Author Topic: BitUSD is not an interest bearing bond.  (Read 8608 times)

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Offline MrJeans

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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.
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Offline liondani

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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

Offline 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%
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Offline Agent86

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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

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.
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Offline Markus

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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 bitmeat

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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 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.

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Offline Agent86

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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.