FDIC for BitUSD

[Ggozzo]

Can you implement both 2) and 3) depending on market conditions?

[Riverhead]

lol. we could sit here having this whole discussion until most people agree then...

***uncomments some code****

"alright guys lets give it a shot!"

   

[xeroc]

lol ... sounds like: "release imminent"

[merockstar]

lol. we could sit here having this whole discussion until most people agree then...

***uncomments some code****

"alright guys lets give it a shot!"

[Riverhead]

 

[toast]

I guess this means there's some work to do before DR14? 

nah it's already implemented

[Riverhead]

I guess this means there's some work to do before DR14? 

[tonyk]

 

[bytemaster]

The concept of using newly issued XTS to back a new short position....  is interesting.

The effect is the same as having "unbacked USD" in circulation.   You "Created It" with so much collateral that another 66% fall in value would have to occur for BitUSD holders to actually receive the funds.  It create downward pressure on BitUSD price breaking the peg with "artificial" shorting power when what the market needs is buying power.

I think it is just a "kick the can" approach.  We need to take USD out of circulation not put more into circulation.

Actually with my approach you do not change the market (you do not crate downward pressure as you put it). You sell the same amount you just bought at the same price nevertheless.
The only thing it removes is the artificial buying pressure  the purchase by the initial insurance provides (which it (the initial insurance) does by buying bitUSD with newly created BTSX!). Which is one of the worst things to do in rising bitUSD prices.

Actually, rising BitUSD prices brings in new SHORTS from real market players.   So the added buying pressure keeps things real.

[tonyk]

The concept of using newly issued XTS to back a new short position....  is interesting.

The effect is the same as having "unbacked USD" in circulation.   You "Created It" with so much collateral that another 66% fall in value would have to occur for BitUSD holders to actually receive the funds.  It create downward pressure on BitUSD price breaking the peg with "artificial" shorting power when what the market needs is buying power.

I think it is just a "kick the can" approach.  We need to take USD out of circulation not put more into circulation.

Actually with my approach you do not change the market (you do not crate downward pressure as you put it). You sell the same amount you just bought at the same price nevertheless.
The only thing it removes is the artificial buying pressure  the purchase by the initial insurance provides (which it (the initial insurance) does by buying bitUSD with newly created BTSX!). Which is one of the worst things to do in rising bitUSD prices.

[bytemaster]

The concept of using newly issued XTS to back a new short position....  is interesting.

The effect is the same as having "unbacked USD" in circulation.   You "Created It" with so much collateral that another 66% fall in value would have to occur for BitUSD holders to actually receive the funds.   It create downward pressure on BitUSD price breaking the peg with "artificial" shorting power when what the market needs is buying power.

I think it is just a "kick the can" approach.  We need to take USD out of circulation not put more into circulation. 

[tonyk]

Suggestion – Improved bitUSD Insurance

1. I have my share of thought on insurance premiums – pre and post insurance event but there are not the main issue here. In short the 5% margin call fee (or part of it) can be thought of as insurance premium (if it can be auto burned and or set aside in special ins. Fund.)  Additionally, Special low (say 0.25% fee) on each opened short position can be used for the same purpose.

2. Instead of just buying bitUSD from the market, to cover positions with no collateral left/insufficient collateral to cover the whole position, I suggest:

-Buying from the market (as step one) – the same thing the current insurance does;
-Placing a short order at the same price by the system, (with possibly 3x collateral, instead of the usual 2x)

There are several scenarios here:
A. The system short order is never executed – in this case the 'Improved bitUSD Insurance' behaves the same way the regular one does – It adds new BTSX to the system. The good news is that this scenario is only possible if the price of BTSX starts increasing and never returns to that level, even with the newly added BTSX. I do not think this is the best thing ever. This is something that the regular bitUSD insurance is not able to handle any better, anyway.
B. The system short order is executed – resulting in:
- The newly created BTSX are taken out of circulation (at least for now);
- The newly issued bitUSD are backed by 3x BTSX collateral.(even though those are newly 'issued' BTSX)

What happens next:
The system short position behaves the same way the regular short does :
– if margin call is executed - a (hopefully slow) new supply of BTSX will be a added to the system. The benefits are that it may never happen;if it happens it will be probably in slower pace, at later (possibly much later) time.

-The biggest benefit of course is if the margin call never comes into play. In this case the 'system short position' can be closed at much higher BTSX price (say 2 or 3 times the open price) – By doing so, only some % of the new BTSX will be added to the system. Having in mind that the bitUSD insurance will most likely be needed during fast and in most  cases temporary drop in BTSX price in relation to bitUSD, the benefits that the current suggestion provides are pretty valuable. The addition of new BTSX in many cases  is delayed, delayed and reduced, delayed  and smoothed even if finally necessary.

