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Main => General Discussion => Topic started by: pgbit on July 02, 2014, 09:40:47 pm

Title: Initial convergence of asset value to real value
Post by: pgbit on July 02, 2014, 09:40:47 pm
When an asset is first released, for example an asset that is planned to mirror the real time price of a commodity, how will this be affected initially in different trading conditions, for example if trading volumes are low? I might expect (or personally, I mean, have a wild guess) that the asset will more likely than not be undervalued. But I am not sure how the Bitshares X chains are initialized.
Title: Re: Initial convergence of asset value to real value
Post by: toast on July 02, 2014, 09:46:37 pm
Assets are only created once shorts and longs cross. So at the very start there is no asset and the market just says "everyone agrees it's above here or below here". Once an asset is on the market and you think it's undervalued you should buy and hold it.

Why would low volume cause it to be undervalued? Even if people who trade in low volume are biased towards going short asset relative to BTS they would still go long the asset if it is undervalued relative to real-world because they're only shorting expecting BTS to actually work and hence the rest of the market to peg the asset as well
Title: Re: Initial convergence of asset value to real value
Post by: bytemaster on July 03, 2014, 12:14:00 am
The market requires a minimum market depth before any trades occur to prevent the SIDS attack (Sudden Investment Death Syndom) where low volume allows the attacker to control the initial price.   A lot of effort has gone into the design of the initial starting condition which will require a minimum market depth on both sides of the market before trades begin.
Title: Re: Initial convergence of asset value to real value
Post by: xeroc on July 03, 2014, 06:53:05 am
The market requires a minimum market depth before any trades occur to prevent the SIDS attack (Sudden Investment Death Syndom) where low volume allows the attacker to control the initial price.   A lot of effort has gone into the design of the initial starting condition which will require a minimum market depth on both sides of the market before trades begin.
Learn sth. new every day [/end of quote]
Title: Re: Initial convergence of asset value to real value
Post by: pgbit on July 07, 2014, 08:06:17 am
Thanks everyone for all the explanations.
Title: Re: Initial convergence of asset value to real value
Post by: cass on July 07, 2014, 01:59:11 pm
The market requires a minimum market depth before any trades occur to prevent the SIDS attack (Sudden Investment Death Syndom) where low volume allows the attacker to control the initial price.   A lot of effort has gone into the design of the initial starting condition which will require a minimum market depth on both sides of the market before trades begin.
Learn sth. new every day [/end of quote]

 +5% yup me also :) - and you'll recognice your acquired knowledge when you talk to people outside the inner discussion cirlce ... noticed this a few days before when talked to my friends...holy moly ... it sounded really nerdy ^^ (was a bit scared about)
Title: Re: Initial convergence of asset value to real value
Post by: Simeon II on July 07, 2014, 02:03:44 pm
The market requires a minimum market depth before any trades occur to prevent the SIDS attack (Sudden Investment Death Syndom) where low volume allows the attacker to control the initial price.   A lot of effort has gone into the design of the initial starting condition which will require a minimum market depth on both sides of the market before trades begin.
Learn sth. new every day [/end of quote]

 +5% yup me also :) - and you'll recognice your acquired knowledge when you talk to people outside the inner discussion cirlce ... noticed this a few days before when talked to my friends...holy moly ... it sounded really nerdy ^^

This thing in particular is known since about 2/28... skipping the XT phase on the other hand was hidden secret until 2 days ago.
Title: Re: Initial convergence of asset value to real value
Post by: cass on July 07, 2014, 02:07:24 pm
The market requires a minimum market depth before any trades occur to prevent the SIDS attack (Sudden Investment Death Syndom) where low volume allows the attacker to control the initial price.   A lot of effort has gone into the design of the initial starting condition which will require a minimum market depth on both sides of the market before trades begin.
Learn sth. new every day [/end of quote]

 +5% yup me also :) - and you'll recognice your acquired knowledge when you talk to people outside the inner discussion cirlce ... noticed this a few days before when talked to my friends...holy moly ... it sounded really nerdy ^^
skipping the XT phase on the other hand was hidden secret until 2 days ago.

sounds like this is a problem for you, isn't it?
Title: Re: Initial convergence of asset value to real value
Post by: xeroc on July 07, 2014, 02:07:32 pm
This thing in particular is known since about 2/28... skipping the XT phase on the other hand was hidden secret until 2 days ago.
calling it 'skippin' is wrong .. it still is the protoDAC .. only difference is that there will not be a snapshot for X but an upgrade ... for investors nothing changes .. for users .. nothing changes .. only thing changed is the name
Title: Re: Initial convergence of asset value to real value
Post by: AsymmetricInformation on July 07, 2014, 02:14:27 pm
This question has been debated endlessly.

