bitSHARES - As True Shares and Not a Currency!

[tonyk]

I never understand these things at first but today we have the problem that shorts don't want to create BitUSD at 1-1 and demand a huge premium because BTS price expectations are neutral to negative and they can be force settled/margin called pretty easily.

This solution seems to require equal/more collateral from BitUSD creators, so the problem will remain/be exasperbated and very little BitUSD will be created?

I do not claim this proposal to be perfect. It just solves (well seems to solve) a bunch of issues and delivers improvements on several fronts. Until it is implemented it will remain just a theory [and as you might know there are people that use the "It is just a theory" and not a 'fact' argument even against Darwinism].

Besides the things already mentioned in the OP:

- It removes the BTS from the centralized exchanges. Something arguably very desirable.

- It moves all the BTS trading in the DEX... this might not be the 40,000 BTC a day trading volume ETH has, but is a great start for the DEX

- The fee structure and bitUSD being the 'core/fee token' aims at among other things increasing the bitUSD in existence (and so arguably liquidity). How?
Let's say on day one bitUSD still trades with 7% premium (which is misnomer in this system as I explained earlier), but let's say that a person  thinks BTS should be 7% higher right now. So instead of buying 50 bitUSD in the market, he issues 50 bitUSD to himself (using his 1/2 mill in BTS account, puts 17x collateral behind his 50 bitUSD borrowed!!!) and  buys the name  "Empirical888" for his token. The fee to create this asset, must be paid in bitUSD, so 50 bitUSD fee is collected by the system. 30 days later this 50 bitUSD (and all other fees all in bitUSD) are spread to all BTS holders as dividend.
Results: not only bitUSD creation is encouraged and more bitUSD start circulating in the system, but most importantly a use case for bitUSD is created (other then hedging against BTS price drops).

[noisy]

You might ask, why anyone would risk issuing an assets, when in case of margin call, they would loose their money. In my understanding the benefit would be a bridge fee as a profit. But is it that mean, that issuer will has to believe, that BTS price will rise? Is it not a too risky assumption for businesses like gateway/bride provider? Exchanges should earn money despite the fact that prices sometimes drops.

True. Exchanges should not be the final bitUSD issuers (or at least not with big portion of their funds). Ideally they  should just buy bitUSD from the market and leave the risk spread between several (hundred; thousand??? ) BTS bulls.

but gateways could do that in the current implementation of bitshares 2.0, but they decided to issue their own assets, and trap user in their 3rd-party risky UIA orderbook. Right now there is no direct gateways. As far as I know, only http://www.transwiser.com/ solds CNY-->bitCNY as 1:1 (1:0.997 in oposit direction)

Isn't it nearly always the case that you short sell because you think your collateral will increase in value?

In your scenario what if CCEDK just bought 1 USD off the DEX or some other exchange rather than issuing it themselves and then offered you $0.99 bitUSD for your $1 USD. Then they make their 1% spread without being exposed to any collateral risk. They'd also offer to buy bitUSD for $0.99 USD making their spread 2%.

that is true, but I don't see why proposed idea is better. Right now they can do exactly the same... and still they don't.

Am I missing something?

Right now, the only difference I see is that you want to block a possibility to transfer BTS, and force people to trade them for bitUSD and later. Imagine what Poloniex will think if they be trapped inside our DEX. Of course, people can be notified in the first place to withdraw funds from poloniex, but later we would trap them in DEX anyway... they will be trapped, because right now we do not have developed strong gateways. Hearing such news, I would prefer sold all my bitshares, just in case. And if you think, that people will come immediately directly through gateways/brides, you are probably wrong (IMO).

maybe it will be better to make a fork? I don't know.

PS.

Maybe we should focus on different bitAsset, I mean bitCNY. They provide direct almost 1:1 gateway.

[cube]

This idea would work if there are values in the DEX co-op so much so that users want to get in.  Otherwise the effect can be detrimental.  I think we are still building values and liquidity on the blockchain and it is too early to consider such a move.

[Empirical1.2]

I never understand these things at first but today we have the problem that shorts don't want to create BitUSD at 1-1 and demand a huge premium because BTS price expectations are neutral to negative and they can be force settled/margin called pretty easily.

This solution seems to require equal/more collateral from BitUSD creators, so the problem will remain/be exacerbated and very little BitUSD will be created?

[Riverhead]

You might ask, why anyone would risk issuing an assets, when in case of margin call, they would loose their money. In my understanding the benefit would be a bridge fee as a profit. But is it that mean, that issuer will has to believe, that BTS price will rise? Is it not a too risky assumption for businesses like gateway/bride provider? Exchanges should earn money despite the fact that prices sometimes drops.

Isn't it nearly always the case that you short sell because you think your collateral will increase in value?

In your scenario what if CCEDK just bought 1 USD off the DEX or some other exchange rather than issuing it themselves and then offered you $0.99 bitUSD for your $1 USD. Then they make their 1% spread without being exposed to any collateral risk. They'd also offer to buy bitUSD for $0.99 USD making their spread 2%.

[tonyk]

(this is the part, when I don't know what will going to happen... I am improvising. Please correct me!)

