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 Market Maker - Proposal for Discussion  (Read 5748 times)

0 Members and 1 Guest are viewing this topic.

Offline bytemaster

BitUSD Market Maker - Proposal for Discussion
« on: August 29, 2014, 03:12:02 PM »

I have been putting some serious thought into the nature of BitUSD vs USD and lessons I have learned observing the network thus far.  So here is what I have concluded thus far:

1) BitUSD vs USD will work with no market restrictions provided it is a mature market with a proven track record.
2) BitUSD vs USD will not track well in an immature market because BitUSD-deniers will not buy BitUSD and neither will believers.  Right now it trades at a discount.
3) While it is perfectly reasonable for BitUSD to trade at a discount to attract new buyers, it confirms the suspicions of the deniers and thus could potentially end up changing the market consensus that BitUSD will go to 0.      BitUSD only works so long as the majority of the market expects it to work and that "faith" can be hard to establish early on without a large market maker willing to back it.

Given those facts here are some additional things I have realized:
1) There is never any reason for new BitUSD to be created below the market value assuming we know what that is.
2) Buying BitUSD at 95% parity should always be profitable.
3) If the network has bought BitUSD that it hasn't sold, there is no reason to allow new shorts (the network can sell what it bought at parity).
 
So what where does this leave us?
New BitUSD should only be created when there is demand for it at prices at or above parity.
All USD should be guaranteed a buyer at 90% parity.  This limits the risk to the downside.

There is a HUGE demand to short USD and right now that demand shows up as BitUSD being massively undervalued.   I think this demand to short needs to be done via option contracts.   Someone can therefore set a price on the option contract and this price will absorb the short demand without breaking the peg.

Suppose I think XTS is going to rise by 50% in the next month.   I want an option to buy it at todays prices, so I have to find someone willing to sell me the option to buy it at todays prices within the next month.   These options will be purchased by the people who currently wanting to short who otherwise would not be able to.

That said there will still be plenty of demand to short BitUSD directly but due to the price restrictions you would end up with "gas lines" and the question becomes "who goes first".   The person who placed the order first or the one who paid the highest fee or perhaps the one who posts the most collateral.   

I am thinking we should prioritize shorts by the collateral they are willing to put down.   This will turn the surplus demand for shorts into increased security on the network.

So as you can see these represent some pretty major overhauls to the market rules.   These rules will not be rolled out over night and will be throughly tested on a test network prior to release.     In the mean time the existing BitUSD market can continue to function and the buyers of BitUSD can have greater confidence that BitUSD will eventually reach the market peg.

What are the downsides?
The reliance on a price feed means price discovery is less likely to happen on chain.



To Summarize the Proposed Rules:
1) 51% of delegates must publish a price feed at least daily, the median of which is taken as the "current price".
2) The network has a standing buy order for BitUSD at  90% of the "current price".
3) BitUSD purchased by the network are saved in a Market Account
4) If the Market Account has a non-0 balance, then no new shorts will be executed.
5) If the Market Account has a non-0 balance, then there is a standing sell order at "current price"
6) Any short orders above the "current price" are automatically canceled.
7) Given two short orders at the same price, the one willing to post the highest collateral takes priority.
8) BitUSD vs XTS has no trade restrictions on it.

What I think will happen:
1) Market makers will step in to provide liquidity at prices above 90% the "current price" now that their "down side" is covered.
2) The market maker bot will never have to execute.
3) All new BitUSD will be created at a value at or above 100% the "current price".. ie: $1.01+
4) The median price will lag real price movements and will be "predictable".  This timing delay will create arbitrage opportunities.
5) The average margin will be much higher than 2x due to competition to get the short positions.
6) The probability of "unbacked BitUSD" will go down dramatically.


Once again... this is just a proposal for review and feedback.


We are going to focus on stabilizing the current code and then move toward a more controlled release of any proposed fixes. 

