Quote from: merivercap on May 13, 2015, 09:42:02 pm

1)  When I mean 'stable' I just meant generally pegged, but I'm using the word loosely so we may not really differ in opinion.  I don't really care that bitUSD fluctuates between $0.90 and $1.10 and I don't think bitUSD holders will care either, although adding the floor in the current design so prices fluctuate between $1.00 and $1.20 seems fine.

@Bytemаsteг
I remember from the beginning our target is peg at price 1.0 +/- 0.01
so everybody can be a market maker, sell at price more than 1.0, buy at price less than 1.0
and users can use bitUSD for payment just like 1.0 fiat USD

I want ask you if this is your new plan, peg at price from $1.0 to $1.2?
I want know how to use this bitUSD for payment, why I pay bitUSD to others when bitUSD's price always more than 1?
as a  gateway, what's the price to sell bitUSD, and what's the price to buy bitUSD?

It is always a good deal to buy BitUSD for $1.00
It is always a good idea to sell BitUSD for as much as possible.
As a gateway, I would have a buy wall at $1.00 and then sell whatever inventory I get on the market... this would be the safest bet, but will probably result in the Gateway not having much BitUSD.
As a merchant, you "buy" bitUSD with a dollar's worth of merchandise.

The market must discover the price premium, I obviously want it to be as close to $1.00 as possible, but I have no idea what kind of premium shorts will demand and it will change over time depending upon how many people are selling BitUSD, how many are shorting, and how many are buying.  Until the market discovers the equilibrium we will have to wait and see.  It would probably be helpful to have a graph of the premium relative to the feed over time.

The attack doesn't seem that realistic though, as it relies on someone going long on BTS and then attacking the BTS price.

1) a buy a bunch of BTS, then a bunch of bitCNY. In a properly functioning market, I paid a premium for bitCNY because 1 bitCNY is supposed to be > 1 CNY.
2) I request a forced settlement (losing the premium I paid).
3) I wait 23 hours and sell all the BTS I bought (which incurs a loss as I drive down the market)
4) my forced settlement goes through, and I get a lot of BTS because of my attack. But those BTS are now worth less than what I paid for them in order to get the CNY in the first place.

In the end: I paid a premium to buy CNY, which I lost. I sold a lot of BTS for less money than I paid for them. I force settled my CNY for more BTS than the CNY was originally worth (as long as I can overcome the premium I paid). Now I have BTS, which are not worth very much since I drove down the price and I overpaid for CNY in the first place.

Great analysis.  Furthermore, the attack can be mitigated dramatically by rate limiting force settlement.  If the maximum daily force settlement amount is not enough value to manipulate the market by enough to overcome the premium paid then this is a non-issue.   Furthermore, I am not convinced that a 24 hour delay is ideal for force settlement.  Perhaps closer to a few hours would be better.

Quote from: bytemaster on December 01, 2015, 07:58:13 pm

An option with a 10 year expiration is close enough to infinite. The further in the future you go the smaller the difference in price.

So do your estimation based upon the curve generated by 3 month, 6 month, and 12 month expirations.

Do you have any idea how much an option with 3 y expiration and the volatility of BTS will cost?

I bet it will be hitting 1usd per 1usd if not more.

I actually think that the option is not infinite in term because the option doesn't have a fixed price.  So I think that is the wrong algorithm to use.

When I go short, I am pricing the cost of finding someone else to take over my short position in the future relative to the BitUSD holder wishing to exercise.

With liquidity and no fixed price, the premium can be much lower.

An option with a 10 year expiration is close enough to infinite. The further in the future you go the smaller the difference in price.

So do your estimation based upon the curve generated by 3 month, 6 month, and 12 month expirations.

Quote from: Samupaha on December 01, 2015, 09:44:00 am

Customers use BitUSD because it provides them the convenience and freedom of a cryptocurrency, and has the lowest transfer fees of any other payment platform.

The transfer fees are not as low now.
Are we coming back to advertise BitShares as a payment platform? Haven't we argued that BitShares is mainly in exchange business?

That text hasn't changed so there is no "coming back". 
The purpose of BitUSD is to create a currency pegged to the dollar.  Currency is used for payment.
BitUSD depends upon a  successful exchange.

Perhaps we need to remove the word "lowest" and simply say "low".

