of realUSD and bitUSD is based on that they all believe bitUSD and realUSD are highly co-integrated, and they all believe that all players believe that bitUSD and realUSD are highly co-integrated. This will work for a while until a sudden flash crash, in which case that it will be very hard for bitUSD to get back to tracking realUSD. That is why i strongly suggested to do the margin call with realUSD price which will link readUSD to bitUSD even realUSD is never physically exchanged to bitUSD, but the margin system will keep them the same trend. In such a way that the arbitraging people will carry out their business with belief of the system rather than the belief of what people think everyone believes.

There are a lot of debates about this point on the forum, I recommend you look around. Nobody knows for sure yet but the hypothesis is that it doesn't matter whether or not you can resolve BitUSD to normal USD if you expect them to trade at parity again at *some* point int he future, because you have distributed consensus about both the non-zero value of BTS and the fact that "USD" means united states dollars
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