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1st Stage
BitShares Consensus
BitShares General Whitepaper
---> BitShares TITAN Whitepaper
---> BitShares DPOS Whitepaper
---> Info GFXs
BitAsset General Whitepapers
---> bitUSD Broschure / Benefits & Features
---> bit* Broschure / Benefits & Features
BitShares Whitepaper/Salesfolder Merchants
---> Benefits / Features
---> BitAsset General Whitepaper
---> BitAsset bit* Broschure / Benefits & Features
BitShares Whitepaper/Salesfolder Financial Institutions
---> Benefits / Features
---> Infrastrucutre / Integration etc.
---> BitAsset General Whitepaper
BitShares Whitepaper Traders
---> Manual BitShares Trading App. etc.
---> Info GFX
2nd Stage
After potential Clients/Users/Traders etc. get attention and get in contact
Individual bit* Asset Broschure suited to the requests etc.
---> BitAsset bit* Broschure / Benefits & Features
and so on …
just thinking loud ---
FEEL FREE TO UPDATE/ADD/ ETC
I'll create/prepare alle whitepapers when getting content with info GFX in CD etc.
so we get a professional branded but unique attitude and posititve outside/network effect
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Produced by Agent86 as one of his first tasks... the following is a draft that needs to be cleaned up and properly formatted.
BitShares Market Pegged Assets
BitShares market pegged assets are a new type of freely traded digital asset whose value is meant to track the value of a common asset such as the U.S. dollar or gold. BitShares uses an advanced decentralized consensus ledger that takes some cues from Bitcoin. While Bitcoin has demonstrated many useful properties as a currency, its price volatility makes it risky to hold and difficult to use for everyday pricing and payments. A currency with the properties and advantages of Bitcoin that maintains price parity with a globally adopted currency such as the US dollar has high utility for convenient and censorship resistant commerce. The purpose of this introduction to market pegged assets is to explain how this price parity is achieved.
Bitcoin and similar crypto-currencies enable value storage and exchange over the internet that is beyond the control or censorship of a centralized party. Demand for this utility has driven up the price of crypto-currencies. Bitshares uses an analogous blockchain based core token simply called Bitshares that is traded with the abbreviation "BTS" on well-known crypto-currency exchanges.
Market pegged assets are created on the Bitshares blockchain using a similar method to a contract for difference. The open source Bitshares software program implements a decentralized internal marketplace for these assets and enforces the market rules. A BTS holder may use her BTS to place a buy order on the internal market for her asset of choice. Market pegged assets are created when a buyer is matched with a "short seller" of the asset. The short seller takes on the obligation of buying back the asset in the future and must maintain collateral sufficient to repurchase the asset at current market rates. This creates systemic demand for the asset.
"BitUSD" is the name of the BitShares market pegged asset that tracks the US dollar and we will use this as an example. In order to ensure that the internal market participants trading bitUSD for BTS have the opportunity to settle at the real USD to BTS exchange rate, the external exchange rate is fed into the system by a network of independent "delegates." Delegates are elected by BTS holders to run the network, process transactions, and provide exchange rate information. This external exchange rate information is often called a "price feed." The delegate election process is covered in detail in documentation on the BitShares' "DPOS" consensus algorithm. Delegates typically combine price information from multiple sources such as exchanges to generate a price feed and update it regularly. The system takes a median of all price feeds so that manipulation of the price information would be very difficult by any single delegate or party without massive collusion.
It is important to understand how the price feed is used to regulate the internal market. It does not directly control the market or the sale price between buyers and sellers of market pegged assets. It functions to regulate creation and destruction of market pegged assets in a way that pushes the market price toward the long term expected exchange rate (parity with the dollar). While the internal exchange rate of bitUSD to BTS has no restriction, new "short sales" are prevented from executing below the median price feed. Short selling is the process by which new bitUSD is brought into existence and the rule that short sales are not executed below the real exchange rate prevents new bitUSD creation when price is below parity with the dollar. New bitUSD is created only when demand for bitUSD is at parity with the dollar or above.
When a short seller buys back bitUSD and covers their position they repay their obligation and can recover their collateral BTS. At this time they are taking bitUSD out of circulation and reducing the total supply. The current Bitshares market rules force short sellers to cover their position within 30 days of opening the short position. This means that the full amount of outstanding bitUSD must be purchased off the market every 30 days. BitUSD holders are not required to sell; therefore short sellers covering their positions are eventually forced to purchase from newly opened short sales at or above the exchange rate. This is effectively a guarantee to any bitUSD holder that they can sell bitUSD for the dollar equivalent of BTS within any 30 day period.
Short sellers are typically bullish on the direction of BTS vs. the market pegged asset. If the market value of BTS rises with respect to the asset the short seller can buy back the asset for significantly less BTS than they originally sold it for and profit from the transaction. If BTS value falls in relation to the market pegged asset, the short seller must buy back the asset at a loss. If the price of the asset rises a lot, a short may face a "margin call" where the rules of the program use the posted collateral to automatically buy back the asset from the market to repay the obligation. A margin call is triggered in the current BitShares system whenever the collateral contains less than 1.5 times the amount of BTS required to cover the obligation. Stated another way, if the value of BTS falls by 33% from the time the short position is entered, then a margin call will occur. The value of BTS would have to fall by 66% before the collateral would be insufficient. These rules are extremely conservative compared to any traditional banking practice and is designed to protect the system even in the most extreme volatility.
Market orders and other signed transactions on the BitShares blockchain are grouped into 10 second blocks by delegates. When buy and sell orders on the internal BitShares' market are matched, the highest buy orders are matched with the lowest sell orders and any BTS contained in the overlap are captured as fees so that each party gets exactly what they paid for. The reason for this is twofold. Firstly, it prevents high frequency trading that attempts to insert an order between two placed orders to profit from the overlap, this is sometimes called "front running". It also makes it very costly for a large buyer or seller to quickly move the market by placing a large order far from the current market rate. Doing so would require the buyer or seller to pay the more expensive rate and lose any overlap with all orders their order is matched with. The destruction of BTS from the overlap of orders creates value for BTS holders as a whole by making the token more scarce.
Risks:
The market pegged asset system is designed to minimize risk of loss, however some risks remain.
Sudden unexpected crash in value of BTS, often termed a "black swan event.":
Market pegged assets maintain their value due to being backed by collateral that has an established real world value. When this collateral falls in value the system is designed to react by driving the internal market pegged asset exchange to match the new real world exchange rate and trigger margin calls as necessary. However, there exists a possibility that the value of the underlying asset used for collateral (BTS) drops in value so quickly that the market pegged assets become under-collateralized. In this event, the full amount of collateral is no longer sufficient to purchase the market pegged asset back at the new real exchange rate. This event would require a sudden and dramatic price change that would prevent the system from adjusting in time. In such an event bitAssets may trade below the value of the underlying asset. It is possible that the market could recover on its own if BTS regained value. It is also possible that the market would need to be "reset" and asset holders forced to settle for BTS collateral worth less than the intended face value of their assets.
Counterparty risk:
Unlike some attempts to create a digital asset that tracks the dollar, bitUSD is not and "I owe you" issued by any entity. For this reason, it does not rely on a specific counterparty to honor its value. The process of buying market pegged assets or BTS on an external public exchange requires trusting the exchange with your funds for the time period that you have them deposited with the exchange. In almost any market the possibility for manipulation exists, however, this risk is minimized by the open source auditable nature of the BitShares market and carefully considered market rules.
Systemic risk:
Systemic risk is essentially a catch-all for any other risks involved with using the system. The primary risk is that individuals are responsible for protecting the cryptographic private keys that can sign transactions proving ownership of their assets. These keys must be protected from theft or loss. This risk can be greatly reduced and virtually eliminated by following best practices. Systemic risk also includes the possibility of an overlooked fatal flaw in the open source software or the possibility of large scale failure of global network infrastructure.
