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Offline emski

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bitUSD Feeds And Limits
« on: September 04, 2014, 06:59:02 AM »

If shorts are limited to 90% of the feed price.
Should a 110% limit be enforced?
Effectively allowing trade only in 90-110% of the price feeds.
What is the reason to have only lower limit?

Offline tonyk

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Re: bitUSD Feeds And Limits
« Reply #1 on: September 04, 2014, 07:04:31 AM »
Congrats on post 500!

Do you mean limiting the short orders or the bids to 1.1?
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline emski

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Re: bitUSD Feeds And Limits
« Reply #2 on: September 04, 2014, 07:19:06 AM »
Congrats on post 500!

Do you mean limiting the short orders or the bids to 1.1?

Thanks.

If you limit shorts who cares about bids ?

Offline tonyk

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Re: bitUSD Feeds And Limits
« Reply #3 on: September 04, 2014, 07:30:33 AM »
-This side of the order book (short/ask) is sorted in decreasing order for trade purposes. So, imposing max limit generally does not work (you will, in most cases, end with higher price near/at execution level, if you do it to the shorts only leaving the asks to do whatever they like to do)

- The current 90% for short orders is nothing more than a money grab by the system, with sanity check of 10% max stupidity ( I put it nicely in a post, but due to excessive posting I have hard time finding the link... maybe in a bit I will edit this post)
[edit] https://bitsharestalk.org/index.php?topic=8211.msg107741#msg107741
« Last Edit: September 04, 2014, 07:36:23 AM by tonyk »
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline emski

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Re: bitUSD Feeds And Limits
« Reply #4 on: September 04, 2014, 08:23:36 AM »
This was done to prevent shorts from lowering significantly the price when expectations for BTSX/USD are high.
Imagine the other way around:
BTSX is at a high peak (lets say $1) and a lot of people expect it to fall significantly ( for example due to Daniel Larimer's arrest for suspicion of violating the Arms Export Control Act ( cryptographic software is considered a munition) ... JOKE intended... about Dan's arrest ... not joking about Arms Export Control Act).

In that case the people owning bitUSD would like to go back to USD because:
1 Keeping the funds in BTSX is unprofitable (as the price is going down).
2 Keeping the funds in bitUSD is risky as there might not be enough collateral and even if there is we go back to 1.

Whenever we have high demand for something (exchange bitUSD -> BTSX -> USD) its cost can climb significantly resulting in people wanting to get rid of their bitUSD at (any) cost.
In such situations I imagine selling at 200% or 300% of the feed price just to get out of the system. (Another option would be forced cover... Where is that going ? ).

I think that such bitUSD/BTSX volatility is not beneficial for the system and it would only produce panic.

I think limiting the shorts at 110% of the price feed will prevent BTSX/bitUSD price volatility and might be better for the system.
Essentially there will be forced market peg and trade might cease during high volatility periods and resume afterwards.
The other option is force-cover as Bytemaster suggested.
Is there any other?
« Last Edit: September 04, 2014, 08:29:15 AM by emski »

Offline nikauforest

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Re: bitUSD Feeds And Limits
« Reply #5 on: September 04, 2014, 10:00:25 AM »

I think that such bitUSD/BTSX volatility is not beneficial for the system and it would only produce panic.

I think limiting the shorts at 110% of the price feed will prevent BTSX/bitUSD price volatility and might be better for the system.
Essentially there will be forced market peg and trade might cease during high volatility periods and resume afterwards.
The other option is force-cover as Bytemaster suggested.
Is there any other?

if you stop trading every time there is volatility, you no longer have a market that is worth participating in. Imagine the being locked out and not able to execute. That will cause people to turn away from using the system.

I have noticed on the NXT asset exchange mgwBTC : NXT spreads have narrowed dramatically over the last two weeks. More users are causing the spread to narrow. There are no limits or rules and the system is getting better.

I like the bitshares platform but you cannot force a market to behave the way , you the developers want.  or you may get the market to behave the way you want, but you will have fewer market participants. Are you going to try and impose rules on every pair within the system?


Offline emski

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Re: bitUSD Feeds And Limits
« Reply #6 on: September 04, 2014, 11:21:08 AM »
Free market is best.
However my question was different: As 90% rule is in place why there is no 110% rule.

Offline bytemaster

Re: bitUSD Feeds And Limits
« Reply #7 on: September 04, 2014, 01:31:32 PM »
Free market is best.
However my question was different: As 90% rule is in place why there is no 110% rule.

First it helps to get terms defined in a way that is clear because 90% or 110% depends upon which way you view the order book. 

The "actual rule" is  "though shalt not short new BitUSD into existence at prices that would devalue  BitUSD relative to USD".   
You can short at prices that "over value BitUSD", but in this case you are likely to be out bid by people willing to sell their BitUSD closer to the Peg.

The other way to view the rule is this:  shorting is only provided when demand for BitUSD exceeds the supply of BitUSD at the peg price. 

So the market is fluid and unrestricted between BitUSD and BTSX longs, it is only restricted in the new issuance.   

I also think that in the scenario where I am hit by a bus, BTSX should not be so volatile that BitUSD will become worthless.   There are many developers who can work on the system and it is already mostly there.




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Offline biophil

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Re: bitUSD Feeds And Limits
« Reply #8 on: September 04, 2014, 01:47:27 PM »

I think that such bitUSD/BTSX volatility is not beneficial for the system and it would only produce panic.

I think limiting the shorts at 110% of the price feed will prevent BTSX/bitUSD price volatility and might be better for the system.
Essentially there will be forced market peg and trade might cease during high volatility periods and resume afterwards.
The other option is force-cover as Bytemaster suggested.
Is there any other?

if you stop trading every time there is volatility, you no longer have a market that is worth participating in. Imagine the being locked out and not able to execute. That will cause people to turn away from using the system.