From my reading of this debate (which spans many websites), the discussion did not approach anything like a unanimous conclusion, so I don't know what you expect to gain by bringing it up again.

The only way to know is to turn it on. From there, any number of things could go wrong, or none of them could.
Title: Re: Initial convergence of asset value to real value
Post by: Simeon II on July 07, 2014, 02:32:58 pm
The market requires a minimum market depth before any trades occur to prevent the SIDS attack (Sudden Investment Death Syndom) where low volume allows the attacker to control the initial price.   A lot of effort has gone into the design of the initial starting condition which will require a minimum market depth on both sides of the market before trades begin.
Learn sth. new every day [/end of quote]

 +5% yup me also :) - and you'll recognice your acquired knowledge when you talk to people outside the inner discussion cirlce ... noticed this a few days before when talked to my friends...holy moly ... it sounded really nerdy ^^
skipping the XT phase on the other hand was hidden secret until 2 days ago.

sounds like this is a problem for you, isn't it?

No it does not, that's why I bring it up.
Title: Re: Initial convergence of asset value to real value
Post by: bytemaster on July 07, 2014, 02:35:16 pm
The market requires a minimum market depth before any trades occur to prevent the SIDS attack (Sudden Investment Death Syndom) where low volume allows the attacker to control the initial price.   A lot of effort has gone into the design of the initial starting condition which will require a minimum market depth on both sides of the market before trades begin.
Learn sth. new every day [/end of quote]

 +5% yup me also :) - and you'll recognice your acquired knowledge when you talk to people outside the inner discussion cirlce ... noticed this a few days before when talked to my friends...holy moly ... it sounded really nerdy ^^
skipping the XT phase on the other hand was hidden secret until 2 days ago.

sounds like this is a problem for you, isn't it?

No it does not, that's why I bring it up.

We don't have hidden secrets... we reveal things as we figure them out, often before we probably should.
Title: Re: Initial convergence of asset value to real value
Post by: Simeon II on July 07, 2014, 02:40:57 pm

We don't have hidden secrets... we reveal things as we figure them out, often before we probably should.

Agreed!  Saying 'we have not decided' is far better on insisting for 2 mo. that you will do something stupid and all of sudden 2 days before the trading starts, come to your senses and do the right thing.
Title: Re: Initial convergence of asset value to real value
Post by: pgbit on July 08, 2014, 11:31:11 am
In my first post, I did mean to refer to user created assets - perhaps in other trading DACs - not the main BTS-X chains which for me would  immediately have a higher level of trust.

For example, when user created assets are allowed, a global banana company might (possibly) decide to create BANANAS as a chain, and although they might intend for their pricing to match the global banana price in kg quite precisely, others may initially have trouble taking the asset seriously.

In that situation, as a unqualified trading noob, I would guess that digital bananas might be 'offloaded' or traded at a lower price, forcing the asset to trade at a lower price than the real value of bananas, as confidence grows in the process this might then be expected to more closely approximate the real price. Is this flawed logic?

Anyway, I was imagining that the convergence of asset values will surely depend, perhaps *initially* foremost, on Trust. Once systems are established and DACs are trusted, this issue I would expect to diminish rapidly.

This is a potential problem for new players in the market, as surely they might be disadvantaged by a market leader effect once others are established; I wondered how this effect might be minimized. But then this leads on to how to win over Trust quickly.

I know these issues may have been raised before, sorry if I have missed posts covering this lot already.

