Solution to High Volatility potentially breaking the BitUSD Peg

[NewMine]

If the starting collateral is 100 BTS backing 50 USD... and the price of 50 USD rises to more than 100 BTS so fast that the market couldn't cover the position in time then there would not be enough BTS in the short position to buy back 50 USD... so the network would be forced to create new BTS to close the short position. 

Let me get this straight:

1 Bitshares =1 bitUSD.
2 Bitshares are required to short 1 bitUSD (2:1ratio no mater the price).
Maximum risk of the short trader is 2 Bitshares.
maximum risk to the network is limitless, in theoretical extremes.
Maximum risk of long bitUSD trader is 1 bitUSD.
Maximum profit of short Trader is 1 BitUSD.
Maximum profit of long Trader is limitless.
Maximum profit to network does not exist.


Isn't this just shifting the risk from the person who shorts USD to every BTS holder through dilution? I think an automated stop loss would do the trick. One that automatically buys back the short position when it nears the collateral limits.  Although you could then have whales attempting to hit stop losses to gain momentum especially if there is an open ledger with these types of transactions visible.

Am I seeing this right?

[toast]

The more I think about it the more I like this idea

Before I could never get a feel for what the "equilibrium equations" for BTS market forces are, now things fit more nicely. BTS holders have a few more incentives in the right places

[bytemaster]

That's what we're already doing (the "rules" are not exactly the same, like your margin suggestion is 10% etc), except we're creating/destroying BTS instead of having an account that does trades. As long as your design only has one "network market bot", these designs are equivalent to the user when you view your funds as % BTS on market

but  still have something I want to issue:
1. bitusd never be create
2. can we limit total amount of bts not more then 400,000,000?

In this particular case, BTS will only grow in the event BitUSD needs to be honored.  The supply is limited and shrinking except in rare events (that may never happen). 

[alt]

That's what we're already doing (the "rules" are not exactly the same, like your margin suggestion is 10% etc), except we're creating/destroying BTS instead of having an account that does trades. As long as your design only has one "network market bot", these designs are equivalent to the user when you view your funds as % BTS on market

but  still have something I want to issue:
1. bitusd never be create
2. can we limit total amount of bts not more then 400,000,000?

[alt]

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.

when the margin call execute, we have right to sell all the backup to public to cover the short position.
but now, the buy order(for xts) match from the margin call  have an opportunity to get more benefits from backup,
this result in backup  not enough, it's unfair.

And I think this rule  maybe attract people to rob the backup xts from control price.

[toast]

That's what we're already doing (the "rules" are not exactly the same, like your margin suggestion is 10% etc), except we're creating/destroying BTS instead of having an account that does trades. As long as your design only has one "network market bot", these designs are equivalent to the user when you view your funds as % BTS on market

[alt]

Do you not see how having such a robot account lock up backup funds is *exactly equivalent* to the network printing/destorying shares on demand? If they're out of circulation then supply-side things like the same in both cases. Or am I missing part of what this network account does?

we can design  rules for this robot account.
For example, if we want to keep price stable, we can give this rule:
when  the price rise up to 10%, offer a sell order to the market. otherwise, offer a buy order.

Destroy bitusd will make the amount of  bitusd keep down from amount of short position.this can't revert.
one day, maybe we have 100,000 bitusd short position, but only 10,000 bitusd. I don't know if it's a problem.

with the robot account. the BTS network will keep be a real zero-sum.

[bytemaster]

To clarify: 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)?

so i guess this describes the margin call case. How can the system run out of bitshares like mentioned in the OP?

If the starting collateral is 100 BTS backing 50 USD... and the price of 50 USD rises to more than 100 BTS so fast that the market couldn't cover the position in time then there would not be enough BTS in the short position to buy back 50 USD... so the network would be forced to create new BTS to close the short position.   

...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..

not a problem?

Not a problem.   

[santaclause102]

To clarify: 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)?

so i guess this describes the margin call case. How can the system run out of bitshares like mentioned in the OP?

...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..

not a problem?

[bytemaster]

So is the new solution basically "the exact moment all collateral is gone, fill everyone's buy-BTS-for-BitAsset order filled for free"? Or is it at the price the shorts blow out at?

This would only affect ONE position at a time and not be a universal thing.  If one position goes insolvent it is unlikely all will at the same time.  Further more, anytime margin is called successfully there is a 5% fee, thus these fees will probably make up for the times where margin runs out entirely.

[toast]

This is quite an interesting concept, you have the potential for a huge reallocation of BTS towards people who were holding assets at the time of a catastrophe... give the next set of shareholders a chance try and see if they can keep the bank solvent

[toast]

Maybe it should buy 10% of unbacked assets per block or something to give real life BTS holders time to react and buy back assets at a loss

[toast]

So is the new solution basically "the exact moment all collateral is gone, fill everyone's buy-BTS-for-BitAsset order filled for free"? Or is it at the price the shorts blow out at?

[toast]

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.

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.

Do you not see how having such a robot account lock up backup funds is *exactly equivalent* to the network printing/destorying shares on demand? If they're out of circulation then supply-side things like the same in both cases. Or am I missing part of what this network account does?

[alt]

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.