No system is without risk. The current banking system allows private funds to be frozen or confiscated without consent (often by court order). Banks are also not immune to insolvency. The quality of access to banking services varies greatly across the globe. Bitshares brings publically auditable open source banking to anyone with access to the internet. Market pegged assets allow savers and spenders to choose preferred asset types. This brings flexibility and ease of use to the open source banking experience.
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Great :) thx
https://docs.google.com/document/d/1Es0lNTDE2Eh874LM-UvAEjjo8DCKefVDsk0Cx-a1uhc/edit?usp=sharing
I created a google doc for further editing …
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I will go over it tomorrow
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I will go over it tomorrow
Great thx xeroc
i posted here also http://forum.nullstreet.com/index.php/84-whitepaper-bitassets-draft
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I like the simple but precise style and if I would be a customer I would trust the product (bitAssets) because the risks were mentioned ("someone has thought about the risks").
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I like the simple but precise style and if I would be a customer I would trust the product (bitAssets) because the risks were mentioned ("someone has thought about the risks").
indeed good point - it's building trust ...
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+1! This should go in "about" and definitely needs to be more visible than the blog on bitshares.org!
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Additional feedback for the white paper... it isn't as through as I would like. Here are some topics that need explored.
1) Variance on the price feed, update frequency.
2) Relationship between Volume & Price. If you sell $1M worth of BitUSD and get $1M worth of BTS at the price feed... then dump it on an exchange with $200K / day volume you will end up with less than $1M worth of real USD. Thus we can say that BitAssets are pegged to the nominal price and their value is subject to the liquidity of BTS.
3) We need a BitAssets for Dummies overview that highlights the following key facts:
a) Price Feed is sourced / vetted by N exchanges and 50+ delegates
b) 100% of all BitUSD may be sold for BTS at the Price Feed within 30 days.
c) Price Feed is always within ~1% of the real feed
d) BitUSD pays yield from interest paid by those who borrowed to create it and transaction fees.
e) Worst case BitUSD is worth 3x the number of BTS you paid for it (100% of collateral paid to BitUSD holder)
4) There are some scenerios that need to be covered:
a) What happens if there are not enough orders on the book to fill a margin call?
b) What happens if the price falls by 80% over a week
c) What is the maximum volatility of Bitcoin in a single 24 hour period?
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+1! This should go in "about" and definitely needs to be more visible than the blog on bitshares.org!
I think this should go in its own section called "BitAsset Whitepaper"; whitepaper.bitshares.org
Calling it a "whitepaper" gives it more perceived value than simple "about".
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Awesome read .. nicely written ... +5%!!
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let me know if it's ready to create a branded suit for...
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Additional feedback for the white paper... it isn't as through as I would like. Here are some topics that need explored.
1) Variance on the price feed, update frequency.
2) Relationship between Volume & Price. If you sell $1M worth of BitUSD and get $1M worth of BTS at the price feed... then dump it on an exchange with $200K / day volume you will end up with less than $1M worth of real USD. Thus we can say that BitAssets are pegged to the nominal price and their value is subject to the liquidity of BTS.
3) We need a BitAssets for Dummies overview that highlights the following key facts:
a) Price Feed is sourced / vetted by N exchanges and 50+ delegates
b) 100% of all BitUSD may be sold for BTS at the Price Feed within 30 days.
c) Price Feed is always within ~1% of the real feed
d) BitUSD pays yield from interest paid by those who borrowed to create it and transaction fees.
e) Worst case BitUSD is worth 3x the number of BTS you paid for it (100% of collateral paid to BitUSD holder)
4) There are some scenerios that need to be covered:
a) What happens if there are not enough orders on the book to fill a margin call?
b) What happens if the price falls by 80% over a week
c) What is the maximum volatility of Bitcoin in a single 24 hour period?
I can expand on things. Perhaps it may make sense to separate out the core concept from detailed discussion of parameters of the current implementation?
I was hoping to write something that someone new to the concept could read and feel like they can trust that it works. I want to avoid information overload, but I know some people want every implementation detail.
I noticed you added the clarifying statement:
"Stated another way, if the value of BTS falls by 33% from the time the short position is entered, then a margin call will occur. The value of BTS would have to fall by 66% before the collateral would be insufficient. These rules are extremely conservative compared to any traditional banking practice and is designed to protect the system even in the most extreme volatility."
I still had the margin call level listed as 1.5x but this describes the new 2x collateral rule so I should make it consistent. I also never really went into the detail that seller puts up 2x collateral and is matched with 1x from the buyer for a total of 3x starting collateral so I think I would need to clarify this.
Cass, I will do an update.
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Look at the liquidity guarantee from an active market: on average 1/30 of the BitUSD supply has to be covered every day. At a 1 million USD supply you should be able to sell $33,000 per day at the feed price.
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Here is an updated and slightly more polished version. Even though some things are not fully delved into like the formula for distributing yield, I think you could end up just confusing people and turning them off by adding every detail or scenario and I also don't want it to seem too "salesy".
BitShares Market Pegged Assets
BitShares market pegged assets are a new type of freely traded digital asset whose value is meant to track the value of a common asset such as the U.S. dollar or gold. BitShares uses an advanced decentralized consensus ledger that takes some cues from Bitcoin. While Bitcoin has demonstrated many useful properties as a currency, its price volatility makes it risky to hold and difficult to use for everyday pricing and payments. A currency with the properties and advantages of Bitcoin that maintains price parity with a globally adopted currency such as the US dollar has high utility for convenient and censorship resistant commerce. The purpose of this introduction to market pegged assets is to explain how this price parity is achieved.
Bitcoin and similar crypto-currencies enable value storage and exchange over the internet that is beyond the control or censorship of a centralized party. Demand for this utility has driven up the price of crypto-currencies. Bitshares uses an analogous blockchain based core token simply called BitShares that is traded with the abbreviation "BTS" on well-known crypto-currency exchanges.
Market Mechanism
Market pegged assets are created on the BitShares blockchain using a similar method to a contract for difference. The open source BitShares software program implements a decentralized internal marketplace for these assets and enforces the market rules. A BTS holder may use her BTS to place a buy order on the internal market for her asset of choice. Market pegged assets are created when a buyer is matched with a "short seller" of the asset. The short seller takes on the obligation of buying back the asset in the future and must maintain collateral sufficient to repurchase the asset at current market rates. This creates systemic demand for the asset.
"BitUSD" is the name of the BitShares market pegged asset that tracks the US dollar and we will use this as an example. In order to ensure that the internal market participants trading bitUSD for BTS have the opportunity to settle at the real USD to BTS exchange rate, the external exchange rate is fed into the system by a network of independent "delegates." Delegates are elected by BTS holders to run the network, process transactions, and provide exchange rate information. This external exchange rate information is often called a "price feed." The delegate election process is covered in detail in documentation on the BitShares' "DPOS" consensus algorithm. Delegates typically combine price information from multiple sources such as exchanges to generate a price feed and update it regularly. The system takes a median of all price feeds so that manipulation of the price information would be very difficult by any single delegate or party without massive collusion.
It is important to understand how the price feed is used to regulate the internal market. It does not directly control the market or the sale price between buyers and sellers of market pegged assets. It functions to regulate creation and destruction of market pegged assets in a way that pushes the market price toward the long term expected exchange rate (parity with the dollar). While the internal exchange rate of bitUSD to BTS has no restriction, new "short sales" are prevented from executing below the median price feed. Short selling is the process by which new bitUSD is brought into existence and the rule that short sales are not executed below the real exchange rate prevents new bitUSD creation when price is below parity with the dollar. New bitUSD is created only when demand for bitUSD is at parity with the dollar or above.
