My assumption was you could short to yourself. It seems to me the way to balance the market.. You either buy BitUSD directly or buy BTS and create BitUSD if it's the cheaper option and you have collateral. Self-shorting is an important option but if we combine it with forced settlement I can imagine a manipulator accumulate $2 mil in BTS over time.. Exchange $1.5 mil BTS for BitUSD or short to self over time...then use 500k BTS to wait for low volume and sell BTS heavily at once and force liquidation on depressed BTS feed prices...is this a possibility?
AFAIK that's what the 24h notice is good for .. so that the price feed can recover ..
Also note that anything you do in the DEX is public! .. so you should be able to identify market manipulation .. in contrast to centralized exchanges..
The 24h notice doesn't help against the attack. The attacker only has to delay his BTS dumping until just before the settlement.
Also, detecting market manipulation doesn't help if the attack is executed quickly and anonymously.
I agree. I would think short term price movements can be manipulated to take advantage of this strategy even if there were a 24h notice.
I think rather than forced settlement, just use a maintenance margin. You can also eliminate the initial collateral requirement. If we eliminate the 100% initial margin, and just say anything below 50% maintenance margin will be settled at the bid at the end of the day, I think things may work out well. Hence anyone with above 50% maintenance margin will be safe from any kind of forced settlement.. and can re-collateralize at any time.
A very important question:
Can the shorts use the collateral to cover their orders?
the longs can directly buy BTS, but the shorts can not use their collateral even the collateral is enough.
THIS IS WHAT I FOUND ON NXT FORUM:
"
Within 9 days my position was down near 10%. I decided I would take the loss and exit the trade.
Well, in attempting to close the trade, I kept getting error messages saying I didn't have enough bitUSD to buy back what I shorted.
I thought maybe this was a bug with one of the updated versions. I went to the forums and posted my problem.
To my surprise I was told I was stuck unless I went and bought more BTS and then bought more bitUSD to cover my existing short even though I had enough BTS locked in collateral to buy near 2 times the amount of BTS I had shorted.
"
See this link: https://bitsharestalk.org/index.php/topic,13782.0/all.html
and this issue: https://github.com/BitShares/bitshares/issues/1499
I think this was because of the 30-day time-frame of the CFD so you need high enough collateral on settlement date? This current 2.0 proposal should improve this situation.
I think brokerage firms use an initial and maintenance margin for operational efficiency and to minimize immediate transactions when one party is on the losing end. (Any other reasons?) We on the other hand can just use a higher maintenance margin (50%) and no initial margin, but force settle anything below 50% margin. Hence there will already be some 'forced' liquidity for anyone below the 50% threshold, but anyone above 50% maintenance would be safe and can always re-collateralize. For high-risk speculators, they could be happy with only 51% BTS collateral, but may be forced out of part of their positions it their position goes below 50% such that they will be back at 50% the next day. If their positions go down again the next day, they would keep losing their collateral to re-balance at the 50% threshold. For most people, they can maintain higher amounts of collateral and know they couldn't be forced to settle.
Hence forced settlement manipulation strategies are largely eliminated, you get some liquidity from those short positions that fall below 50%. (Note: I'm using 50% because it seems like a safe 1 day black swan threshold. The potential worst one-day drawdown. I think Bitcoin had a few 35% down days? If we want to be more conservative we can use 60%, 75%, or even 100% maintenance margin, but the lower margin requirements create higher liquidity. I like 50%.)
Any thoughts?