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 king

  • Full Member
  • ***
  • Posts: 80
    • View Profile
Re: BitUSD Market Maker - Proposal for Discussion
« Reply #1 on: August 29, 2014, 03:47:55 PM »
 +5% +5% +5%
BTSX Account: mister
BTSX Delegate :sun.delegate.service,moon.delegate.service

Offline emski

  • Hero Member
  • *****
  • Posts: 1283
    • View Profile
    • http://lnkd.in/nPbhxG
Re: BitUSD Market Maker - Proposal for Discussion
« Reply #2 on: August 29, 2014, 03:59:58 PM »
Could the market account hold 2 balances:
BTSX
bitUSD
If these balances are equal in value (regardless of base currency) it should trade at feed price (well lets take 1% for the balance in the force).
If one of the reserves decreases below 50% it should trade at feed price +- 10% (depending on the smaller reserve (don't forget the toll of the force)).
If one of the balances is depleted => no trade.

PS: And who will provide market's initial balance ?
« Last Edit: August 29, 2014, 04:02:28 PM by emski »

Offline stuartcharles

  • Sr. Member
  • ****
  • Posts: 281
    • View Profile
Re: BitUSD Market Maker - Proposal for Discussion
« Reply #3 on: August 29, 2014, 04:07:07 PM »
where does the market account get its funds from?

Offline bytemaster

Re: BitUSD Market Maker - Proposal for Discussion
« Reply #4 on: August 29, 2014, 04:20:29 PM »
where does the market account get its funds from?

The market maker bot would have to print XTS.... but the XTS it prints would be effectively locked up in the collateral of someone until they cover.
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 spartako

  • Sr. Member
  • ****
  • Posts: 401
    • View Profile
Re: BitUSD Market Maker - Proposal for Discussion
« Reply #5 on: August 29, 2014, 04:28:54 PM »
+5%
wallet_account_set_approval spartako

Offline CoinHoarder

  • Hero Member
  • *****
  • Posts: 648
  • In Cryptocoins I Trust
    • View Profile
Re: BitUSD Market Maker - Proposal for Discussion
« Reply #6 on: August 29, 2014, 04:32:50 PM »
Please focus on fixing bugs instead.

IMO- The reason bitUSD is trading at a discount is there aren't enough buyers yet, it has nothing to do with the system being broken. Let it mature and depth & liquidity increase, then bitUSD will more closely equal a US dollar.

We need to create more uses for bitUSD so people have more of a reason to buy it. I don't think it being stable and/or speculating BTSX will fall are good enough reasons to create ample buying pressure.
« Last Edit: August 29, 2014, 04:41:11 PM by CoinHoarder »
https://www.decentralized.tech/
Cryptocurrency Social Network
Market Data, Portfolios, Information, Links, Reviews, Forums, and Technologies

Offline stuartcharles

  • Sr. Member
  • ****
  • Posts: 281
    • View Profile
Re: BitUSD Market Maker - Proposal for Discussion
« Reply #7 on: August 29, 2014, 04:36:50 PM »
where does the market account get its funds from?

The market maker bot would have to print XTS.... but the XTS it prints would be effectively locked up in the collateral of someone until they cover.

Is there another way, could existing xts be lent to the market account as a fixed rate bond say  +5%. The interest could be paid from profits.

Offline Agent86

  • Sr. Member
  • ****
  • Posts: 471
  • BTSX: agent86
    • View Profile
Re: BitUSD Market Maker - Proposal for Discussion
« Reply #8 on: August 29, 2014, 04:46:12 PM »
1) BitUSD vs USD will work with no market restrictions provided it is a mature market with a proven track record.
This is not true.

Given those facts here are some additional things I have realized:
1) There is never any reason for new BitUSD to be created below the market value
This we agree on.  So, please just make the change that prevents any short that is below the median price feed from being matched.

Everything else is over complication, wasted time, and opening new attack vectors.

Any reason not to make the change?
« Last Edit: August 29, 2014, 05:02:03 PM by Agent86 »

Offline gulu

  • Full Member
  • ***
  • Posts: 121
    • View Profile
Re: BitUSD Market Maker - Proposal for Discussion
« Reply #9 on: August 29, 2014, 04:51:01 PM »
BitUSD needs interest, based on an interest rate that is determined by the supply and demand of BitUSD. This is the solution to the long term market peg without delegates' price feed.
BTC: 1FRsgcQELHKFY2VMFosBnyBaNxZgS4wj7x
PTS: Pf9yDYUknXShepu6YjwSEpMvm1ewNQLNgE
BTSX: gulu

Offline mas

  • Newbie
  • *
  • Posts: 15
    • View Profile
Re: BitUSD Market Maker - Proposal for Discussion
« Reply #10 on: August 29, 2014, 04:52:09 PM »
Please focus on fixing bugs first, give the system time to mature.

