Quote from: starspirit on April 29, 2015, 03:39:49 am

Guys, its not heresy to talk about currencies being backed by something other than BTS is it?? 

Let me cite BM from the other thread:

Quote from: bytemaster on April 28, 2015, 09:18:57 pm

Quote from: bitmarley on April 28, 2015, 09:07:31 pm

Another reason is that normally in finance someone who wants to go short GOLD means they want to profit when GOLD falls versus the USD. But in BitShares shorting the bitGOLD(i.e. GOLD/BTS) and does not give the same kind of exposure. It would be good if there was a way to establish an asset whose "Last Price" was a formula instead of a direct price feed. For example: bitGOLDUSD = GOLD/USD. This is the asset that the wider market really wants. At the moment shorting bitAssets means you increase your long exposure to BTS. So if the market trend for BTS is down nobody wants to short.

Soon you will be able to have BitGOLD backed by BitUSD.

Yeah, but that's less controversial. That's just bitAsset backed by bitUSD backed by BTS. That's a good idea that I've also promoted for some time.
I'm suggesting the possibility of another class altogether: bitUSD backed by bitBTC backed by BTC.
I don't know if it technically can be done, just floating the idea, because I think the more immediate market potential might be far greater.

This thread is starting to make me question the whole proposition of tokens to be used as stable currency being backed by traders.

Long and short traders can meet easily in symmetric markets where counter parties share common needs for expiry, margining etc. For example, in bills, bonds, commodities and other trading assets, futures, options and other derivatives. But are the counter-parties to a bitUSD just too different? That's not a statement, just a question.

I wonder if currencies are best issued by a fund that represents the common interests of its investors. It could earn a spread from creation and destruction of the currency according to the market's needs, and possibly the urgency of those needs, rather than seeking or obtain leverage as the core value add.

Short speculators could instead operate in the bill and derivative markets.

Just thinking out loud on this one.

Why do I ask?

This approach could be one possible solution to the zero bound on interest rates for cash/currency holdings. It would allow longs to pay interest to shorts if and when the market calls for it.

There are possibly other ways of allowing for negative rates that might also be explored. For example, maybe it's possible that when people pay USD from their wallets, a variable "transaction cost" is applied to represent accrued interest owing at that point.

Also note this is no issue at all in bill/bond markets based around zero-coupon bond structures, because negative rates are simply reflected in exchange prices above par.

How might this work?

Suppose we had a token called DEPOSIT. People can buy, sell and short DEPOSIT tokens. At any time, a DEPOSIT represents a certain number of USD effectively held in a block-chain deposit account. So a feed price can easily be calculated for the fair value of a DEPOSIT.

However, the number of USD that a DEPOSIT represents is variable. When the interest rate is positive, it goes up, and when it is negative it goes down. On settlement, shorts are only obliged to pay back the same number of DEPOSIT tokens as they shorted, and they do not pay any additional interest, as the interest rate is built into the value of a DEPOSIT in the price feed.

In theory it would be possible for people to exchange DEPOSIT tokens for goods and services. But as they represent a variable basket of USD, this is not the most convenient for pricing such goods. That's where a checking system could be useful. Party A wants to pay for a service from Party B for X USD. So they create X check tokens, sign them and issue them to Party B. Party B sends the check, now signed by both parties, to the block-chain. The block-chain checks that Party A has the USD available, and if not, "bounces" the check. If it does, it calculates the settlement as a certain number of DEPOSIT tokens transferring from Party A to Party B.

[Edit: Maybe the system could prevent Party A from issuing checks in excess of their USD, so avoid bouncing altogether.]

Any thoughts?

 

Quote from: bitmeat on April 28, 2015, 11:33:31 pm

My guess: the hard core believers in BTS are the ones that short BitUSD and provide liquidity. Now they are being affected, and leaving BTS altogether, cutting their losses.

Now they are leaving?

That is a weird statement ... they have been leaving for months but hey... only those that work and being paid are considered to be contributing to Bitshares... the ones that have been warning for 6+ mo. and/or risking their money in a broken system are just complainers...

F*en idiots - bitAssets 3.0 is months and months away... and the affiliate program gig - a total joke that will never work as a payment system for everything.
In the mean time (6-9 mo. or so) let's continue killing the ones that are actually risking something to produce the actual product...they are not important...they are not paid by the blockchain....

[edit]
And btw the 30 days rule is not the issue....it is just the trigger that makes the overexposed bulls  face reality...the real issues are 200% collateral from shorts( plus a soft collateral  mind you) and a bug persistent for 2 months with no urgency to fix it....which is making expiring shorts (not the called ones) pay 10% penalty. But why hurry to fix it.?!...may 5 is fine as well  and for less than 200% collateral?...let them fools wait for bitA 3.0....

tonyk, you have certainly raised the bias against shorts often in the past. It's a tricky one, I think, because strictly there is an asymmetry between the demands of the two parties - on the one hand, bitUSD and its ilk are not really trading positions at all from the perspective of the target market for "longs" - they are deliberately designed as a non-expiring, safe, fungible currency unit, which places heavy constraints on the asset structure. Whereas the shorts delivering the product on the other side are traders that want greater leverage and flexibility. Two different needs and two different mindsets. If a bitUSD was simply a long trading position on currency, it could be leveraged on margin and expired on both sides, like traditional forwards or CFDs, and be symmetric for both parties. Unfortunately its not.