When a short seller buys back bitUSD and covers their position they repay their obligation and can recover their collateral BTS. At this time they are taking bitUSD out of circulation and reducing the total supply. The current BitShares market rules force short sellers to cover their position within 30 days of opening the short position. This means that the full amount of outstanding bitUSD must be purchased off the market every 30 days. BitUSD holders are not required to sell; therefore short sellers covering their positions are eventually forced to purchase from newly opened short sales at or above the exchange rate. This is effectively a guarantee to any bitUSD holder that they can sell bitUSD for the dollar equivalent of BTS within any 30 day period.
Short sellers are typically bullish on the direction of BTS vs. the market pegged asset. If the market value of BTS rises with respect to the asset the short seller can buy back the asset for significantly less BTS than they originally sold it for and profit from the transaction. If BTS value falls in relation to the market pegged asset, the short seller must buy back the asset at a loss. If the price of the asset rises a lot, a short may face a "margin call" where the rules of the program use the posted collateral to automatically buy back the asset from the market to repay the obligation. A margin call is triggered in the current BitShares system whenever the value of the collateral falls to less than two times what is required to cover the obligation.
Order Matching
Market orders and other signed transactions on the BitShares blockchain are grouped into 10 second blocks by delegates. When buy and sell orders on the internal BitShares' market are matched, the highest buy orders are matched with the lowest sell orders and any BTS contained in the overlap are destroyed so that each party gets exactly what they paid for. The reason for this is twofold. Firstly, it prevents high frequency trading that attempts to insert an order between two placed orders to profit from the overlap, this is sometimes called "front running". It also makes it very costly for a large buyer or seller to quickly move the market by placing a large order far from the current market rate. Doing so would require the buyer or seller to pay the more expensive rate and lose any overlap with all orders their order is matched with. The destruction of BTS from the overlap of orders creates value for BTS holders as a whole by making the token more scarce. When there is significant demand to short sell assets at the price feed rate, the current BitShares system allows short sellers to offer interest to asset holders in exchange for priority in order matching. In this way, holders of market pegged assets can also collect an additional yield on their savings.
Risk
The implementation of market pegged assets in the BitShares system is designed to minimize risk of loss to asset holders. Short positions are opened with collateral valued at three times the face value of the asset. The initial collateral is comprised of the BTS paid by the buyer for the asset and twice this amount of BTS contributed by the short seller. The collateral requirements and margin triggers were chosen conservatively to protect the holders of market pegged assets from volatility of the underlying collateral. Forcing short positions to cover every 30 days provides additional assurance of short term liquidity. Control over the price feed is distributed among over 50 separately elected delegates who compile information from multiple exchange sources. Despite such precautions, it is important to carefully explore risks of using the system. Risks can be broadly categorized as value risk, counterparty risk, or systemic risk.
Value Risk:
Market pegged assets maintain their price parity due to being backed by collateral that has an established real world value. When the value of the collateral falls, the system is designed to react by driving the internal asset exchange to match the new real world exchange rate and trigger margin calls as necessary. However, there exists a possibility that the underlying asset used for collateral (BTS) drops in value so quickly the market pegged assets become under-collateralized. Often termed a "black swan event," this sudden and dramatic crash of BTS value could prevent the system from adjusting in time. In this event, the full amount of collateral is no longer sufficient to purchase the market pegged asset back at the new real exchange rate. In such an event, assets may trade below their face value. It is possible the market could recover if BTS regained value. It is also possible the market would need to be "reset" and asset holders forced to settle for BTS collateral worth less than the intended face value of their assets.
Counterparty risk:
Unlike many attempts to create a digital asset that tracks the dollar, market pegged asset are not an "I owe you" issued by any entity. For this reason, it does not rely on a specific counterparty to honor its value. Although manipulation risk occurs in any market, it is minimized by the open source and auditable nature of the BitShares system and carefully considered market rules. Some counterparty risk exists when buying market pegged assets on an external public exchange. The exchange must be trusted with customer funds for the time period they are deposited. It is not recommended that digital assets are stored on an exchange long term.
Systemic risk:
Systemic risk is a catch-all for other risks required to utilize the system. The primary risk is individuals are responsible for protecting the cryptographic private keys that sign transactions proving ownership of assets. These keys must be protected from theft or loss. This risk can be greatly reduced and virtually eliminated by following best practices. Systemic risk also includes the possibility of an overlooked fatal flaw in the open source software or the possibility of large scale failure of global network infrastructure.
Outlook
BitShares market pegged assets are a viable open source alternative to the incumbent banking system. While certain risks have been outlined, no system is without risk. The current banking system allows private funds to be frozen or confiscated without consent, such as by court order. Banks and financial institutions are susceptible to insolvency. The availability and quality of banking service varies greatly throughout the world. BitShares brings publically auditable open source banking to anyone with access to the internet. Market pegged assets allow savers and spenders to choose preferred asset types. This brings flexibility and ease of use to the open source banking experience.
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I would add to risk section that BTS price may be subject to speculative manipulation attack, so long as it pick up the pace of sufficient liquidity.
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I would add to risk section that BTS price may be subject to speculative manipulation attack, so long as it pick up the pace of sufficient liquidity.
Maybe you could clarify the attack you are talking about, such as who is being attacked and the method, so I know what you mean. Keep in mind the risks outlined are specific to market pegged assets while the volatility risk of BTS is fully acknowledged.
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The holy grail if persuasive writing is combining simplicity with precision (and understatement imo) and this write up is pretty good at that.
Feedback:
I woudn't know where the following points to: "The delegate election process is covered in detail in documentation on the BitShares' "DPOS" consensus algorithm."
Really miner but in this sentence you loose a bit the clear language: "Short sellers are typically bullish on the direction of BTS vs. the market pegged asset." "typically" and "vs" are not very precise terms. Suggestion: According to the market rules short sellers are meant to be bullish on the direction on the price of BTS compared to the the market pegged asset.
For the following comments: Here is how I see it: Asset: general term of any asset. Market pegged asset: overall category of what we call bitAssets. Underlying asset: specific asset that is underlying a certain bitAsset.
"If the market value of BTS rises with respect to the asset" <- "underlying asset" would be more clear.
"can buy back the asset" I'd say "bitAsset" here since it is the bitAsset that is bought back not the asset itself.
"If the price of the asset rises a lot" -> "If the price of the asset rises a lot compared to BTS" just to be more clear and explicit.
"rules of the program" -> software or software program or the software client instead of program would be more clear imo.
The order matching mechanisms could be a little bit extended. I understood it but had to think quite a while about it. Here is how I described it for myself: When a sell order is bigger than the buy orders at or above the price of the sell order then all those buy orders get filled and the seller pays the price he entered with all orders that get filled although the buy orders only receive what they entered - the rest is paid as fees.
"However, there exists a possibility that the value of the underlying asset used for collateral (BTS) drops in value so quickly that the market pegged assets become under-collateralized. In this event, the full amount of collateral is no longer sufficient to purchase the market pegged asset back at the new real exchange rate." I think there is something missing here namely this (if I understood it right): If BTS falls too fast the margin calls can not automatically buy back enough BitUSD since there just might not be enough new BitUSD shorts or normal BitUSD sellers.
Is there an estimate how fast it would have to fall for the bitasset to not be fully collateralized (? And are there other factors than the speed at which it falls that determine the risk that BitUSD would only partly collateralized? For example liquidity/size of the market for a certain bitAsset: I can't see how that would play in here except that is makes the bitasset markets less volatile in the first place.
