BitUSD is not an interest bearing bond.

[santaclause102]

What about a mumble special about BitAsset mechanics with a handful of individuals BM selects plus a moderator? Doesnt have to be recorded and published, just to stimulate thinking.

[bytemaster]

I don't agree with everything Agent86 says and usually I have strong aversion to his ideas. 

Agent86 is a smart guy and he argues his case well.  I fight his ideas until I come to understand where they come from.  He isn't the only one who contributes to my thinking.

[hasher]

it drop because big holders decided to cash out for paper dollars, eur/usd is reaching record low fyi,
btsx will rise again, if larger part of btsx will be distributed among small holders, clones like bilshares will be banned by people and there will be market consensus, i see it in this way

[santaclause102]

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.

There are points in this post that I totally agree with, I could not agree more with.(BLUE)

But most of it is something that hopefully will never happen. (RED)

All in all, I HOPE we break the pattern of BM agreeing with each suggestion A86 makes.

What's your suggestion then?

[liondani]

In the mean time BTSX crashes.... 

let's analyze it:

BTSX drops because they are selling BTSX...
the problem is they don't sell it for bitUSD (if that was the case it would rise near the USD prize).
They sell outside the BTSX platform on centralized exchanges.

Why they don't sell for bitUSD on our platform?
1.Because they are not confident that the peg will hold due the difference between bitUSD vs USD getting bigger and bigger...
2.The conversation here help not so much to build the needed confidence at least for the outsiders.
3.Because they can not access our platform due several bugs and several updates each day (the most have not enough time to care about, except they are delegates...)
4.Because they "bet" btsx will rise again. (shorting bitUSD)


Thoughts?

It is quite unique way of thinking - 'they sell BTSX because they think it will rise again.'

Unfortunately, it is the perception that similar logic might be the logic taking over here... so naturally they sell. Not because they like centralized exchanges, but just because they sell where they can actually sell

lol, sorry
bitUSD drops further(short selling bitUSD)  because they thing BTSX will rise...


PS my brain cells are burned guys... 

[tonyk]

In the mean time BTSX crashes.... 

let's analyze it:

BTSX drops because they are selling BTSX...
the problem is they don't sell it for bitUSD (if that was the case it would rise near the USD prize).
They sell outside the BTSX platform on centralized exchanges.

Why they don't sell for bitUSD on our platform?
1.Because they are not confident that the peg will hold due the difference between bitUSD vs USD getting bigger and bigger...
2.The conversation here help not so much to build the needed confidence at least for the outsiders.
3.Because they can not access our platform due several bugs and several updates each day (the most have not enough time to care about, except they are delegates...)
4.Because they "bet" btsx will rise again. (shorting bitUSD)


Thoughts?

It is quite unique way of thinking - 'they sell BTSX because they think it will rise again.'

Unfortunately, it is the perception that similar logic might be the logic taking over here... so naturally they sell. Not because they like centralized exchanges, but just because they sell where they can actually sell

[liondani]

In the mean time BTSX crashes.... 

let's analyze it:

BTSX drops because they are selling BTSX...
the problem is they don't sell it for bitUSD (if that was the case it would rise near the USD prize).
They sell outside the BTSX platform on centralized exchanges.

Why they don't sell for bitUSD on our platform?
1.Because they are not confident that the peg will hold due the difference between bitUSD vs USD getting bigger and bigger...
2.The conversation here help not so much to build the needed confidence at least for the outsiders.
3.Because they can not access our platform due several bugs and several updates each day (the most have not enough time to care about, except they are delegates...)
4.Because they "bet" btsx will rise again. (shorting bitUSD)

Thoughts?

[tonyk]

As it should when nonsense ideas are about to go live.!!!!!



[edit] go buy some.chances are bm will eventual come to his senses.

[liondani]

In the mean time BTSX crashes.... 

[tonyk]

The price feed (as suggested by Agent86) means that BitUSD could only be sold at exactly the BTSX/USD rate defined by the median price feed?

only *shorted* (can still be sold), at a rate defined by median or moving average when there is no feed

So, the suggestion by Agent and what BM has apparently agreed *2 to only affects a shorters price?  A normal *1 buyer/seller can choose any price?

1* People who short are NORMAL sellers. Heck they are more normal because they are ready to bear bigger consequences for their predictions. Putting twice the money where their mouth is, so to speak.

2* Hell, it is always been the case!  The chance of, whatever 'A86' posts on this forum, to become reality is orders of magnitude bigger than what ever BM posts. It must be the more dominant part of his brain  then... where is transaction ID, btw?

[GaltReport]

The price feed (as suggested by Agent86) means that BitUSD could only be sold at exactly the BTSX/USD rate defined by the median price feed?

only *shorted* (can still be sold), at a rate defined by median or moving average when there is no feed

So, the suggestion by Agent and what BM has apparently agreed to only affects a shorters price?  A normal buyer/seller can choose any price?

[tonyk]

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.

There are points in this post that I totally agree with, I could not agree more with.(BLUE)

But most of it is something that hopefully will never happen. (RED)

All in all, I HOPE we break the pattern of BM agreeing with each suggestion A86 makes.