What do you think is the best way to resolve this?

I am beginning to think it is actually possible to have a floating common interest rate that could be allowed to become negative, so that shorts could get paid to carry positions if that's what was required for supply and demand to match. At least then shorts could be compensated for carrying higher collateral. Would that be a sufficient solution?

Or how about if the required collateral floated in a completely unconstrained manner with changes in market supply and demand? Then when shorts demand lower collateral requirements, they could get it, as long as this was acceptable to the other side of the market. But when demand is too low, shorts would need to be much more competitive on the collateral they offer. Could that be an avenue worth exploring?

Feel free to suggest other avenues of exploration. Interested in your thoughts on this.

Quote from: bitmarley on April 28, 2015, 09:07:31 pm

Another reason is that normally in finance someone who wants to go short GOLD means they want to profit when GOLD falls versus the USD. But in BitShares shorting the bitGOLD(i.e. GOLD/BTS) and does not give the same kind of exposure. It would be good if there was a way to establish an asset whose "Last Price" was a formula instead of a direct price feed. For example: bitGOLDUSD = GOLD/USD. This is the asset that the wider market really wants. At the moment shorting bitAssets means you increase your long exposure to BTS. So if the market trend for BTS is down nobody wants to short.

Soon you will be able to have BitGOLD backed by BitUSD.

I would like to see only the stable currencies backed by BTS (or BTC), and see all other trading assets collateralised by the currencies for the reasons stated, as they would be in traditional exchange and margin lending operations. I also think this calls for a different asset structure for each class - while currencies need to be fungible, trading positions do not, providing a lot more flexibility in their design.

Because the market rules suck for shorts. I lost near 25% of my BTS because of it.

What market rule has caused your hardship? It would be useful to know if that is being ameliorated going forward.

Quote from: starspirit on April 27, 2015, 12:22:08 pm

monsterer, in writing the whitepaper you have seen, I considered this possibility. It's actual the most basic way of implementing a stable currency, but it's suboptimal because it creates massive volatility in the supply of the native token.

First let me summarise what I understand is being proposed here, although I have not read all the detail. To put this in terms that Bitshares would understand, when bitUSD demand rises, the block-chain would auction off freshly created bitUSD for BTS and the BTS would be burned. When bitUSD demand falls, the block-chain would auction off freshly created BTS for bitUSD and burn the bitUSD. This maintains a flexible supply allowing the price to be pegged.

Now critically this is un unfunded approach, with no defined collateral pool backing the bitUSD. There is only a commitment to inflate the BTS supply as much as necessary to meet the sales of bitUSD when they occur. All is great while bitUSD demand is rising, but if bitUSD started getting sold back, and particularly at depressed valuations of BTS, it would dilute BTS into the ground. Of course practical measures could be used to constrain this (we've actually touched on this topic before monsterer), but only at the expense of compromising liquidity and exchangeability.

In thinking through all the options for my whitepaper, you will see I came up with a number of pre-conditions to the optimal architecture. See the bottom of this post for my whitepaper... https://bitsharestalk.org/index.php/topic,15880.msg203777.html#msg203777.

To reiterate, those preconditions are:

Pre-conditions

The following are pre-conditions to the required architecture:

(i)   The currency must be redeemable on the block-chain to eliminate counterparty risk,
(ii)   The currency must be backed by a pool of native tokens to meet redemptions, to avoid inflation of native tokens for redemptions
(iii)   Exchange of [edit] native tokens for creation or destruction of currency [end edit] must be facilitated at the feed price (near instantly) to ensure maximum pegging in all markets
(iv)   There needs to be a single floating variable to ensure supply and demand can equilibrate at the peg, the most recognized being interest
(v)   The interest rate must be determined by market forces between buyers and sellers, to ensure markets always clear (no shortage or surplus at the feed price)
(vi)   Markets at varying terms should be available, so that mismatches in term preferences between buyers and sellers can be priced along the yield curve, rather than stifling an isolated market.

The Ethereum approach passes (i), but fails at (ii) as I discussed above. Thus it also fails (iii)-(vi). All the pre-conditions are satisfied by my white-paper approach. [Incidentally, BitAsset 3.0 on its own satisfies (i)-(ii) and now (iii), but does not meet (iv)-(vi)].

Another issue he talks about is the price feed. He basically reiterates my view that a price feed must be exogenous if it refers to an external valuation anchor. However, he says that an endogenous price feed is possible if the goal is simply stability rather than pegging. This seems to depend however on maturity in the native token, by which time a stable alternative is irrelevant because the native token itself will be much more stable.