And something else I would like to understand: The short seller puts up collateral worth 2x the bitassets that were shorted then the buyer buys it from him which gives the short seller 1x the value of the bitasset shorted back as liquid BTS. So in the end there are is 2x collateral that is actually not liquid and can act as collateral (for margin calls). Am I wrong here?
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Delulo, thanks for the feedback and for reading it!!!
The holy grail if persuasive writing is combining simplicity with precision (and understatement imo) and this write up is pretty good at that.
Feedback:
I woudn't know where the following points to: "The delegate election process is covered in detail in documentation on the BitShares' "DPOS" consensus algorithm."
Yea we should probably have info on DPOS nearby.
Really miner but in this sentence you loose a bit the clear language: "Short sellers are typically bullish on the direction of BTS vs. the market pegged asset." "typically" and "vs" are not very precise terms. Suggestion: According to the market rules short sellers are meant to be bullish on the direction on the price of BTS compared to the the market pegged asset.
I don't know, I like the original wording better but of course these things are subject to individual preference so maybe I can change it.
For the following comments: Here is how I see it: Asset: general term of any asset. Market pegged asset: overall category of what we call bitAssets. Underlying asset: specific asset that is underlying a certain bitAsset.
"If the market value of BTS rises with respect to the asset" <- "underlying asset" would be more clear.
I agree on the need for consistency, although I don't think using "underlying asset" this way is clear..
"can buy back the asset" I'd say "bitAsset" here since it is the bitAsset that is bought back not the asset itself.
"If the price of the asset rises a lot" -> "If the price of the asset rises a lot compared to BTS" just to be more clear and explicit.
I got rid of any reference to "bitAssets", I don't really like the term bitAsset because to me it seems like a generic term for a digital asset and could be confusing to say only market pegged assets are "bitAssets." So I tried to refer to bitAssets as market pegged assets or asset for short if I thought it was clear. Maybe we can adopt the abbreviation "MPAs"??
I also meant to not refer to BTS as an asset at all but I did use the phrase "underlying asset used for collateral (BTS)" once which I can change.
"However, there exists a possibility that the value of the underlying asset used for collateral (BTS) drops in value so quickly that the market pegged assets become under-collateralized. In this event, the full amount of collateral is no longer sufficient to purchase the market pegged asset back at the new real exchange rate." I think there is something missing here namely this (if I understood it right): If BTS falls too fast the margin calls can not automatically buy back enough BitUSD since there just might not be enough new BitUSD shorts or normal BitUSD sellers.
Is there an estimate how fast it would have to fall for the bitasset to not be fully collateralized (? And are there other factors than the speed at which it falls that determine the risk that BitUSD would only partly collateralized? For example liquidity/size of the market for a certain bitAsset: I can't see how that would play in here except that is makes the bitasset markets less volatile in the first place.
I agree that this sentence isn't as clear as it could be. I still wouldn't want to give an estimate for how fast BTS would have to fall for assets to be under-collateralized because it depends on how fast new short sellers react and enter the market.
And something else I would like to understand: The short seller puts up collateral worth 2x the bitassets that were shorted then the buyer buys it from him which gives the short seller 1x the value of the bitasset shorted back as liquid BTS. So in the end there are is 2x collateral that is actually not liquid and can act as collateral (for margin calls). Am I wrong here?
Yea, you are wrong here. The short seller doesn't get any "liquid BTS" from the sale; it all goes to collateral.
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Ok, that all makes sense.
Thank you for your work! I think that a good whitepaper is essential because it can help heaps to convince reputable and knowledgeable individuals and institutions that are trusted by the masses.
A more detailed paper was requested but keeping it short to not confuse people and only give them what they need for a basic but solid understanding also makes sense. So why not make two papers? One that would be equal to this and one that would be this one plus the extended stuff. One for each target group.
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A more detailed paper was requested but keeping it short to not confuse people and only give them what they need for a basic but solid understanding also makes sense. So why not make two papers? One that would be equal to this and one that would be this one plus the extended stuff. One for each target group.
i like this idea
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A more detailed paper was requested but keeping it short to not confuse people and only give them what they need for a basic but solid understanding also makes sense. So why not make two papers? One that would be equal to this and one that would be this one plus the extended stuff. One for each target group.
i like this idea
+5%
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Short sellers are typically bullish on the direction of BTS vs. the market pegged asset.
I suggest saying a short position is a "bullish position" rather than refer to the short-seller's motivation. A bullish outlook is true of naked short-sellers, but not necessarily hedged short-sellers. And the type of short-seller that dominates will depend on where demand for the bitAsset is coming from.
For example, when demand for bitAsset/BTS increases, it must be met by short-sellers who are bullish BTS. However, when demand for bitAsset/fiat increases, it can be met by a neutral arbitrager willing to create a simultaneous long and short in the bitAsset, who will then sell the bitAsset for fiat at a premium to the peg.
Value Risk:
Market pegged assets maintain their price parity due to being backed by collateral that has an established real world value. When the value of the collateral falls, the system is designed to react by driving the internal asset exchange to match the new real world exchange rate and trigger margin calls as necessary. However, there exists a possibility that the underlying asset used for collateral (BTS) drops in value so quickly the market pegged assets become under-collateralized. Often termed a "black swan event," this sudden and dramatic crash of BTS value could prevent the system from adjusting in time. In this event, the full amount of collateral is no longer sufficient to purchase the market pegged asset back at the new real exchange rate. In such an event, assets may trade below their face value. It is possible the market could recover if BTS regained value. It is also possible the market would need to be "reset" and asset holders forced to settle for BTS collateral worth less than the intended face value of their assets.
What does "real world value" mean?
The risk of imperfect pegging is not mentioned, and that is a key one.
There is also the risk that, because BTS is not itself a highly liquid market, it could be manipulated to affect certain outcomes in the bitAsset market via the price feeds. I'm not sure if that fits under the "Value" risk banner, or somewhere else.
A separate risk is that the yield is variable, and depends on...(no formula)
A more detailed paper was requested but keeping it short to not confuse people and only give them what they need for a basic but solid understanding also makes sense. So why not make two papers? One that would be equal to this and one that would be this one plus the extended stuff. One for each target group.
i like this idea
I agree, because most future bitAsset users will never need to know the inner workings of a bitAsset/BTS market, as they will only deal with bitAsset/fiat/crypto.
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Just a quick info: If you want it to be formated like the yellow paper PDF of etherum .. using LaTeX .. I can assist .. not sure if we need a pdf though ..
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i'll prepare the Whitepaper pdf when content is ready! Let me also know if any info GFX is needed for BitAsset Whitepaper… thx
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Short sellers are typically bullish on the direction of BTS vs. the market pegged asset.
I suggest saying a short position is a "bullish position" rather than refer to the short-seller's motivation. A bullish outlook is true of naked short-sellers, but not necessarily hedged short-sellers. And the type of short-seller that dominates will depend on where demand for the bitAsset is coming from.
For example, when demand for bitAsset/BTS increases, it must be met by short-sellers who are bullish BTS. However, when demand for bitAsset/fiat increases, it can be met by a neutral arbitrager willing to create a simultaneous long and short in the bitAsset, who will then sell the bitAsset for fiat at a premium to the peg.
I feel like you're over-analyzing here. I also don't know what the advantage of a "simultaneous long and short" is in this context. If people are paying more for bitAssets with fiat than the internal exchange would indicate then just buy bitAssets on the internal exchange and sell them, why go short at the same time? makes no sense.
Value Risk:
Market pegged assets maintain their price parity due to being backed by collateral that has an established real world value. When the value of the collateral falls, the system is designed to react by driving the internal asset exchange to match the new real world exchange rate and trigger margin calls as necessary. However, there exists a possibility that the underlying asset used for collateral (BTS) drops in value so quickly the market pegged assets become under-collateralized. Often termed a "black swan event," this sudden and dramatic crash of BTS value could prevent the system from adjusting in time. In this event, the full amount of collateral is no longer sufficient to purchase the market pegged asset back at the new real exchange rate. In such an event, assets may trade below their face value. It is possible the market could recover if BTS regained value. It is also possible the market would need to be "reset" and asset holders forced to settle for BTS collateral worth less than the intended face value of their assets.