Because 1 BTS is now worth only 0.04375 USD, that means that with 1 USD network can buy ~22.9515 BTS (let's say ~23 BTS). But because 200% is required, ~46 BTS are needed (6 BTS more than before). Those 6 BTS are taken from collateral of issuer (in that case CCEDK) and 40-26=14 BTS will be given them back. Because CCEDK not adjusted collateral, they loose ~6 BTS from their 20 BTS of collateral (~30%). In that case loan was paid from CCEDK funds.

That part is pretty much the same way it is now (aside from the auto price adjustment rules, with which I came up  on the fly, but those new rules serve the new circumstances better)

The system is selling the collateral (BTS) and buying bitUSD in order to close the loan (i.e. get back the bitUSD it has given as a loan ). As the price of BTS now is lower than back when the loan was taken, the borrower (CCEDK) gets less BTS than if it simply returned the 1 bitUSD borrowed.
Adjusting the collateral helps only if the price of BTS goes back up. If the price stays at that level and the borrower has spend the bitUSD (which in the example is the case) the loss is permanent.

You might ask, why anyone would risk issuing an assets, when in case of margin call, they would loose their money. In my understanding the benefit would be a bridge fee as a profit. But is it that mean, that issuer will has to believe, that BTS price will rise? Is it not a too risky assumption for businesses like gateway/bride provider? Exchanges should earn money despite the fact that prices sometimes drops.

True. Exchanges should not be the final bitUSD issuers (or at least not with big portion of their funds). Ideally they  should just buy bitUSD from the market and leave the risk spread between several (hundred; thousand??? ) BTS bulls.

[noisy]

You might ask, why anyone would risk issuing an assets, when in case of margin call, they would loose their money. In my understanding the benefit would be a bridge fee as a profit. But is it that mean, that issuer will has to believe, that BTS price will rise? Is it not a too risky assumption for businesses like gateway/bride provider? Exchanges should earn money despite the fact that prices sometimes drops.

[noisy]

I will describe how I understand new idea.

Let's say, 1 BTS costs 0.05 USD

I want to buy a 1 bitUSD with USD. To do that, I give that 1 USD to CCEDK.

Next, CCEDK checks what is a price of BTS in DEX. With price 1 BTS for 0.05 USD, CCEDK can buy 20 BTS for one dolar. But it is not enough to issue a 1 bitUSD. To do that, they have to add their own 20 BTS.

Then with 40 BTS collateral , 1 bitUSD is created. Then they send this 1 bitUSD to me

What can happen next?

Let's @bytemaster will say that he has to go for 6 months long vacations. Then some BTS shareholders suddenly sold a lot of BTS, and price drops from 0.05 USD to 0.04375 USD per BTS

In that case 40 BTS collateral which were used to create my 1 bitUSD is worth only 1.75 USD. Then "margin call" are initialized. The automated order is created, and network tries to sell these 1 bitUSD (actually the loan is going to be sold). Because the initial collateral in that case was 200%, network has to take care to retrieve enough funds to keep collateral.

(this is the part, when I don't know what will going to happen... I am improvising. Please correct me!)

Because 1 BTS is now worth only 0.04375 USD, that means that with 1 USD network can buy ~22.9515 BTS (let's say ~23 BTS). But because 200% is required, ~46 BTS are needed (6 BTS more than before). Those 6 BTS are taken from collateral of issuer (in that case CCEDK) and 40-26=14 BTS will be given them back. Because CCEDK not adjusted collateral, they loose ~6 BTS from their 20 BTS of collateral (~30%). In that case loan was paid from CCEDK funds.

[yvv]

OL already has their USD. It is called OPEN.USD. It is 1:1 pegged to USD, which is good. But it has a problem: a counter party risk, which bitUSD does not have.

If they buy or sell bitUSD for a small spread on Open.usd the risk is less then on a centralized exchange since it'd just be an on/off ramp. However services like coinomat will do bitUSD to real (Visa) usd for a small spread.

This is true that trading bitUSD for Open.USD would be great. But you still need to provide a settlement price feed to issue bitUSD.

[Riverhead]

Sorry my English maybe.

So if you have USD - you buy bitUSD with USD - from say Ronny's ccedk, and start trading in the DEX.
If you have BTC - you buy bitUSD with BTC on say polo or from blocktrades gateway.
More or less same as now, just BTS will be non-transferable, but only tradeable. That is to say the only way to get BTS is to buy them in the DEX itself for bitUSD (or other DEX Asset)

And how do you derive a settlement price for bitUSD, if you don't trade BTS against real USD at external exchange?

The external exchange isn't real USD either. It's an issued asset just like bitUSD.

No, it is not like bitUSD. True that it is not a real USD though. It is an IOU which is hard pegged to 1 Fed Reserve USD. In contrast to USD IOU, bitUSD is loosely pegged to Fed Reserve USD, but has no counter party risk. In order to peg bitUSD to USD, you need to trade USD or some hard pegged IOU for BTS to derive a settlement price. What is your solution to this issue?

Why?
Isn't OL exchanging bitUSD for USD at 1:1 rate and say 0.25% commission even better?