I have noticed on the NXT asset exchange mgwBTC : NXT spreads have narrowed dramatically over the last two weeks. More users are causing the spread to narrow. There are no limits or rules and the system is getting better.

I like the bitshares platform but you cannot force a market to behave the way , you the developers want.  or you may get the market to behave the way you want, but you will have fewer market participants. Are you going to try and impose rules on every pair within the system?

mgwBTC is backed by actual BTC. You deposit BTC, and then they send mgwBTC to the AE. It's a fundamentally different animal than bitAssets. The only thing that mgwBTC needs to track the value of BTC is that trust needs to be maintained in the people who run it.

Offline bytemaster

Re: bitUSD Feeds And Limits
« Reply #9 on: September 04, 2014, 03:11:39 PM »
There are no rules on user issued assets.  Someone could create GoxUSD on BTSX and trade it against everything else.  It would still be GoxUSD and subject to trust in GOX.

So we have changed the game, now all you have to trust is the following:

1) The price feeds will be reasonably honest
2) Shorts like to cover at a profit.

Over time the spread will narrow and BitUSD will trade exactly at the peg.  The only time it will deviate from the peg is when demand for BitUSD is so high and the median is lagging at which point in time BitUSD will be worth more than 1 USD.   All other times BitUSD will be pegged exactly. (more or less)

I suppose if the median is lagging and allows someone to short at a price slightly higher than "current".   

Eventually even the lagging median will be irrelevant because the supply of people trading BitUSD vs BTSX (not shorts) will be enough to maintain the peg. 
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Offline wesphily

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Re: bitUSD Feeds And Limits
« Reply #10 on: September 04, 2014, 03:14:51 PM »

I think that such bitUSD/BTSX volatility is not beneficial for the system and it would only produce panic.

I think limiting the shorts at 110% of the price feed will prevent BTSX/bitUSD price volatility and might be better for the system.
Essentially there will be forced market peg and trade might cease during high volatility periods and resume afterwards.
The other option is force-cover as Bytemaster suggested.
Is there any other?

if you stop trading every time there is volatility, you no longer have a market that is worth participating in. Imagine the being locked out and not able to execute. That will cause people to turn away from using the system.

I have noticed on the NXT asset exchange mgwBTC : NXT spreads have narrowed dramatically over the last two weeks. More users are causing the spread to narrow. There are no limits or rules and the system is getting better.

I like the bitshares platform but you cannot force a market to behave the way , you the developers want.  or you may get the market to behave the way you want, but you will have fewer market participants. Are you going to try and impose rules on every pair within the system?

I've seen stocks on s&p 500 get frozen due to too much volatility. Not sure why you are inferring that the Devs are doing something that isn't already done on major exchanges.

Offline oldman

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Re: bitUSD Feeds And Limits
« Reply #11 on: September 04, 2014, 03:47:32 PM »
I've seen stocks on s&p 500 get frozen due to too much volatility. Not sure why you are inferring that the Devs are doing something that isn't already done on major exchanges.

Exactly; no one in the finance industry will bat an eye at having breakers. In fact, a consensus market without breakers may be received with scepticism.

A hard-coded range limit is crucial for pegged assets that have value only in so far as they track the value of 'real' assets.

Who will put any substantial amount of wealth into bitUSD if there is the risk of some as-yet unknown attack breaking the peg?

I would even say the 10% range is too loose. Folks would probably be much more comfortable with 1-3%.

The range is essentially a risk premium for the convenience of holding/using a bitAsset.

At 10% downside bitUSD looks quite risky to an investor seeking a stable store of value.




Offline emski

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Re: bitUSD Feeds And Limits
« Reply #12 on: September 04, 2014, 03:50:46 PM »
I've seen stocks on s&p 500 get frozen due to too much volatility. Not sure why you are inferring that the Devs are doing something that isn't already done on major exchanges.

Exactly; no one in the finance industry will bat an eye at having breakers. In fact, a consensus market without breakers may be received with scepticism.

A hard-coded range limit is crucial for pegged assets that have value only in so far as they track the value of 'real' assets.

Who will put any substantial amount of wealth into bitUSD if there is the risk of some as-yet unknown attack breaking the peg?

I would even say the 10% range is too loose. Folks would probably be much more comfortable with 1-3%.

The range is essentially a risk premium for the convenience of holding/using a bitAsset.

At 10% downside bitUSD looks quite risky to an investor seeking a stable store of value.

That 10% is just imaginary. You are allowed to short at 90% ONLY if someone bids above 100%. You should be stupid to do that (unless there are significant amount of shorts at 99%, 98% ... etc).

Offline bytemaster

Re: bitUSD Feeds And Limits
« Reply #13 on: September 04, 2014, 03:58:36 PM »
You should be stupid to do that

The demand for leverage will set the "fee for shorting" so there is nothing stupid with shorting at 90% when the ask is 100% assuming there were others shorting at 91% 92%, etc. 

Effectively once the price hits parity shorts take priority over longs looking to sell and they compete on the fee they are willing to pay.  Until the price hits parity longs have priority over shorts.

There is demand for leverage and this demand to leverage your position helps secure/insure the BitUSD against faults. 
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Offline maqifrnswa

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Re: bitUSD Feeds And Limits
« Reply #14 on: September 04, 2014, 04:07:56 PM »
There is demand for leverage and this demand to leverage your position helps secure/insure the BitUSD against faults.

very well worded, I've been trying to articulate this for a week!
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