EDIT: this is a useful link - http://wiki.bitshares.org/index.php/Market_Peg
Title: Re: Initial convergence of asset value to real value
Post by: AsymmetricInformation on July 08, 2014, 01:47:32 pm
For example, when user created assets are allowed, a global banana company might (possibly) decide to create BANANAS as a chain, and although they might intend for their pricing to match the global banana price in kg quite precisely, others may initially have trouble taking the asset seriously.
Indeed, this would be nearly as problematic as you or I writing "Banana" on a piece of paper and trying to sell it to someone who wants a banana, wouldn't it?

In that situation, as a unqualified trading noob, I would guess that digital bananas might be 'offloaded' or traded at a lower price, forcing the asset to trade at a lower price than the real value of bananas, as confidence grows in the process this might then be expected to more closely approximate the real price. Is this flawed logic?
You've assumed that people will respond to uncertainty by assuming the worst. At least one Nobel Paper agrees with you: http://en.wikipedia.org/wiki/The_Market_for_Lemons

Anyway, I was imagining that the convergence of asset values will surely depend, perhaps *initially* foremost, on Trust. Once systems are established and DACs are trusted, this issue I would expect to diminish rapidly.
Trusting the issuer of the assets, I think (not "systems and DACs"). Even if the DAC works perfectly, users may issue worthless assets, and/or traders may have no way of assessing the value of those assets.

EDIT: this is a useful link - http://wiki.bitshares.org/index.php/Market_Peg
I'm curious as to what you found useful about it. The link says:
[1] "...all traders in the blockchain expect BitUSD to peg to the dollar...",
[2] "...which leads them to trade in ways that reaffirm that expectation".
Therefore [3] "...the value of bitAssets will be equal to about the value of their real world counterparts".

But you've called the validity of 1 into question. That link just assumes 1, so either the link tricked your brain into forgetting about its concern, or it somehow inspired your brain into an amazing realization.
Title: Re: Initial convergence of asset value to real value
Post by: bytemaster on July 08, 2014, 06:13:28 pm
Quote
I'm curious as to what you found useful about it. The link says:
[1] "...all traders in the blockchain expect BitUSD to peg to the dollar...",
[2] "...which leads them to trade in ways that reaffirm that expectation".
Therefore [3] "...the value of bitAssets will be equal to about the value of their real world counterparts".

But you've called the validity of 1 into question. That link just assumes 1, so either the link tricked your brain into forgetting about its concern, or it somehow inspired your brain into an amazing realization.

All traders speculate on what they think all other traders will be speculating in the future.   At any given moment you have to decide: will it go up, down, or hold.  If your position is "it won't hold a peg" then you must pick a direction and place your bets or abstain.   As a result everyone that doesn't have a rationale for the direction will exit the market.

If you don't think it will hold then you must assume the entire chain is worthless... so you sell and exit there is no way for you to make money because if you are right all collateral is worthless.  The peg will break, margins will be called the shorts will be wiped out and the longs will have a more shares in a worthless network.

Conclusion: only those who believe #1 are participating in the market.
 
 
Title: Re: Initial convergence of asset value to real value
Post by: pgbit on July 08, 2014, 07:01:38 pm
Quote
I'm curious as to what you found useful about it. The link says:
[1] "...all traders in the blockchain expect BitUSD to peg to the dollar...",
[2] "...which leads them to trade in ways that reaffirm that expectation".
Therefore [3] "...the value of bitAssets will be equal to about the value of their real world counterparts".

But you've called the validity of 1 into question. That link just assumes 1, so either the link tricked your brain into forgetting about its concern, or it somehow inspired your brain into an amazing realization.

All traders speculate on what they think all other traders will be speculating in the future.   At any given moment you have to decide: will it go up, down, or hold.  If your position is "it won't hold a peg" then you must pick a direction and place your bets or abstain.   As a result everyone that doesn't have a rationale for the direction will exit the market.

If you don't think it will hold then you must assume the entire chain is worthless... so you sell and exit there is no way for you to make money because if you are right all collateral is worthless.  The peg will break, margins will be called the shorts will be wiped out and the longs will have a more shares in a worthless network.

