Author [EN] [ZH] [ES] [PT] [IT] [DE] [FR] [NL] [TR] [SR] [AR] [RU] [EN] [ZH] [ES] [PT] [IT] [DE] [FR] [NL] [TR] [SR] [AR] [RU] [EN] [ZH] [ES] [PT] [IT] [DE] [FR] [NL] [TR] [SR] [AR] [RU] Topic: BitUSD is not an interest bearing bond.  (Read 1206 times)

0 Members and 1 Guest are viewing this topic.

Offline Agent86

  • Sr. Member
  • ****
  • Posts: 471
  • BTSX: agent86
    • View Profile
BitUSD is not an interest bearing bond.
« on: August 28, 2014, 12:36:55 PM »

I want to give clarity about the difference between BitUSD and interest bearing bonds and how market based interest rates can be established.  I also want to emphasize what is needed to fix the BitUSD peg.

A couple comments from bytemaster have motivated this post:

BitUSD is a market between those who want leverage and those who want stability.  The "price" in this market will depend upon the interest rate people are willing to borrow at to get the leverage they desire.

 
Bottom line, you cannot get rid of "interest rates" or "premiums" by resorting to price feeds or price fixing.

BitUSD is not supposed to have an associated interest rate.  It's just supposed to track the dollar.  People will buy a bitUSD that reliably tracks the dollar for the purpose of facilitating trade, not for getting interest.

The current BitUSD market implementation is flawed and the peg is not working.  The notion that the difference between USD and bitUSD price is an "interest rate" is inaccurate.  There is nothing stopping the bitUSD price from falling further without intervention.

The method to fix the peg is to use the price feed to limit the creation of new bitUSD by preventing shorts from shorting below the USD price.

Interest bearing bonds require a separate market and implementation from the core BitUSD market.  A BTSX holder can sell a collateralized promise to pay a certain amount of bitUSD at a certain date in the future.  There can then be a "bond market" for these promissory notes.  The present day value of these future promises to pay BitUSD will determine short term and long term interest rates.

The first step however is to get the bitUSD implementation to accurately track the dollar.  And for this we must use the price feeds as I've described.

Offline bytemaster

Re: BitUSD is not an interest bearing bond.
« Reply #1 on: August 28, 2014, 12:51:43 PM »
Agent86, I know you are very passionate and bright guy who has convinced me of things in the past (like the approval voting) but I think you are entirely wrong in your assessment.

If we limit shorts then you are resorting to price fixing.  The peg is supposed to have some variance based upon supply and demand and I think you are judging the system entirely too soon.  Right now the demand for BitUSD is low and the demand for leverage is high and overall risk is high.  We will see what happens and monitor the correlation in price movement.

In your limit scenario I can see some benefits... you reduce selling pressure below the price feed.  This would give USD sellers a priority over shorts which in turn would help make USD more liquid.   But right now USD is liquid at a price that is correlated to USD.  But this introduces a requirement for a price feed and the purpose of this experiment is to attempt something without a price feed.

I think you are being alarmist.

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 bitmeat

  • Hero Member
  • *****
  • Posts: 1116
    • View Profile
Re: BitUSD is not an interest bearing bond.
« Reply #2 on: August 28, 2014, 12:55:05 PM »
I like the idea of the feed being used for checks and balances. I don't like it having the direct effect like the one described.

What I would prefer instead is to have the blockchain provide liquidity 5-10% around the feed price. (It can be adjusted based on the liquidity insurance balance)

Effectively turn the blockchain into a never-lose market maker, that will widen the spread if it is low on insurance money.

Offline Markus

  • Sr. Member
  • ****
  • Posts: 366
    • View Profile
Re: BitUSD is not an interest bearing bond.
« Reply #3 on: August 28, 2014, 01:02:48 PM »
I disagree that the current discount on BitUSD vs USD is a problem that needs fixing.

Anybody trading in BTSX currently is bullish on BTSX - quite natural since the other's haven't yet heard of it or stay away. This means those who want leverage by far outnumber those who want stability. The current low price of BitUSD is an incentive to attract those who want stability by giving them a 10 % bonus and repelling those who want leverage by penalising them by the same amount. Maybe the term "interest rate" that BM used in this context is a bit misleading, rather think of it as a bonus BitUSD buyers can realise as soon as balance between bulls/bears is achieved.

This bonus has been fairly stable in the last two days, hovering between 5 and 15 %. Once BitUSD will have a trading history that shows its long-term stability the more conservative investors will move in. Also the first short squeeze will caution some of the currently over-optimistic bulls.