Much of the debate around BitAssets being bootstrapped focuses around improving liquidity. Liquidity is what gives people confidence in a price and/or value. If you cannot be guaranteed a buyer ON DEMAND then spreads increase.

To gain immediate liquidity you must compromise price. The more you lower your asking price the more likely you will find an immediate buyer for the asset you wish to sell.

So the question becomes *when* do you make the decision to compromise price for liquidity? 

1. At the time you buy the asset you lock in your liquidity price?
2. At the time you sell the asset you take what you can get?

The current BitAsset 2.0 system is superior to prior systems because the participants lock-in the price of liquidity-on-demand before entering the contract. As a buyer of a BitAsset I pay $1.10 for 1 BitUSD knowing I have locked in liquidity with a maximum downside of $0.10 if I need instant liquidity. 

As a short I am simultaneously pricing the cost of providing liquidity and the risk of dollars rising against my position.  After assessing the risks I agree to sell short at $1.10 per BitUSD.  If someone buys it from me, and then immediately demands liquidity (settlement) then I profit 10%. 

The result is that any short who gets force settled is existing at FAVORABLE price, they collect the full premium relative to the price feed.

We have constructed an asset (BitUSD) that is extremely favorable for the BitUSD holder (guaranteed price floor and liquidity).   To get these benefits, it comes at a price which is paid to the short.  Those who claim the market is "unbalanced" and favors the BitUSD holder over the short ignore the fact that the short gets to NAME THEIR PRICE.  In other words, the short gets to set the price at which BitUSD is created.

While the short gets to set the price at which BitUSD is created, they must buy back from the market to cover.  This means that BitUSD holders + future shorts get to set the price at which BitUSD can be destroyed.

This means the market can function perfectly so long as all participants trade BitUSD according to supply/demand for this asset class and the parties factor in the risks.

So if we want to increase liquidity all that is required is to trade at the proper price.   There is nothing we can do to decrease the premium (spread) because risks can be moved/reallocated but not destroyed.

Socializing the risks can take pressure off of individual traders and help bootstrap the system.  Socializing these risks means offsetting some of the costs.

The BitShares network can offer a reward to those who keep orders on the book at the best price. Namely, those who have open orders to sell BitUSD at the lowest price could be paid a bonus in BTS *IF* they are also short BitUSD.

Currently Shorts must cover the cost of liquidity, while BitShares collects the profits (market fees). If market fees for BitAssets were redirected to shorts who provide liquidity and create the supply in the first place then we would be adding a revenue source to shorts which will lower their costs and reduce the spread.

Maker - the person who has an open order on the books that is unfilled
Taker - the person who places an order that matches an open order.

If the Taker pays a market fee, and the Maker receives the market fee then we can incentivise people to keep orders on the books. In reality this simply means not charging a market fee for any order that stays on the books for a minimum length of time.

But Maker/Taker can only go so far because it does nothing to compensate for things like price feed risk, volatility risk, or the probability that BitShares will fall in value. These are risks that are global (inherent in BTS) and thus the traders in the market can only price it in.  The BTS holders are the ones betting on the system, they are the ones who profit from its success, and they are the ones that "own" the risk. In a sense they are the ones that must pay the cost of mitigating that risk and lowering the premium.

So if we want to have BTS holders reduce the premium without exposing BTS holders to outright abuse caused by providing a market maker at the price feed, then we need to subsidize those who do provide a market maker. This gives BTS holders a "Fixed Cost" that cannot be abused, while reducing the average cost to those creating BitUSD.

Suppose that open orders to sell BitUSD paid a yield in BTS that was significant. For a certain amount of yield we could find plenty of participants willing to short BitUSD and sell near the feed. All we need to do is define a budget and a payout equation that rewards those who are SHORT and have orders placed near the feed AND keep them there for a while.  An algorithm that is also efficient to implement will be required.

The result of this would be similar to paying people to take a risk that BTS falls in value.  In other words, we can arbitrarily stimulate demand to create BitUSD (ie: simulating a bull market in BTS) by guaranteeing profits to those who place orders.  In principle if we could pay interest to those who are short then that would be best, but unfortunately anyone can easily short to themselves. This means that we can only pay those who keep open orders on the books near the feed. If you attempt to "short to yourself" then you fill your open order and stop earning interest. 

With the right size reward the liquidity problem can be solved while keeping the costs to BTS holders fixed. 

 

Cool!

Yes