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Offline starspirit

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I would like to see if others can verify what I've been thinking here - there is a touch of maths involved. Could anyone let me know if my logic or understanding of the mechanics here is wrong.

This argument assumes there no grandfathering, and every current and new short has to close their position within 30 days (a position we will eventually be in once the grandfathering rolls off).

Now lets say for simplicity we have an outstanding supply of 100 (100 long and 100 short). The worst case scenario from a peg-stability perspective is that all the 100 longs wish to simultaneously sell. To guarantee they get the feed price then, they merely need to set their sell orders at an arbitrarily small distance below the feed price, and wait for the 100 shorts to cover within the 30 days. Its not possible for extra sellers to join the queue, because there is no more supply available to sell, and new supply can only be created by shorts at or above the feed price (in which case new buyers would have to eat up the sell offers first). Now of course if for whatever reason some sellers are more urgent, they may need to take a discount within the 30 days, but the patience of hold-outs to sit ought to guarantee exit at (or extremely close to) the feed price sometime within 30 days.

Is there a flaw in this logic?

Offline tonyk

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I do not see a flow in your logic.
What is your point, though?
Guaranteed exit from any bitAsset at very very tiny discount below the peg, in reasonably short time period is very desirable feature.
« Last Edit: October 09, 2014, 10:34:59 PM by tonyk »
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline Sonny Jim

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I do not see a flow in your logic.
What is your point, though?
Guaranteed exit from any bitAsset at very very tiny discount below the peg, in reasonably short time period is very desirable feature.

Yes, it is, if true.  I'm not sure this benefit is obvious.  So much math and analysis  :-[

Offline starspirit

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I do not see a flow in your logic.
What is your point, though?
Guaranteed exit from any bitAsset at very very tiny discount below the peg, in reasonably short time period is very desirable feature.
If it is correct, it is very desirable - its effectively guaranteed 'redeemability' for longs, and could be a key marketing feature for BitUSD in addition to the fact that holdings are more than fully collateralised. It would also allow market-making bots to operate at the peg and substantially increase liquidity without fear of ever needing to sell inventory at a discount, which would increase liquidity and attractiveness on all exchanges. At first I didn't like these rules - now its looking more and more to me like a stroke of BM genius. But I'm jumping ahead. My point is firstly to confirm if this is actually correct or not.

Offline tonyk

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I do not see a flow in your logic.
What is your point, though?
Guaranteed exit from any bitAsset at very very tiny discount below the peg, in reasonably short time period is very desirable feature.
If it is correct, it is very desirable - its effectively guaranteed 'redeemability' for longs, and could be a key marketing feature for BitUSD in addition to the fact that holdings are more than fully collateralised. It would also allow market-making bots to operate at the peg and substantially increase liquidity without fear of ever needing to sell inventory at a discount, which would increase liquidity and attractiveness on all exchanges. At first I didn't like these rules - now its looking more and more to me like a stroke of BM genius. But I'm jumping ahead. My point is firstly to confirm if this is actually correct or not.
Your analyses is correct! And it is a feature that need to be advertised more. I did not recognize this result  at first glance either, btw.

You hold say 5% of all bitUSD. You are totally guaranteed to sell those at the peg minus 0.00001 (aka 0.99999) in one month or less.
-You just keep your order 0.00001 bitUSD below the peg. (* even that will not be necessary if regular sell orders preside (execute before) the short sell orders when both have the same price)
-In one month (or less) your order will execute because all short will have to cover. And no new bitUSD can come into existence(your order is preventing that from happening before it is filled). So, if even in the unlikely scenario that the rest 95% of all bitUSD jump the gun and want to sell below the peg (i.e. before you) by day 30, now new bitUSD will have come into existence and as all shorts have to cover by/in 30 days your order will be filled.

Voilà! Guaranteed exit from any bitAsset at very very tiny discount below the peg in 30 days or less!
« Last Edit: October 09, 2014, 11:08:19 PM by tonyk »
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline liondani

Voilà! Guaranteed exit from any bitAsset at very very tiny discount below the peg in 30 days or less!

WOW !!!
THATS HUGE !!!
« Last Edit: October 09, 2014, 11:14:34 PM by liondani »
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Offline starspirit

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OK, so we'll still give this time to see if anyone has a counter-argument. But assuming it's right for the moment, as of today, this cannot be guaranteed because of the grandfathered positions. Though I think it was the fair thing to do not force pre-existing shorts immediately to the new rule, it might now be in their collective interests to voluntarily close out these grandfathered positions to see better pegging and promotion of BitUSD and BTSX. BitUSD could be marketed, as I began in another thread, based on 2 key unique features - its 'collateralisation', and its 'buyback' feature.




Offline tonyk

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OK, so we'll still give this time to see if anyone has a counter-argument. But assuming it's right for the moment, as of today, this cannot be guaranteed because of the grandfathered positions. Though I think it was the fair thing to do not force pre-existing shorts immediately to the new rule, it might now be in their collective interests to voluntarily close out these grandfathered positions to see better pegging and promotion of BitUSD and BTSX. BitUSD could be marketed, as I began in another thread, based on 2 key unique features - its 'collateralisation', and its 'buyback' feature.

The grandfathering does not exist any released version (IFAIK)... so it can be removed...
And as I said this, I second your request to be removed.
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline bytemaster

I thought this was a self evident result of the forced cover!   

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Offline GaltReport

I thought this was a self evident result of the forced cover!

That's funny.  Self evident TO YOU! LOL

Offline starspirit

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I thought this was a self evident result of the forced cover!

Lol, maybe you need to spell these things out for us with IQ<<BM!
I didn't like this level of market intervention before, but these rules (forced cover + constrain on new supply creation below feed price) have combined to create the equivalent of issuers of the currency unit effectively guaranteeing its full redemption value within 30 days through a market buyback, even though I know that is not the language that has been used previously. That appears to be an elegant and powerful selling point, assuming it were a permanent feature(?).

Offline tonyk

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I thought this was a self evident result of the forced cover!

That's funny.  Self evident TO YOU! LOL
+5%

Ok, any way the gene is out for everyone now... so let's market the hell out of it!

PS
And I am quite positive *cob* did not quite get it, when you personally explained it to him, Monday 10/06/2014 about 21:00h UTC.
« Last Edit: October 10, 2014, 03:49:32 AM by tonyk »
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline ozvic

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It might be useful if you could do a 'Sell BitUSD' order 'at the Price Feed/PEG' (assuming ASKS are filled before SHORTS) to avoid having to chase the PEG around.

Offline xeroc

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I thought this was a self evident result of the forced cover!

That's funny.  Self evident TO YOU! LOL
lol yeha .. lot's of these consequences are pretty much obvious .. to someone else  :o
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