How did BitShares handle the market crash?
Hi bytemaster,
my name is Stefan, I have been working closely with various workers in the past years and am currently one of the reviewers for BSIPs.
I'm gonna take a guess and assume that you are interested in how the BitAsset/SmartCoin mechanism handled the market crash. I'm gonna try to objectively give a historical overview, links to the respective BSIPs were posted before. The mechanisms work as intended as we have seen last year when bitUSD went into global settlement. It got revived again when MCR was reached and re-pegged beautifully. Still, the global settlement mechanism has flaws: Everyone gets globally settled even if its just one individual with a bad CR, instant force settlement keeps the price off peg, new debt positions cant be created and the revival process takes too long (reaching MCR instead of CR 1) which is a big hindrance for adoption and liquidity and allows individuals with deep knowledge to gain massive advantage of unbenownst everyday users.
The flaws led to (controversial) refinements of the mechanisms: Global settlement protection price. Since core changes are slow and take time and immediate action was deemed necessary, a proposal was done that witnesses should feed a price that avoids global settlement (i.e. allow intentional undercollaterization to avoid global settlement). Ontop of that, MSSR and FSO were adjusted in a way to strengthen the peg. The global settlement price caused bitCNY to not global settle when bitUSD did. Looking at the markets after this event, bitCNY did significantly better in terms of liquidity and peg. Still, intentional undercollaterization while protecting debt position holders at the cost of a manipulated feed price is no longterm solution as it lacks transparency in the DEX (the feed price does not reflect a realistic external BTS price anymore). Some ideas that came to mind: a) Implement a selective settlement mechanism that only affects positions with CR < 1 instead of all b) refined margin call mechanism where the margin call price depends on CR and MCR c) incentivize force settlement for debt positions that have CR < MCR. All of them need core change and would take significant time to implement and d) give debt position holders the ability to set a TCR > MCR (target collateral ratio), then margin calls are selling only as much to reach that TCR (is now implemented). The chosen solution of a global settlement protection price could be implemented swiftly. A BSIP was written afterwards to replace this mechanism in a more transparent way in the core, although it is not realized atm.
This year another incident happened when there were alleged shorting attacks on CEXes (i.e. influence the price feed) to cause margin calls and take advantage of debt position holders. This was possible due to many debt position holders margining to the max and keeping their CR as close to MCR as possible, with no reserves to replenish and with no proactive way to close their debt position. Debt position holders demanded swift action and since they hold significant voting weight and at that time were (still are) a big part of the BTS voting power, consequently another debt position holder protection was proposed and implemented through the price feed: namely the threshold price (highly controversial). Which really just means that, if price below threshold, then feed threshold instead. Ultimately that meant that we now had a margin call protection price as feed price and pretty much all debt position holders kept their CR exactly above that price. This threshold price is still in effect, thus the latest crash had no impact on the BitAsset mechanisms. If no price feed alterations were in effect the BitAssets would all have globally settled. So the current solution is the ultimate protection of debt position holders, which is not a surprise because they hold the largest voting weight. Now that margin calls are effectively rendered inactive some individuals shifted to massive force settlements when profit was possible. Some ideas that came to mind: a) give the debt position holders a way to manually trigger a margin call with a price they can choose (BSIP is voted in) b) refine force settlement mechanisms and give them a fee that goes to the asset owner (similar to the stability fee of DAI). The peg is of course not maintained with this measure, and has not been for a while.
There exist a multitude of other ideas for refinement of the BitAsset mechanism which are currently in drafting status but paused mostly due to the funding issues, which were also caused through the voting behavior. Essentially, majority of BTS voting power has blocked all proposals a couple months back.
I hope I could describe it properly (anyone please correct me
), and you also were interested in that subject. If not, and other aspects of BitShares progress interests you please let me know.
Best regards,
Stefan (@sschiessl-bcp in GitHub, @sschiessl in Telegram)