Offline bytemaster

Re: BitUSD is not an interest bearing bond.
« Reply #4 on: August 28, 2014, 01:31:11 PM »
I like the idea of the feed being used for checks and balances. I don't like it having the direct effect like the one described.

What I would prefer instead is to have the blockchain provide liquidity 5-10% around the feed price. (It can be adjusted based on the liquidity insurance balance)

Effectively turn the blockchain into a never-lose market maker, that will widen the spread if it is low on insurance money.

If the network is the USD Buyer of Last Resort and buys it at a price of 10% below the price feed and sells it at 1% below the price feed... it would end up "printing XTS" to buy the USD and burning it when it sells the USD.   High demand to short USD would result in the network buying it up with inflation and then selling it back at a profit resulting in long-term deflation.    In this case 100% of the "inflation" would be locked in collateral of the short position.   I think I would increase the collateral requirements for such a system to 4x from 2x and probably charge a one-time fee for the short proportional to how far below the feed they are.   

Ideas that are this different from BTSX should be planned for a CLONE that honors BTSX.
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 Agent86

  • Sr. Member
  • ****
  • Posts: 471
  • BTSX: agent86
    • View Profile
Re: BitUSD is not an interest bearing bond.
« Reply #5 on: August 28, 2014, 01:35:41 PM »
If we limit shorts then you are resorting to price fixing.  The peg is supposed to have some variance based upon supply and demand
It's not price fixing and there will still be some variance above or below with supply and demand but there will be legitimate reasons for it to quickly converge and variance will be tight.  It's not price fixing because the market for bitUSD vs. BTSX is free.  It just prevents new BitUSD being created at a value below the dollar which is unfair to bitUSD holders who expected their asset to track the dollar.

In your limit scenario I can see some benefits... you reduce selling pressure below the price feed.  This would give USD sellers a priority over shorts
Current holders of bitUSD willing to sell below parity deserve priority over shorts.

But right now USD is liquid at a price that is correlated to USD. 
If the moving average moves down and someone shorts a million bitUSD into existence at a price way below the dollar I think you'll quickly find that no one is jumping in to buy this "bargain" priced bitUSD.

But this introduces a requirement for a price feed and the purpose of this experiment is to attempt something without a price feed.
I think the end goal is to create bitUSD that tracks without centralized counterparty risk.  I don't think we need to be dogmatic about the price feed because the price feed is done in a robust decentralized way that is very hard to manipulate.

Offline bytemaster

Re: BitUSD is not an interest bearing bond.
« Reply #6 on: August 28, 2014, 01:40:01 PM »
If your argument is merely that the "moving average" can be manipulated to get out of line.... and that the median feed should be used to restrict the range +/- 10%... then that is well within the scope of ideas we can consider for BTSX because that is how all asset markets get started.

I don't think a median price feed can be more accurate than +/- 10%
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 liondani

Re: BitUSD is not an interest bearing bond.
« Reply #7 on: August 28, 2014, 01:58:12 PM »
What I would prefer instead is to have the blockchain provide liquidity 5-10% around the feed price. (It can be adjusted based on the liquidity insurance balance)
Effectively turn the blockchain into a never-lose market maker, that will widen the spread if it is low on insurance money.

 +5%
very interesting point's
  https://bitshares.OPENLEDGER.info/?r=GREECE  | You are in Control | BUY | SELL | SHORT | SWAP | LOAN | TRADE |  

Offline MrJeans

  • Hero Member
  • *****
  • Posts: 597
    • View Profile
  • BTS: mrjeans
Re: BitUSD is not an interest bearing bond.
« Reply #8 on: August 28, 2014, 03:06:27 PM »
BitUSD is not supposed to have an associated interest rate.  It's just supposed to track the dollar.  People will buy a bitUSD that reliably tracks the dollar for the purpose of facilitating trade, not for getting interest.
+5%

Offline liondani

Re: BitUSD is not an interest bearing bond.
« Reply #9 on: August 28, 2014, 03:46:52 PM »
I hope bitUSD is not only an indicator of what we believe about BTSX (oversold/overbought) instead of what we believe compared vs USD...  (sorry maybe I am confused) :-\
« Last Edit: August 28, 2014, 03:52:33 PM by liondani »
  https://bitshares.OPENLEDGER.info/?r=GREECE  | You are in Control | BUY | SELL | SHORT | SWAP | LOAN | TRADE |  

Offline Empirical1

  • Hero Member
  • *****
  • Posts: 884
    • View Profile
Re: BitUSD is not an interest bearing bond.
« Reply #10 on: August 28, 2014, 03:51:10 PM »
Agent86, In your system, lets say I have BitUSD to sell but there are currently no buyers at 0.9 vs. the dollar. Who do I sell to?