[bytemaster]

It isn't a loan... creating the BitUSD in the first place was the LOAN.   This is the shareholders PAYING OFF A LOAN by selling new shares to raise capital.  After the loan is paid off the shareholders are good.

It is very important that all XTS holders understand that all BitUSD created by the system is a LIABILITY against their shares. 

So after the dilution event all debts are paid even if there are now more shares than before.  From this point on the company proceeds to attempt to make a profit.

I understand BitUSD is created as part of a loan process. I also understand that the burn process is the share buy back or dividend process.

So if we care about profitability then we should want the treadmill to be burning the XTS toward 1 billion rather than to be creating XTS. It doesn't make sense why new people would buy XTS if new XTS is being created without the promise of that new XTS to be destroyed again at some point.

If the company seems to make more losses than gains (ie, generally increasing share supply) then that means that delegates should raise the margin requirement on the shorts (or charge the shorts a fee proportional to the risk of default).   In fact, having the delegates publish a "Short Fee" and using the median "Fee" may be the best way to regulate this.

I agree with the idea of having fees but do we want to trust the delegates to do this? Can we hard code it?

Of course there are so many possibilities that we probably can't predict all possible outcomes. It might be possible to hedge against it like you mentioned but from the perception of people who aren't hedged if they see the network trending in the wrong direction it's not good.

The network can increase supply while also increasing the value per share (ie: network effect).... but I agree, the company needs to earn a profit so it can afford to do share buybacks.    So the only thing we are quibbling about is whether the fee structure is right. 

We have fees from all market orders, fees from market overlap, fees from margin calls, and fees from inactivity.  These fees are paid to delegates who perform a service, but the fees should pay for more than just their hosting costs.    Shareholders will demand delegates pay a dividend of some kind, especially if the network is "raking it in" from the fees.

Right now delegates can set the per-transaction fee.  If we give them a few more nobs to turn:

Shorting fee between 0% (current) and 5% (max)
Inactivity fee between 0% and 10% (max) 5% current
Margin Call fee between 0% and 100% (max)  5% current.

Perhaps the most market friendly way of handling this is simply setting the margin-call fee to 100%.   If after your margin is called you have any collateral left then it is lost.  It is now up to the Shorts to maintain enough margin to avoid the call in the first place.  Normally a short would put up 100 and expect to get back between 47.5 and 0 depending upon conditions at the time the order was called.   Increasing the fee to 100% means the short is "betting" 50 that they won't get called.  We fix the bet, but give the short has control over the "odds" by providing additional collateral.   




Dan

[luckybit]

It isn't a loan... creating the BitUSD in the first place was the LOAN.   This is the shareholders PAYING OFF A LOAN by selling new shares to raise capital.  After the loan is paid off the shareholders are good.

It is very important that all XTS holders understand that all BitUSD created by the system is a LIABILITY against their shares. 

So after the dilution event all debts are paid even if there are now more shares than before.  From this point on the company proceeds to attempt to make a profit.

I understand BitUSD is created as part of a loan process. I also understand that the burn process is the share buy back or dividend process.

So if we care about profitability then we should want the treadmill to be burning the XTS toward 1 billion rather than to be creating XTS. It doesn't make sense why new people would buy XTS if new XTS is being created without the promise of that new XTS to be destroyed again at some point.

If the company seems to make more losses than gains (ie, generally increasing share supply) then that means that delegates should raise the margin requirement on the shorts (or charge the shorts a fee proportional to the risk of default).   In fact, having the delegates publish a "Short Fee" and using the median "Fee" may be the best way to regulate this.

I agree with the idea of having fees but do we want to trust the delegates to do this? Can we hard code it?

Of course there are so many possibilities that we probably can't predict all possible outcomes. It might be possible to hedge against it like you mentioned but from the perception of people who aren't hedged if they see the network trending in the wrong direction it's not good.

[bytemaster]

Of course it's a loan.

It isn't a loan... creating the BitUSD in the first place was the LOAN.   This is the shareholders PAYING OFF A LOAN by selling new shares to raise capital.  After the loan is paid off the shareholders are good.

It is very important that all XTS holders understand that all BitUSD created by the system is a LIABILITY against their shares. 

So after the dilution event all debts are paid even if there are now more shares than before.  From this point on the company proceeds to attempt to make a profit.

If the company seems to make more losses than gains (ie, generally increasing share supply) then that means that delegates should raise the margin requirement on the shorts (or charge the shorts a fee proportional to the risk of default).   In fact, having the delegates publish a "Short Fee" and using the median "Fee" may be the best way to regulate this.