[toast]

The price feed (as suggested by Agent86) means that BitUSD could only be sold at exactly the BTSX/USD rate defined by the median price feed?

only *shorted* (can still be sold), at a rate defined by median or moving average when there is no feed

[santaclause102]

The price feed (as suggested by Agent86) means that BitUSD could only be sold at exactly the BTSX/USD rate defined by the median price feed?

[Agent86]

I think implementing the price feed will stabilize the price at $1 pretty quickly as long as it is done reasonably soon. 

I appreciate the necessity to maintain an accurate peg, both quickly and to term.  I am failing to make the connection between the influence the price feed has on the creation/issuance of the bond you reference. 
-Respectfully

The bond market is something completely new and separate.  It's just something useful to do in addition to creating BitUSD.  BitUSD that tracks accurately would need to be created before you can create a bond market on top of it.

[Fox]

I think implementing the price feed will stabilize the price at $1 pretty quickly as long as it is done reasonably soon. 

I appreciate the necessity to maintain an accurate peg, both quickly and to term.  I am failing to make the connection between the influence the price feed has on the creation/issuance of the bond you reference. 
-Respectfully

[Agent86]

@Agent86
Does the current discrepancy in the peg (purported to be ~5-15%) represent anything beyond bitUSD market risk?  Are you proposing to convert this risk into a new bond instrument (perhaps bitUSDbond) to stabilize the peg?  How does (re)implementing a bitUSD price feed impact the bond instrument pricing movement over time?

I think implementing the price feed will stabilize the price at $1 pretty quickly as long as it is done reasonably soon.  If we wait too long and too much undervalued bitUSD is brought into existence it could take a long time (if ever) for the price to recover.

[Fox]

@Agent86
Does the current discrepancy in the peg (purported to be ~5-15%) represent anything beyond bitUSD market risk?  Are you proposing to convert this risk into a new bond instrument (perhaps bitUSDbond) to stabilize the peg?  How does (re)implementing a bitUSD price feed impact the bond instrument pricing movement over time?

[Empirical1]

I also think it is a little early to give up on this.

  I personally think the current pegging system is working very well. 

There are so many BTSX bulls and very few trader atm. Once you add in traders, bots, particularly CNY profit taking as BitCNY, people taking advantage of interest on their BTC in BitBTC and a stable version. I expect it, even within a month to trade a lot closer to the peg. Within 3 months I think it will peg very closely to BitUSD in a fairly tight range. Hopefully tight enough to appeal to consumers and retailers.

I am interested in understanding what Agent86 is proposing though.

[puppies]

I also think it is a little early to give up on this.

[MrJeans]

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.

Yes but we need to allow for a free market and trust that prediction markets will allow for pegging to occur. We cant force, that defeats the hypothesis of this awesome experiment.

[Empirical1]

Ok so you would move the current market into a separate vehicle on BTSX as an 'interest bearing bond'

Interest bearing bonds require a separate market and implementation from the core BitUSD market.

I think you are confused about what I'm proposing…

Yes, apologies, I think this is the problem. I don't really understand what you are proposing and I have trouble understanding some of this stuff in general.

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.

In the current system new BitUSD is created whenever a short meets a long.

In your system

1.You would use a decentralised price feed system to only allow new BitUSD to be created at 1-1?

2.If I own BitUSD that has already been created I can sell it any price I want though, even if that's lower than 1-1?

3. People who have already shorted can buy that USD at say $0.98 too, by 'covering', they just can't short at that level and create new USD?

Another way to look at it is this: People who want to short USD really bad to get the more upside exposure to BTSX will either have to compete to short at $1 or they will have to pay interest via issuing a bond.  They can't just screw up the peg.

  Thanks for that simple explanation that sounds very good.

[Agent86]

Another way to look at it is this: People who want to short USD really bad to get the more upside exposure to BTSX will either have to compete to short at $1 or they will have to pay interest via issuing a bond.  They can't just screw up the peg.

[Agent86]

Ok so you would move the current market into a separate vehicle on BTSX as an 'interest bearing bond'

Interest bearing bonds require a separate market and implementation from the core BitUSD market.

I think you are confused about what I'm proposing…
I am not proposing to move current market into a separate vehicle…  I'm saying implement bitUSD correctly so that it actually tracks.  Doing so opens up the door to the creation of an interest bearing bond market.  This bond market is what allows people to deposit dollars into the bank of BTSX and get a market based return on their deposits.

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. 

Under my proposal you'd be very lucky to buy a bit USD for 0.9 and will have no trouble selling it for more if you do.  I'm also not proposing using a "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.

Buyers will gravitate away from the "free market" (current implementation) specifically because it doesn't work and doesn't guarantee a buyer.

(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.)

You might have lost me here but to clarify: The market matches your buy orders with the lowest priced bitUSD so you don't have the option to not buy the lower priced bitUSD in order to buy the higher priced bitUSD that the shorts are selling.

[Empirical1]

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'

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...

[Agent86]

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.

[Empirical1]

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.

[Agent86]

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.

[Empirical1]

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?

[liondani]

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)

[MrJeans]

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.

[liondani]

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.

 
very interesting point's

[bytemaster]

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%

[Agent86]

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.

[bytemaster]

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.

[Markus]

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.

[bitmeat]

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.

[bytemaster]

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.

[Agent86]

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.