Limiting the downside to 90% will inhibit price discovery and free markets.

I believe Bitshares is supposed to operate as a free market, without any outside interference. This scheme will create a feeling of a Bitshares central bank that is monitoring and controlling the system.

What will help the system grow will be making arbitrage easier. If there is easy creation of arbitrage bots and automated market makers, then this should work.

Many financial brokers offer CFD, cash for difference instruments, which operate exactly like the bitassets, except the brokers act as a market maker in them, and uses underlying financial markets to hedge the instruments. If we make hedging easy, then automated market makers and arbitrage bots should fulfill that role.

Apologize for lack of understanding and knowledge, been casually following this forum, and do hold BTSX.

Against this suggestion.

Offline Empirical1

  • Hero Member
  • *****
  • Posts: 884
    • View Profile
Re: BitUSD Market Maker - Proposal for Discussion
« Reply #11 on: August 29, 2014, 04:54:07 PM »
In addition to only being allowed to short at parity and having options trading separate...

What if when you short @ 1-1 you pay a 2% fee which goes to the long?

So if the exchange rate is 25 BTSX to $. I have to pay 25 BTSX plus 0.5 BTSX per $ to short even on the main BitUSD market.

BitUSD besides being new, currently has no utility and costs 1/2% to covert to real $. Shorts are more than willing to pay that to longs, this recognition of conversion cost fee should be applied to BitUSD imo.

(People buying at 1-1 will struggle to sell at parity even without being in competition with shorts while this 'utility friction' exists as a result little new BitUSD will be created. We should acknowledge this friction imo.)






jakub

  • Guest
Re: BitUSD Market Maker - Proposal for Discussion
« Reply #12 on: August 29, 2014, 04:59:22 PM »
6) Any short orders above the "current price" are automatically canceled.

Did you mean below the "current price"?

Offline stuartcharles

  • Sr. Member
  • ****
  • Posts: 281
    • View Profile
Re: BitUSD Market Maker - Proposal for Discussion
« Reply #13 on: August 29, 2014, 05:00:52 PM »
Please focus on fixing bugs first, give the system time to mature.

Limiting the downside to 90% will inhibit price discovery and free markets.

I believe Bitshares is supposed to operate as a free market, without any outside interference. This scheme will create a feeling of a Bitshares central bank that is monitoring and controlling the system.

What will help the system grow will be making arbitrage easier. If there is easy creation of arbitrage bots and automated market makers, then this should work.

Many financial brokers offer CFD, cash for difference instruments, which operate exactly like the bitassets, except the brokers act as a market maker in them, and uses underlying financial markets to hedge the instruments. If we make hedging easy, then automated market makers and arbitrage bots should fulfill that role.

Apologize for lack of understanding and knowledge, been casually following this forum, and do hold BTSX.

Against this suggestion.

I agree with this too, but i also understand the anxiety that if we miss the opportunity make people believe that 1 bitusd = 1 usd then it might be lost for ever. Is it worth discussing this proposal as a plan b to be implemented only if near parity is not reached by xx/xx/xxxx or if the bitusd falls below xx usd? Just having it in place and tested, ready to go at a moments notice could help them aline.

Offline cygnify

  • Full Member
  • ***
  • Posts: 118
    • View Profile
Re: BitUSD Market Maker - Proposal for Discussion
« Reply #14 on: August 29, 2014, 05:01:14 PM »
Given those facts here are some additional things I have realized:
1) There is never any reason for new BitUSD to be created below the market value
This we agree on.  So, please just make the change that prevents any short that is below the median price feed from being matched.  Believe it or not, this is all you need to do.

Everything else is over complication, wasted time, and opening new attack vectors.

Any reason not to make the change?
+5% completely agree. Its pretty close to working no need for drastic changes. This suggestion would help dramatically till the market matures.

 

Google+