What does "real world value" mean?
it means it has an established exchange rate with real USD (or similarly accepted store of value).
I didn't think it was too ambiguous but if you have a suggestion of how to re-write the sentence in a way that isn't unneccesarily wordy or awkward I'd definitely consider changing it.
The risk of imperfect pegging is not mentioned, and that is a key one.
What do you mean risk of "imperfect pegging"?
I explained that if the asset became under-collateralized it can cause the peg to not track. I also explained that the price feed doesn't dictate the exchange rate at any instant and that the exchange rate tends toward parity in the long run. I could probably stress that short term market movements, spreads, and fees charged by exchanges all effect the potential cost of conversion into and out of market pegged assets.
There is also the risk that, because BTS is not itself a highly liquid market, it could be manipulated to affect certain outcomes in the bitAsset market via the price feeds. I'm not sure if that fits under the "Value" risk banner, or somewhere else.
"affect certain outcomes" what outcomes? and how do those outcomes affect bitAsset holders?
I stated market manipulation is possible but other than if it causes a quick revaluation of BTS that left bitAssets under-collateralized (black swan event, already discussed) how else would it affect market pegged asset holders?
A separate risk is that the yield is variable, and depends on...(no formula)
I don't consider this a risk. I never said yield was guaranteed, it could be zero. As a side note, I'd be happy if we didn't offer yield at all (bond market is a better system)
A more detailed paper was requested but keeping it short to not confuse people and only give them what they need for a basic but solid understanding also makes sense. So why not make two papers? One that would be equal to this and one that would be this one plus the extended stuff. One for each target group.
i like this idea
I agree, because most future bitAsset users will never need to know the inner workings of a bitAsset/BTS market, as they will only deal with bitAsset/fiat/crypto.
I don't want to make a long paper just to make a long paper. People have limited time and attention and it's best to convey the message efficiently. My feeling is that the core market peg mechanism may not require a huge paper to explain. People may need to think it over one way or another, but you don't want to add a bunch of superfluous stuff. Of course if there are critical things to add it should be added
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I feel like you're over-analyzing here. I also don't know what the advantage of a "simultaneous long and short" is in this context. If people are paying more for bitAssets with fiat than the internal exchange would indicate then just buy bitAssets on the internal exchange and sell them, why go short at the same time? makes no sense.
You're right in that if there is a surge in demand for bitAssets against fiat, pushing the price on the external exchange to a premium over the internal exchange, the first traders to step in are arbitragers who buy bitAsset internally with BTS, sell externally for fiat, then buy back BTS. However, this very quickly leads to a situation where both the internal and external exchange equilibrate at a premium to the peg, until the supply of bitAssets is increased to meet the demand. This can be facilitated at the lowest risk by traders who enter the market to take advantage of the premium, while hedging their change in BTS exposure. There 2 easiest ways to do this are a simultaneous long and short, and selling the bitAsset at a premium against fiat, or by taking a short and selling BTS against fiat. In either case the trader taking the short is not bullish, just trying to take advantage of the excess demand for bitAssets across the markets.
What do you mean risk of "imperfect pegging"?
I explained that if the asset became under-collateralized it can cause the peg to not track. I also explained that the price feed doesn't dictate the exchange rate at any instant and that the exchange rate tends toward parity in the long run. I could probably stress that short term market movements, spreads, and fees charged by exchanges all effect the potential cost of conversion into and out of market pegged assets.
Yes, I think the last sentence covers it. I am talking about general deviation from the peg due to supply and demand, unrelated to the level of collateral.
"affect certain outcomes" what outcomes? and how do those outcomes affect bitAsset holders?
I stated market manipulation is possible but other than if it causes a quick revaluation of BTS that left bitAssets under-collateralized (black swan event, already discussed) how else would it affect market pegged asset holders?
I was being deliberately coy here. Would you like me to PM you, or would it be better to openly toss around the possibilities?
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Great text, thanks for your effort.
I believe some numbers in this paragraph might be wrong:
A margin call is triggered in the current BitShares system whenever the collateral contains less than 1.5 times the amount of BTS required to cover the obligation. Stated another way, if the value of BTS falls by 33% from the time the short position is entered, then a margin call will occur. The value of BTS would have to fall by 66% before the collateral would be insufficient.
A margin call is triggered in the current BitShares system whenever the value of the collateral falls to less than two times what is required to cover the obligation.
The initial collateral is 3x (2x from the short and 1x from the long) so the correct figures should be:
A margin call is triggered in the current BitShares system whenever the collateral contains less than 1.5 times the amount of BTS required to cover the obligation. Stated another way, if the value of BTS falls by 50% from the time the short position is entered, then a margin call will occur. The value of BTS would have to fall by 66% before the collateral would be insufficient.
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Great text, thanks for your effort.
I believe some numbers in this paragraph might be wrong:
A margin call is triggered in the current BitShares system whenever the collateral contains less than 1.5 times the amount of BTS required to cover the obligation. Stated another way, if the value of BTS falls by 33% from the time the short position is entered, then a margin call will occur. The value of BTS would have to fall by 66% before the collateral would be insufficient.
A margin call is triggered in the current BitShares system whenever the value of the collateral falls to less than two times what is required to cover the obligation.
The initial collateral is 3x (2x from the short and 1x from the long) so the correct figures should be:
A margin call is triggered in the current BitShares system whenever the collateral contains less than 1.5 times the amount of BTS required to cover the obligation. Stated another way, if the value of BTS falls by 50% from the time the short position is entered, then a margin call will occur. The value of BTS would have to fall by 66% before the collateral would be insufficient.
I agree that my original statement of 1.5x in the first version and the explanation bytemaster added were inconsistent, but I think bytemaster had it right because I think we changed the margin call level to 2x as in the updated version.
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I feel like you're over-analyzing here. I also don't know what the advantage of a "simultaneous long and short" is in this context. If people are paying more for bitAssets with fiat than the internal exchange would indicate then just buy bitAssets on the internal exchange and sell them, why go short at the same time? makes no sense.
You're right in that if there is a surge in demand for bitAssets against fiat, pushing the price on the external exchange to a premium over the internal exchange, the first traders to step in are arbitragers who buy bitAsset internally with BTS, sell externally for fiat, then buy back BTS. However, this very quickly leads to a situation where both the internal and external exchange equilibrate at a premium to the peg, until the supply of bitAssets is increased to meet the demand. This can be facilitated at the lowest risk by traders who enter the market to take advantage of the premium, while hedging their change in BTS exposure. There 2 easiest ways to do this are a simultaneous long and short, and selling the bitAsset at a premium against fiat, or by taking a short and selling BTS against fiat. In either case the trader taking the short is not bullish, just trying to take advantage of the excess demand for bitAssets across the markets.
Again I think you are confusing the issue, at first you said the "simultaneous short and long" was for arbitrage and now it seems you are saying it is for something else.
You have to understand you don't get to decide to "short to yourself." In any given moment, deciding the best use of your BTS is to short sell bitAssets is independent from deciding the best use of your BTS is rather to buy bitAssets.
What do you mean risk of "imperfect pegging"?
I explained that if the asset became under-collateralized it can cause the peg to not track. I also explained that the price feed doesn't dictate the exchange rate at any instant and that the exchange rate tends toward parity in the long run. I could probably stress that short term market movements, spreads, and fees charged by exchanges all effect the potential cost of conversion into and out of market pegged assets.