Offline Agent86

  • Sr. Member
  • ****
  • Posts: 471
  • BTSX: agent86
    • View Profile
Re: BitUSD is not an interest bearing bond.
« Reply #11 on: August 28, 2014, 04:01:00 PM »
Agent86, In your system, lets say I have BitUSD to sell but there are currently no buyers at 0.9 vs. the dollar. Who do I sell to?
You'll generally have no problem finding buyers if you are selling BitUSD under the value of a dollar.  The shorts have to close out their position to get their shares back sometime and they'll see bitUSD selling for less than the price of USD as a great opportunity to close out their position profitably.  Also, no more bitUSD will come into existence until the market has corrected and people have scooped up the bitUSD.

Offline Empirical1

  • Hero Member
  • *****
  • Posts: 884
    • View Profile
Re: BitUSD is not an interest bearing bond.
« Reply #12 on: August 28, 2014, 04:12:42 PM »
Agent86, In your system, lets say I have BitUSD to sell but there are currently no buyers at 0.9 vs. the dollar. Who do I sell to?
You'll generally have no problem finding buyers if you are selling BitUSD under the value of a dollar.  The shorts have to close out their position to get their shares back sometime and they'll see bitUSD selling for less than the price of USD as a great opportunity to close out their position profitably.  Also, no more bitUSD will come into existence until the market has corrected and people have scooped up the bitUSD.

We currently do have a problem finding buyers for BitUSD under the value of a dollar that's why the BitUSD price is lower.



« Last Edit: August 28, 2014, 04:16:32 PM by Empire »

Offline Agent86

  • Sr. Member
  • ****
  • Posts: 471
  • BTSX: agent86
    • View Profile
Re: BitUSD is not an interest bearing bond.
« Reply #13 on: August 28, 2014, 04:16:39 PM »
Agent86, In your system, lets say I have BitUSD to sell but there are currently no buyers at 0.9 vs. the dollar. Who do I sell to?
You'll generally have no problem finding buyers if you are selling BitUSD under the value of a dollar.  The shorts have to close out their position to get their shares back sometime and they'll see bitUSD selling for less than the price of USD as a great opportunity to close out their position profitably.  Also, no more bitUSD will come into existence until the market has corrected and people have scooped up the bitUSD.

We currently do have a problem finding buyers for BitUSD under the value of a dollar?
Yes, we currently have a problem of not enough buyers because we are allowing shorts to sell newly minted USD onto the market under the value of a dollar.

Offline Empirical1

  • Hero Member
  • *****
  • Posts: 884
    • View Profile
Re: BitUSD is not an interest bearing bond.
« Reply #14 on: August 28, 2014, 04:34:42 PM »
Agent86, In your system, lets say I have BitUSD to sell but there are currently no buyers at 0.9 vs. the dollar. Who do I sell to?
You'll generally have no problem finding buyers if you are selling BitUSD under the value of a dollar.  The shorts have to close out their position to get their shares back sometime and they'll see bitUSD selling for less than the price of USD as a great opportunity to close out their position profitably.  Also, no more bitUSD will come into existence until the market has corrected and people have scooped up the bitUSD.

We currently do have a problem finding buyers for BitUSD under the value of a dollar?
Yes, we currently have a problem of not enough buyers because we are allowing shorts to sell newly minted USD onto the market under the value of a dollar.

Ok so you would move the current market into a separate vehicle on BTSX as an 'interest bearing bond'
Quote
Interest bearing bonds require a separate market and implementation from the core BitUSD market.

However if I'm a BitUSD buyer.

Will I prefer to buy at 0.9 on your price fixed market, where I may not be able to find a seller at times because the price is fixed  and people may at times not want to buy within that range. 

Or would I prefer to buy my BitUSD on the other market at a better rate or interest rate, where I also know I can always find a buyer.

It seems BitUSD buyers would gravitate to the free market which is also paying them a better price to buy.

(I don't know if this makes sense, but for me, another way of looking at the current price is that if you price fixed at exactly 1-1 via price feed. BitUSD Shorts today would be willing to short at 1-1 and give the person going long a few BTSX per dollar as bonus to take the other side because they want to leverage their BTSX position that much. Longs would always choose the biggest bonus. Hence any other market on the same system wouldn't attract the longs.)

Edit: Never mind I'm confusing myself here...

« Last Edit: August 28, 2014, 04:43:36 PM by Empire »

 

Google+