Very good analysis.   I think BTA 3.0 + Bond Market will allow the market to adapt to all interest rates / terms / yield curves / and collateral ratios/leverage requirements.

Thanks BM. I think it is heading in a good direction - I would add:

- "BTA 3.0" (but with some modifications), plus
- An at-call interest-based deposit market
- Bond Market

I'll explain further in a subsequent post. You may see better ways of doing some of the things I've tried to do in my draft white-paper, but I would love for you to discuss it with me, given I think it covers more ground than I've seen covered elsewhere.

i) Is it possible to solve the problem of lagged price feeds as follows?

Settlement/trade is effective instantly, but the settlement value at that timestamp is determined in a verifiable manner after the fact according to a prescribed algorithm/formula. So for instance, it could be based on a formula using a specified weighted average of mid-prices from a given set of exchanges. The "formula" could be voted in by delegates, and changed in future if necessary according to another vote. [Edit] Instantaneous price feeds by delegates would be merely indicative - the true settlement value is deterministic afterward but still requires way to form a consensus on value at past timestamps. [end edit].

Such an approach is similar to how many derivatives are traditionally settled.

The advantage of this approach is it removes the need for a 24 hour delay before becoming effective, it merely requires some delay before a value transfer occurs in line with the calculated settlement.

This does not remove the need for queuing discussed further below.

ii) Creation and cancellation can both occur at the price feed

2. Settlement at 1% of the feed price creates a "liquidity" imbalance where you can essentially sell a large volume of USD without bidding up the internal market.   Shorts must push the USD value down to acquire a large position, but longs are not forced to push it up to settle a large position. 

In principle, if there is comfort with the settlement procedure, there is no reason why new currency creation cannot also be forced to occur at the price feed, just like currency cancellation. Where there are offsetting requests for creation and cancellation, these help fulfil the needs of both sides more quickly.

You can consider this to be a creation/cancellation market. A completely free market in bitUSD versus BTS and other assets would exist outside it, and allow for more urgent exchange when the creation/cancellation market is subject to queues.

In fact the Currency Creation Market described in my whitepaper gives the most generalised form of this, inviting any parties that wish to transact at the price feed.

iii) Queuing is probably a reasonable idea, but results from insufficient liquidity in the collateral

So without further ado I would like to suggest a compromise that should balance everything out nicely.

1) Limit the amount of USD that can be force-settled each day to 1% of the supply.  This would take it almost a year if there were constant redemptions to free the entire supply.
2) When a user requests redemption they are placed in a queue that is filled in the order of redemption with at least a 24 hour delay.     

There needs to be a way to deal with potential manipulation of the BTS price. My initial feeling is that the approach of queuing is a workable solution, although the 1% should be faster and vary with liquidity in the external BTS market. Having said that, I do think we need to consider the wider ramifications it might have on the design of a bond market, so we see the big picture before implementing it.

The implication is that the price of the bitUSD will float away from the peg in external markets, reflecting the cost of time in the queues. However as BM mentioned, such spreads would probably occur anyway because of the uncertainty in converting large settlement parcels of BTS into real USD.

The root problem is that we are using a form of financial collateral (BTS) that is not very liquid, unlike say government bonds, a key form of collateral in the traditional financial world. We don't have any other option right now, although for those curious I have suggested elsewhere that it might be possible to create a bitBTC collateral backed by real BTC, that might be more liquid and less easily manipulated, which could improve market confidence.

iv) We should explore how to incentivise shorts when they are unwilling to take positions

I think we need to consider this further. Although BitAsset 3.0 does not require shorts to pay yield, it is just as restrained at the zero interest bound as any yield based approach would be. It may be possible for example to have a completely flexible yield not subject to the zero interest bound if we create an enforceable payment mechanism from longs to shorts. I've considered this separately in the form of deposit accounts, but it needs more work.

24 hour delay is to give shorts NOTICE so they can start topping off their collateral if they want to keep their position.
Shorts can always reduce their collateral after the settlement as long as it stays above maintenance.
Shorts can enter a market order to cover their entire position using their collateral at any time.

Bytemaster, this comment also confuses me. Why is there a need to give shorts notice to top up their collateral? Even if they know the timing, they are not going to know their queue position because everybody will top up their collateral just before settlement, so it depends on their willingness to hold versus others. In fact there is no reason to not place all one's spare BTS as collateral at that point in time. And then straight after, they will all be at liberty to take out all of their excess collateral again, so I'm not sure how this helps protect longs at all. If the timing were unknown however (e.g. instant, or randomised) then shorts would be competitively required to hold near the maximum they are comfortable with for as long as they hold the shorts. So instant seems better to me, at least on this basis.

I thought I understood the point raised by bitmeat and others earlier that maybe a delay helps mitigate market manipulation in the BTS market. But you don't seem to have said this is the reason at all.

Can you please clarify?