Yes, I think the last sentence covers it. I am talking about general deviation from the peg due to supply and demand, unrelated to the level of collateral.
"affect certain outcomes" what outcomes? and how do those outcomes affect bitAsset holders?
I stated market manipulation is possible but other than if it causes a quick revaluation of BTS that left bitAssets under-collateralized (black swan event, already discussed) how else would it affect market pegged asset holders?
I was being deliberately coy here. Would you like me to PM you, or would it be better to openly toss around the possibilities?
I would be happy if you openly tossed the possibilities. I think a public discussion would be good as you are not the first to bring up the impact of pushing the outside market around. You can feel free to PM me if you prefer, but I would reserve the right to publish so people don't think there is some hidden attack that is being kept secret.
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Am I right about the following?
When there is a big demand for BitUSD the price of BitUSD will rise and if it rises above the level of the price feed BitUSD shorters can make a profit from shorting BitUSD and buying the BitUSD that are above the feed price and exchanging those for the collateral again?
If BTS falls too fast the margin calls can not automatically buy back enough BitUSD since there just might not be enough new BitUSD shorts or normal BitUSD sellers. Correct?
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Am I right about the following?
When there is a big demand for BitUSD the price of BitUSD will rise and if it rises above the level of the price feed BitUSD shorters can make a profit from shorting BitUSD and buying the BitUSD that are above the feed price and exchanging those for the collateral again?
Unless I'm misunderstanding you, this is not correct. Shorting bitUSD and then buying bitUSD back and covering would just leave you where you started unless the exchange rate changed.
If BTS falls too fast the margin calls can not automatically buy back enough BitUSD since there just might not be enough new BitUSD shorts or normal BitUSD sellers. Correct?
Yes, this is basically correct. (I would change "can not" to "may not") but I'm just being picky.
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Am I right about the following?
When there is a big demand for BitUSD the price of BitUSD will rise and if it rises above the level of the price feed BitUSD shorters can make a profit from shorting BitUSD and buying the BitUSD that are above the feed price and exchanging those for the collateral again?
Unless I'm misunderstanding you, this is not correct. Shorting bitUSD and then buying bitUSD back and covering would just leave you where you started unless the exchange rate changed.
The scenario I was coming from was: How does the market regulate the amount of BitUSD available when there is a huge demand for it that excees the supply.
Say someone with a lot of cash flow sees a lot of value in BitUSD and wants to do all his/her banking with it. Then that person would buy up all BitUSD below and at the price feed and eventually push the price of BitUSD above the feed price. Then a short seller can buy those BitUSD that trade above the feed price and short BitUSD at the price feed (I assumed that shorting always happens exactly at the price feed, is that correct?) at the same time and make a profit by covering with the BitUSD he bought above the feed price.
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Am I right about the following?
When there is a big demand for BitUSD the price of BitUSD will rise and if it rises above the level of the price feed BitUSD shorters can make a profit from shorting BitUSD and buying the BitUSD that are above the feed price and exchanging those for the collateral again?
Unless I'm misunderstanding you, this is not correct. Shorting bitUSD and then buying bitUSD back and covering would just leave you where you started unless the exchange rate changed.
The scenario I was coming from was: How does the market regulate the amount of BitUSD available when there is a huge demand for it that excees the supply.
Say someone with a lot of cash flow sees a lot of value in BitUSD and wants to do all his/her banking with it. Then that person would buy up all BitUSD below and at the price feed and eventually push the price of BitUSD above the feed price. Then a short seller can buy those BitUSD that trade above the feed price and short BitUSD at the price feed (I assumed that shorting always happens exactly at the price feed, is that correct?) at the same time and make a profit by covering with the BitUSD he bought above the feed price.
I think you have something backward... if a short seller sells bitUSD at the feed price and buys it above the feed price they have lost money, not made money.
The assumption that short selling always happens at the feed is also not correct. Shorts that have a floor price above the feed could match above the feed. (I've also been trying to convince BM to make a fixed offset option for short sellers who want to short above the feed but track the feed price).
If bitUSD is priced above the feed on the internal market, it motivates short sellers to short on the assumption the exchange rate will eventually go back down so they will be able to cover later for less. But it is not specifically an immediate arbitrage situation in and of itself.
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You're right in that if there is a surge in demand for bitAssets against fiat, pushing the price on the external exchange to a premium over the internal exchange, the first traders to step in are arbitragers who buy bitAsset internally with BTS, sell externally for fiat, then buy back BTS. However, this very quickly leads to a situation where both the internal and external exchange equilibrate at a premium to the peg, until the supply of bitAssets is increased to meet the demand. This can be facilitated at the lowest risk by traders who enter the market to take advantage of the premium, while hedging their change in BTS exposure. There 2 easiest ways to do this are a simultaneous long and short, and selling the bitAsset at a premium against fiat, or by taking a short and selling BTS against fiat. In either case the trader taking the short is not bullish, just trying to take advantage of the excess demand for bitAssets across the markets.
Again I think you are confusing the issue, at first you said the "simultaneous short and long" was for arbitrage and now it seems you are saying it is for something else.
You have to understand you don't get to decide to "short to yourself." In any given moment, deciding the best use of your BTS is to short sell bitAssets is independent from deciding the best use of your BTS is rather to buy bitAssets.
You are right that I am overanalysing!!, so its for you to decide how relevant this is. I'm only saying that users of shorts (e.g. arbitragers) do not need to be bullishly motivated. The easiest example is where the trader has an existing inventory of BTS, enters a short on 1 unit of bitAsset to take advantage of the premium (increasing his BTS exposure by the value of the bitAsset), then sells an equivalent value of his BTS for fiat to ensure his total BTS exposure is unchanged at the end. You can call this an arbitrage, although its not really risk-free (there is risk of loss at the end of the trade). But you can see at least from this example that the user of the short (and creator of bitAssets) is not required to take a more bullish overall position.
The simultaneous long/short is a way to achieve the same final outcome (see below for trade construction**). I'll come back to your point on matching the trades in the market. But if we assume you can do this closely, it means that there is only one moving market price to worry about (bitUSD/fiat, which should be fairly stable) as opposed to two moving prices to deal with (bitUSD/BTS and BTS/fiat, both of which are less stable). So it could be a preferred implementation when the BTS/fiat market is unstable or illiquid. Now I know traders don't get to choose to sell to themselves in the simultaneous long/short, there is the risk that someone else beats them to one side of the order and their prices mismatch. In a liquid bitAsset market trading at a premium they should hopefully not be too far off, but it is a risk as you point out.
On the issue of manipulations, I've found a few scenarios when thinking about the arbitrages. I will outline the possibilities in a new thread as soon as I find more time.
** The sequence is (1) The trader starts with an existing inventory of BTS worth 3x the bitAsset. (2) They simultaneously enter a long and short position on 1 unit of Bitasset, which shifts their 3x BTS from their own hand into the collateral pool. (3) They sell their bitAsset for fiat at a premium (let's say they receive $1.02). (4) Should the bitAsset trade narrower or below the peg in future, they unwind by buying the bitAsset back for fiat (say at $0.98) placing a sell order against BTS, and covering their short into that.
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I think you have something backward... if a short seller sells bitUSD at the feed price and buys it above the feed price they have lost money, not made money.
Ops, I confused that...
If bitUSD is priced above the feed on the internal market, it motivates short sellers to short on the assumption the exchange rate will eventually go back down so they will be able to cover later for less. But it is not specifically an immediate arbitrage situation in and of itself.
Is that enough to create the necessary BitUSD if there is a big demand for it? Why should the price of bitusd go down? It's not a clear decision for potential shorters to short on that assumption even if the demand for bitusd is big signaled by the high price of bitusd.
