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Offline bytemaster

Solution to High Volatility potentially breaking the BitUSD Peg
« on: February 19, 2014, 08:51:32 AM »

I solved a major issue in the design of BitShares X as it relates to how we handle the case where the collateral is insufficient to back the short position and thus the result is unbacked BitUSD in circulation.    Considering the value of BitShares X is directly related to the degree to which the holders of BitShares X are willing to guarantee the purchasing power of BitUSD it seems that a decentralized Bank should take the same approach as their centralized counterparts...   Sell new shares in the bank to raise capital to cover the losses.   In effect all BTS holders would provide 'insurance' against the 50% discontinuity event that would blow out a short position and leave unbacked BitUSD.  The reason why BTS longs would insure the BTS shorts is because the entire value proposition of BitShares X is derived from the promise of BitUSD remaining pegged.   If the BTS holders can increase the value of BTS by providing this insurance against a very rare event, it should in turn increase confidence and thus increase the value of BTS.

This change would shift the losses that BitUSD holders would currently pay to the BTS holders and thus collectively BTS holders are backing all BitUSD and BitUSD holders have something with much lower risks in these rare events.
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Offline Markus

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Re: Solution to High Volatility potentially breaking the BitUSD Peg
« Reply #1 on: February 19, 2014, 09:36:08 AM »
(Only just saw you posted this in the status thread as well.)

Do you mean buying back the surplus BitUSD with newly minted BTS? You'd get my vote on that - even though it might theoretically tear down the 4M BTS limit. Maybe increase transaction fees in the unlikely event that there are more than 4M BTS around?

Offline alt

Re: Solution to High Volatility potentially breaking the BitUSD Peg
« Reply #2 on: February 19, 2014, 09:47:26 AM »
what's your solution?

My new solution is add a special account to the network(actually it's not an account, transaction about it is programed in the bts source code)

all the translation fee which are destroy should transfer to this account.
all the bit assets which are destroy should transfer to this account.
and all short possision which can not cover should transfer to this account.

we can give the company more effective rules to keep marketing stable, like:
when price rice 10%, sell some asset. 20% -> sell more ....
otherwise, buy some ...
« Last Edit: February 19, 2014, 03:38:57 PM by alt »

Offline Markus

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Re: Solution to High Volatility potentially breaking the BitUSD Peg
« Reply #3 on: February 19, 2014, 10:21:31 AM »
all the bit assets which are destroy should transfer to this account.
If they are destroyed they can't be transferred because they don't exist anymore.

Quote
and all short possision which can not cover should transfer to this account.
A short position without collateral has a negative value. Nobody would want to have it - least buy it.

Offline alt

Re: Solution to High Volatility potentially breaking the BitUSD Peg
« Reply #4 on: February 19, 2014, 10:30:04 AM »
short posision will be covered by the bit assets in the Company account.
what I mean destroy is for now, the new solusion will not destroy it , but transfert the fee to the Company account.

all the bit assets which are destroy should transfer to this account.
If they are destroyed they can't be transferred because they don't exist anymore.

Quote
and all short possision which can not cover should transfer to this account.
A short position without collateral has a negative value. Nobody would want to have it - least buy it.

Offline alt

Re: Solution to High Volatility potentially breaking the BitUSD Peg
« Reply #5 on: February 19, 2014, 11:07:14 AM »
Actual, we can give the company more effective rules to keep marketing stable, like:
when price rice 10%, sell some asset. 20% -> sell more ....
otherwise, buy some ...

Offline willj

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Re: Solution to High Volatility potentially breaking the BitUSD Peg
« Reply #6 on: February 19, 2014, 12:35:52 PM »
 :o

not get it.

I think if UserA can create as many bitUSD as wanted, than the going short must be success.

Offline santaclause102

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Re: Solution to High Volatility potentially breaking the BitUSD Peg
« Reply #7 on: February 19, 2014, 02:20:35 PM »
Quote
the case where the collateral is insufficient to back the short position and thus the result is unbacked BitUSD in circulation.

To clarify: This would be the case when BTS would rise in price more than twice compared to the point in time when the short positions was taken (if a short position requires 2x Asset value in BTS)?

...always thought about that: The BitAsset speculator would have to take into account not only the future price developement of his Asset but also the price developement of BTS. That would not be good for someone that is looking for a simple way to hedge something or an expert in Gold/Oil/whateverAssett who is not also an expert on the future developement of BTS price....

Offline bytemaster

Re: Solution to High Volatility potentially breaking the BitUSD Peg
« Reply #8 on: February 19, 2014, 03:04:01 PM »
Actually you all are missing the idea entirely.   But I cannot answer from phone.   


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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 alt

Re: Solution to High Volatility potentially breaking the BitUSD Peg
« Reply #9 on: February 19, 2014, 03:06:45 PM »
Dan, waiting for your solution  :D

Offline toast

Re: Solution to High Volatility potentially breaking the BitUSD Peg
« Reply #10 on: February 19, 2014, 03:08:56 PM »
I think what he's saying is that in the case of more than 2x drop of BTS/BitUSD and collateral runs out then the network will print more BTS to buy back BitUSD... this is paid for by BTS holders (remember "create/destroy" and "redistribute" are completely equivalent)

To clarify: This would be the case when BTS would rise in price more than twice compared to the point in time when the short positions was taken (if a short position requires 2x Asset value in BTS)?

I thought it was the opposite?
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Offline bytemaster

Re: Solution to High Volatility potentially breaking the BitUSD Peg
« Reply #11 on: February 19, 2014, 03:30:13 PM »
Toast got it right. 


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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 santaclause102

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Re: Solution to High Volatility potentially breaking the BitUSD Peg
« Reply #12 on: February 19, 2014, 03:39:03 PM »
I think what he's saying is that in the case of more than 2x drop of BTS/BitUSD and collateral runs out then the network will print more BTS to buy back BitUSD... this is paid for by BTS holders (remember "create/destroy" and "redistribute" are completely equivalent)

To clarify: This would be the case when BTS would rise in price more than twice compared to the point in time when the short positions was taken (if a short position requires 2x Asset value in BTS)?


I thought it was the opposite?

You are right. I confused it. It should read: This would be the case when BTS would decrease in price more than twice compared to the point in time when the short positions was taken (if a short position requires 2x Asset value in BTS)?

Something else: Going long BitUSD (=buying BitUSD) doenst need a collateral, correct?

Offline alt

Re: Solution to High Volatility potentially breaking the BitUSD Peg
« Reply #13 on: February 19, 2014, 03:53:16 PM »
en.....
I still have a little doult about it.
When I short the bitusd, I promiss with double price for backup.
I think double price is the most I should be responsible.
the solution you point  out take more from the shareholder, It's unfair.

I still prefer to force  offer an buy order: sell  the backup bts to buy full bitusd to cover the short position.
I have give all my backup, it's enough for me.
for this buy order, If it can match the sell order in the marketing , I don't care, it's the choice of the marketing.

Offline alt

Re: Solution to High Volatility potentially breaking the BitUSD Peg
« Reply #14 on: February 19, 2014, 04:09:16 PM »
If we have a company account, the margin call is very easy:
transfer all short position and backup to the company account.

these short position will be cover with the bitasset in the account.

And I think It's very cool when you give the BTS  such a robot account.
« Last Edit: February 19, 2014, 04:12:59 PM by alt »

 

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