Conclusion: only those who believe #1 are participating in the market.
It's getting clearer now -  a lot clearer. Thanks for the explanation, bm.
Title: Re: Initial convergence of asset value to real value
Post by: Empirical1 on July 08, 2014, 07:24:21 pm
I think the convergence will occur pretty well for the main assets provided we only focus on a few of them.

They're a big/main part of making BitShares X, so shareholders have a vested interest in assisting them at the beginning, so that is what will make them work,  & once you past a trust 'threshold',  the peg should hold imo.

But yes the only way is to turn it on.

Title: Re: Initial convergence of asset value to real value
Post by: biophil on July 08, 2014, 07:33:29 pm
My guess is that convergence won't be much of a problem, but that liquidity will initially be low (there will be a large bid/ask spread) for all but the highest-profile of the markets.

The one main thing that worries me is that some people around here seem to think it's going to be helpful to short BitUSD from the outset, apparently with no regard to whether it's pegged or not. If enough people do that (thinking they're shorting fiat-USD), it could take longer for the peg to get established.
Title: Re: Initial convergence of asset value to real value
Post by: NewMine on July 08, 2014, 07:50:11 pm
My guess is that convergence won't be much of a problem, but that liquidity will initially be low (there will be a large bid/ask spread) for all but the highest-profile of the markets.

The one main thing that worries me is that some people around here seem to think it's going to be helpful to short BitUSD from the outset, apparently with no regard to whether it's pegged or not. If enough people do that (thinking they're shorting fiat-USD), it could take longer for the peg to get established.

Shorting bitUSD means you are bullish on BTS.

It's basically all the cheerleaders talking the talk.
Title: Re: Initial convergence of asset value to real value
Post by: pgbit on July 08, 2014, 07:55:20 pm
The market peg for commodities may settle quite differently from a currency. A unit of currency obviously can be intangible already, so is more readily perceived in this way, whereas many virtual commodity assets are typically not - for most people - viewed as being traded like this. What helped me to understand this was appreciating that you - of course - are trading just on the market expectation and predicted price rather than the virtual product itself. It would be pretty daft to provide someone with an IOU note for a single banana or avocado, but for some (and not just the current avocado traders) there might be advantages to trade virtually within a global 2.1 billion dollar avocado (or whatever) industry.
Title: Re: Initial convergence of asset value to real value
Post by: Empirical1 on July 08, 2014, 08:02:47 pm
My guess is that convergence won't be much of a problem, but that liquidity will initially be low (there will be a large bid/ask spread) for all but the highest-profile of the markets.

The one main thing that worries me is that some people around here seem to think it's going to be helpful to short BitUSD from the outset, apparently with no regard to whether it's pegged or not. If enough people do that (thinking they're shorting fiat-USD), it could take longer for the peg to get established.

Shorting bitUSD means you are bullish on BTS.

It's basically all the cheerleaders talking the talk.

Only if the peg is holding/already been established.

Otherwise I 'think' shorting BitUSD far below the actual conversion rate, would damage the credibility of the pegging system and by extension damage the value of BTS X.  In which case Shorting BitUSD would be like shorting BTS X. Except you lose money if you're right.
Title: Re: Initial convergence of asset value to real value
Post by: toast on July 08, 2014, 08:11:22 pm
If you believe in the market peg then you would buy BitUSD when it is undervalued *even if* you want to short USD vs btsx in the long term. It's guaranteed short-term returns, once the peg is there you can slowly change your position.
Title: Re: Initial convergence of asset value to real value
Post by: bitmeat on July 08, 2014, 09:11:04 pm
Quote
Conclusion: only those who believe #1 are participating in the market.

Bytemaster, this is not a guarantee. I could be a powerful market manipulator, and at some point calculate that I could take out majority of the market participants for a quick profit. At that point I could exploit the system and force people into margin calls and benefit from it.
Title: Re: Initial convergence of asset value to real value
Post by: biophil on July 08, 2014, 09:37:28 pm
If you believe in the market peg then you would buy BitUSD when it is undervalued *even if* you want to short USD vs btsx in the long term. It's guaranteed short-term returns, once the peg is there you can slowly change your position.

Definitely! But I have read many, many comments on this forum that suggest that people do not understand this concept.