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I think you have something backward... if a short seller sells bitUSD at the feed price and buys it above the feed price they have lost money, not made money.
Ops, I confused that...
If bitUSD is priced above the feed on the internal market, it motivates short sellers to short on the assumption the exchange rate will eventually go back down so they will be able to cover later for less. But it is not specifically an immediate arbitrage situation in and of itself.
Is that enough to create the necessary BitUSD if there is a big demand for it? Why should the price of bitusd go down? It's not a clear decision for potential shorters to short on that assumption even if the demand for bitusd is big signaled by the high price of bitusd.
No other mechanism is needed to make the bitUSD price go back down simply because (above parity) there's no limit to the supply.
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there's no limit to the supply
what do you mean by that? The supply of bitUSD I guess?
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I think you have something backward... if a short seller sells bitUSD at the feed price and buys it above the feed price they have lost money, not made money.
Ops, I confused that...
If bitUSD is priced above the feed on the internal market, it motivates short sellers to short on the assumption the exchange rate will eventually go back down so they will be able to cover later for less. But it is not specifically an immediate arbitrage situation in and of itself.
Is that enough to create the necessary BitUSD if there is a big demand for it? Why should the price of bitusd go down? It's not a clear decision for potential shorters to short on that assumption even if the demand for bitusd is big signaled by the high price of bitusd.
No other mechanism is needed to make the bitUSD price go back down simply because (above parity) there's no limit to the supply.
There is a limiting factor on the supply, being the market's appraisal of the value of BTS (BTS market cap). Once nearly all the BTS are in the collateral pool, there is no scope left for traders to create more bitAsset. BTS are traded in a free market, so there is no way to guarantee that the BTS market cap will remain far above 3x bitAssets. In such a situation a bitAsset premium could be sustained indefinitely. There is no mechanism in this situation that can force the bitUSD price down, except possible that potential bitUSD buyers realise that bitUSD is suddenly more risky.
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I'm trying to picture the scenario you describe and I can't. I understand it's not "enforced" using any on-chain mechanism, and I'm not sure I could prove it can't happen. I think it's just the exact same systemic failure mode as a sudden collapse of BTS value which isn't based on any fundamentals (like a bug prints a bunch of BTS or something).
If my bitasset is overvalued I will sell it. Who will hold when they just made 10% instant returns on something that is only ever supposed to give them 1% APR? On the other side, if all the BTS is in collateral then its price will skyrocket.
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I think you have something backward... if a short seller sells bitUSD at the feed price and buys it above the feed price they have lost money, not made money.
Ops, I confused that...
If bitUSD is priced above the feed on the internal market, it motivates short sellers to short on the assumption the exchange rate will eventually go back down so they will be able to cover later for less. But it is not specifically an immediate arbitrage situation in and of itself.
Is that enough to create the necessary BitUSD if there is a big demand for it? Why should the price of bitusd go down? It's not a clear decision for potential shorters to short on that assumption even if the demand for bitusd is big signaled by the high price of bitusd.
No other mechanism is needed to make the bitUSD price go back down simply because (above parity) there's no limit to the supply.
There is a limiting factor on the supply, being the market's appraisal of the value of BTS (BTS market cap). Once nearly all the BTS are in the collateral pool, there is no scope left for traders to create more bitAsset. BTS are traded in a free market, so there is no way to guarantee that the BTS market cap will remain far above 3x bitAssets. In such a situation a bitAsset premium could be sustained indefinitely. There is no mechanism in this situation that can force the bitUSD price down, except possible that potential bitUSD buyers realise that bitUSD is suddenly more risky.
There's no practical limit to the supply of bitAssets in part because there's no specific limit on the marketcap of BTS. The marketcap of BTS will be driven upward long before "all the BTS are in the collateral pool" and people will cover and re-short to free collateral.
I'm only saying that users of shorts (e.g. arbitragers) do not need to be bullishly motivated. The easiest example is where the trader has an existing inventory of BTS, enters a short on 1 unit of bitAsset... then sells an equivalent value of his BTS for fiat to ensure his total BTS exposure is unchanged at the end. You can call this an arbitrage, although its not really risk-free
BTW your above explanation for why shortselling isn't bullish makes no sense at all. You say if someone sells some stake but uses remaining stake to short bitUSD it isn't bullish on the direction of BTS vs the bitassets as I stated in my paper. But no one would do that unless they thought BTS would go up in value relative to bitUSD so it's still bullish. This just describes someone who is bullish but also needs money for something else; it also isn't "arbitrage".
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I think you have something backward... if a short seller sells bitUSD at the feed price and buys it above the feed price they have lost money, not made money.
Ops, I confused that...
If bitUSD is priced above the feed on the internal market, it motivates short sellers to short on the assumption the exchange rate will eventually go back down so they will be able to cover later for less. But it is not specifically an immediate arbitrage situation in and of itself.
Is that enough to create the necessary BitUSD if there is a big demand for it? Why should the price of bitusd go down? It's not a clear decision for potential shorters to short on that assumption even if the demand for bitusd is big signaled by the high price of bitusd.
No other mechanism is needed to make the bitUSD price go back down simply because (above parity) there's no limit to the supply.
There is a limiting factor on the supply, being the market's appraisal of the value of BTS (BTS market cap). Once nearly all the BTS are in the collateral pool, there is no scope left for traders to create more bitAsset. BTS are traded in a free market, so there is no way to guarantee that the BTS market cap will remain far above 3x bitAssets. In such a situation a bitAsset premium could be sustained indefinitely. There is no mechanism in this situation that can force the bitUSD price down, except possible that potential bitUSD buyers realise that bitUSD is suddenly more risky.
There's no practical limit to the supply of bitAssets in part because there's no specific limit on the marketcap of BTS. The marketcap of BTS will be driven upward long before "all the BTS are in the collateral pool" and people will cover and re-short to free collateral.
While there's no theoretical limit, practically you can't create any more bitAssets than the BTS market is prepared to back. The market cap of BTS is determined in a free market, based on the market's appraisal of the prospects for future returns on it. Like any other asset market, it is forward-looking not backward-looking. On any day the market can reappraise the value of BTS to be significantly higher, or significantly lower. Therefore whatever people may believe about price pressures from bitAsset demand, any such pressures, even if they exist, become completely irrelevant in the next moment of time when the market is free to reset its trading price for BTS.
So the defining limit on the size of everything is how much value the market is willing to place on BTS. The market cap and growth of bitAssets are certainly factors in this valuation, but they cannot force the BTS market by any means to being valued at more than 3x bitAssets (or any number at all) nor to growing alongside the growth in bitAssets. That's indeed why a black-swan event is possible rather than impossible.
While one might argue that if BTS rises it allows shorts to roll and free collateral for further supply, I could equally argue that BTS declines would lead to shorts losing collateral and reduce further supply. Both these statements are true. Which way it goes will depend on what the market ultimately is willing to price BTS at.
BTW your above explanation for why shortselling isn't bullish makes no sense at all. You say if someone sells some stake but uses remaining stake to short bitUSD it isn't bullish on the direction of BTS vs the bitassets as I stated in my paper. But no one would do that unless they thought BTS would go up in value relative to bitUSD so it's still bullish. This just describes someone who is bullish but also needs money for something else; it also isn't "arbitrage".
My original point was that a trader taking a short position may not be bullishly motivated in taking it, if they are hedging their position as one leg of a trade solely to take advantage of a bitAsset premium. The fact as to whether they hold any stake beforehand is irrelevant to their motivation behind the new trade - they have not adopted a more bullish stance. They are not seeking to increase BTS exposure, or having any net impact on the BTS price. Its further possible they may only own some BTS as inventory for this sole purpose rather than actually having a bullish outlook. I am still agreeing with you that the (naked) short position is a "bullish position" - but that's a quality of the instrument not necessarily the trader. (You're correct its not an arbitrage, but its the least-risk implementation to take advantage of the bitAsset premium).