OL already has their USD. It is called OPEN.USD. It is 1:1 pegged to USD, which is good. But it has a problem: a counter party risk, which bitUSD does not have.

If they buy or sell bitUSD for a small spread on Open.usd the risk is less then on a centralized exchange since it'd just be an on/off ramp. However services like coinomat will do bitUSD to real (Visa) usd for a small spread.

[yvv]

Sorry my English maybe.

So if you have USD - you buy bitUSD with USD - from say Ronny's ccedk, and start trading in the DEX.
If you have BTC - you buy bitUSD with BTC on say polo or from blocktrades gateway.
More or less same as now, just BTS will be non-transferable, but only tradeable. That is to say the only way to get BTS is to buy them in the DEX itself for bitUSD (or other DEX Asset)

And how do you derive a settlement price for bitUSD, if you don't trade BTS against real USD at external exchange?

The external exchange isn't real USD either. It's an issued asset just like bitUSD.

No, it is not like bitUSD. True that it is not a real USD though. It is an IOU which is hard pegged to 1 Fed Reserve USD. In contrast to USD IOU, bitUSD is loosely pegged to Fed Reserve USD, but has no counter party risk. In order to peg bitUSD to USD, you need to trade USD or some hard pegged IOU for BTS to derive a settlement price. What is your solution to this issue?

Why?
Isn't OL exchanging bitUSD for USD at 1:1 rate and say 0.25% commission even better?

OL already has their USD. It is called OPEN.USD. It is 1:1 pegged to USD, which is good. But it has a problem: a counter party risk, which bitUSD does not have.

[yvv]

Sorry my English maybe.

So if you have USD - you buy bitUSD with USD - from say Ronny's ccedk, and start trading in the DEX.
If you have BTC - you buy bitUSD with BTC on say polo or from blocktrades gateway.
More or less same as now, just BTS will be non-transferable, but only tradeable. That is to say the only way to get BTS is to buy them in the DEX itself for bitUSD (or other DEX Asset)

And how do you derive a settlement price for bitUSD, if you don't trade BTS against real USD at external exchange?

The external exchange isn't real USD either. It's an issued asset just like bitUSD.

No, it is not like bitUSD. True that it is not a real USD though. It is an IOU which is hard pegged to 1 Fed Reserve USD. In contrast to USD IOU, bitUSD is loosely pegged to Fed Reserve USD, but has no counter party risk. In order to peg bitUSD to USD, you need to trade USD or some hard pegged IOU for BTS to derive a settlement price. What is your solution to this issue?

In nuance (2c) it seems bitUSD is hard pegged too in contrast to how it is now.

Then some trusted party will need to issue them. This introduces a counter party risk. There are such assets in bitshares already. The beauty of bitUSD is stable value and no counter party risk. It needs a settlement price feed to be pegged.

[tonyk]

Sorry my English maybe.

So if you have USD - you buy bitUSD with USD - from say Ronny's ccedk, and start trading in the DEX.
If you have BTC - you buy bitUSD with BTC on say polo or from blocktrades gateway.
More or less same as now, just BTS will be non-transferable, but only tradeable. That is to say the only way to get BTS is to buy them in the DEX itself for bitUSD (or other DEX Asset)

And how do you derive a settlement price for bitUSD, if you don't trade BTS against real USD at external exchange?

The external exchange isn't real USD either. It's an issued asset just like bitUSD.

No, it is not like bitUSD. True that it is not a real USD though. It is an IOU which is hard pegged to 1 Fed Reserve USD. In contrast to USD IOU, bitUSD is loosely pegged to Fed Reserve USD, but has no counter party risk. In order to peg bitUSD to USD, you need to trade USD or some hard pegged IOU for BTS to derive a settlement price. What is your solution to this issue?

Why?
Isn't OL exchanging bitUSD for USD at 1:1 rate and say 0.25% commission even better?

[Riverhead]

Sorry my English maybe.

So if you have USD - you buy bitUSD with USD - from say Ronny's ccedk, and start trading in the DEX.
If you have BTC - you buy bitUSD with BTC on say polo or from blocktrades gateway.
More or less same as now, just BTS will be non-transferable, but only tradeable. That is to say the only way to get BTS is to buy them in the DEX itself for bitUSD (or other DEX Asset)

And how do you derive a settlement price for bitUSD, if you don't trade BTS against real USD at external exchange?

The external exchange isn't real USD either. It's an issued asset just like bitUSD.

No, it is not like bitUSD. True that it is not a real USD though. It is an IOU which is hard pegged to 1 Fed Reserve USD. In contrast to USD IOU, bitUSD is loosely pegged to Fed Reserve USD, but has no counter party risk. In order to peg bitUSD to USD, you need to trade USD or some hard pegged IOU for BTS to derive a settlement price. What is your solution to this issue?

In nuance (2c) it seems bitUSD is hard pegged too in contrast to how it is now.

[Riverhead]

I think I got it. Is that mean, that to have a possibility of issuing bitCNY, we have to have a possibility of buying BTS directly by bitCNY ? etc?

Wouldn't be that different than now. Buy BTS with some asset bought via a bridge or gateway then use that to collateralize the asset you want to issue.