Having said all that, this particular debate possibly seems out of proportion with your original intent.
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Starspirit, maybe I'm not following what you mean in everything you said, but as far as I can tell, none of the chains of events you envision hurt bitAsset holders other than under-collateralization which is discussed in the paper.
BTW your above explanation for why shortselling isn't bullish makes no sense at all. You say if someone sells some stake but uses remaining stake to short bitUSD it isn't bullish on the direction of BTS vs the bitassets as I stated in my paper. But no one would do that unless they thought BTS would go up in value relative to bitUSD so it's still bullish. This just describes someone who is bullish but also needs money for something else; it also isn't "arbitrage".
My original point was that a trader taking a short position may not be bullishly motivated in taking it, if they are hedging their position as one leg of a trade solely to take advantage of a bitAsset premium. The fact as to whether they hold any stake beforehand is irrelevant to their motivation behind the new trade - they have not adopted a more bullish stance. They are not seeking to increase BTS exposure, or having any net impact on the BTS price. Its further possible they may only own some BTS as inventory for this sole purpose rather than actually having a bullish outlook. I am still agreeing with you that the (naked) short position is a "bullish position" - but that's a quality of the instrument not necessarily the trader. (You're correct its not an arbitrage, but its the least-risk implementation to take advantage of the bitAsset premium).
Having said all that, this particular debate possibly seems out of proportion with your original intent.
I admit I never would have anticipated the level of controversy and analysis brought on by this statement:
"Short sellers are typically bullish on the direction of BTS vs. the market pegged asset."
It still seems innocuous to me and accurate but I can accept that not everyone will be happy with my writing.
Feel free to rewrite whatever you wish.
I guess my difficulty is I'm not seeing something that falls outside the categories of risk for bitAsset holders that I discussed and I don't want to add too many hypotheticals to the paper that might cause more confusion. If there is something you think should be added I would just want it to be as short and clearly articulated as possible, keeping in mind it isn't an investment prospectus/ BTS trading guide, it's geared to bitAsset holders.
You might even consider organizing your ideas into a trading guide for BTS/shortselling or a group of recommendations you favor.
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Starspirit, maybe I'm not following what you mean in everything you said, but as far as I can tell, none of the chains of events you envision hurt bitAsset holders other than under-collateralization which is discussed in the paper.
That's cool, just a suggestion. I was just noting that there are situations where manipulators and smart traders can take more than their fair share from the collateral pool at the expense of bitAsset holders.
I admit I never would have anticipated the level of controversy and analysis brought on by this statement:
"Short sellers are typically bullish on the direction of BTS vs. the market pegged asset."
Sorry Agent86, it was my mistake to be overly pedantic on this point. I do a lot of arbitrage, and avoid directional views when I do.
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@starspirit
It is very interesting that several moths later you still find a lot of merit in your -" Regardless of demand, unchanging price" hypothesis...
I am sure things are and have forever being working like this - "Price is fixed, demand and supply just play/slide around that price"... it is indeed a very screwed up place... and everything is broken... other than the main premise that is.
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@starspirit
It is very interesting that several moths later you still find a lot of merit in your -" Regardless of demand, unchanging price" hypothesis...
I am sure things are and have forever being working like this - "Price is fixed, demand and supply just play/slide around that price"... it is indeed a very screwed up place... and everything is broken... other than the main premise that is.
tonyk, after much consideration, I'm even more confident now that this prevailing notion of the BTS price being directionally tied in some way to bitAsset supply growth is logically flawed. For punishment I may dig myself in even deeper and summarise my current logic on this. Let me just say I think the prevailing view is a very complacent assumption that if not dealt with, will come back to haunt in the end.
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@starspirit
It is very interesting that several moths later you still find a lot of merit in your -" Regardless of demand, unchanging price" hypothesis...
I am sure things are and have forever being working like this - "Price is fixed, demand and supply just play/slide around that price"... it is indeed a very screwed up place... and everything is broken... other than the main premise that is.
tonyk, after much consideration, I'm even more confident now that this prevailing notion of the BTS price being directionally tied in some way to bitAsset supply growth is logically flawed. For punishment I may dig myself in even deeper and summarise my current logic on this. Let me just say I think the prevailing view is a very complacent assumption that if not dealt with, will come back to haunt in the end.
my worst fear D=
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@starspirit
It is very interesting that several moths later you still find a lot of merit in your -" Regardless of demand, unchanging price" hypothesis...
I am sure things are and have forever being working like this - "Price is fixed, demand and supply just play/slide around that price"... it is indeed a very screwed up place... and everything is broken... other than the main premise that is.
tonyk, after much consideration, I'm even more confident now that this prevailing notion of the BTS price being directionally tied in some way to bitAsset supply growth is logically flawed. For punishment I may dig myself in even deeper and summarise my current logic on this. Let me just say I think the prevailing view is a very complacent assumption that if not dealt with, will come back to haunt in the end.
Starspirit, I think you are on to something when you described bitassets as a deep in the money option on the price of bitshares. It would be good if we could, as a group or individually, figure out exactly how bitassets relate to bts, and write a whitepaper on this.
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tonyk, after much consideration, I'm even more confident now that this prevailing notion of the BTS price being directionally tied in some way to bitAsset supply growth is logically flawed. For punishment I may dig myself in even deeper and summarise my current logic on this.
Please do. I think this is worth discussing more.
The two questions you and I have disagreements on (and I am by no means confident about my current position, but have still not been convinced by your arguments to take the opposite position) are:
- Does increasing outside demand for BitAssets (meaning purchasing BitAssets using fiat) lead to a net increase in the price of BTS (after arbitrage takes place) assuming that every market participant's view on the fundamentals of BTS has not changed? My view is that it does as long as there is latent shorting demand that cannot be matched because of the price feed restriction. The arbitrage process causes upward price pressure on BTS as the arbitrageurs buy it with fiat to later buy the price-pegged BitAsset on the decentralized exchange (or to replace the BTS they spent to buy the BitAssets to maintain their overall exposure to BTS); it also causes the premium on the BitAssets to return to the peg as they sell off the newly acquired BitAssets in the BitAsset/fiat market at a tiny profit above the peg; but it does not cause a decrease in the price of BTS relative to the BitAsset due to the arbitrageurs purchasing the BitAsset with BTS because there is a large wall of shorts at the price feed. Since the shorts are matched with the arbitrageurs' BTS, BitAsset supply increases (a consequence of this process, but not itself the cause of BTS price growth). The BTS price grows because the arbitrageur bid up the price buying the BTS on the outside exchanges but did not bid it down when selling it for BitAssets at the price feed because of the wall of shorts. Since the BTS price in outside exchanges grows from this process, this is eventually reflected in the price feeds of the decentralized exchange. Now the same BTS superbulls can rollover their short positions into new ones but because the price feed is lower, they can support a larger supply of BitAssets without having to increase their exposure to BTS (even if they sell off the BTS profits they made from the short for fiat in order to maintain the same amount of BTS, that is still a smaller quantity of BTS sold for fiat than the corresponding quantity of BTS purchased with fiat in order to start the arbitrage process, and thus the net effect is still upward price pressure on BTS). And that process of rolling over to lower price feeds is the reason why a large short wall can be maintained at the price feed even as it is chipped away through these types of arbitrage processes and even if the number of superbulls (and the amount of BTS they own) has not increased.
- Does the DAC need to earn any profit that it distributes to BTS holders in order for BTS to have enough value to support an arbitrary supply of BitAssets? I think the answer to this is no, because BTS can behave like a currency as well as a stock. A currency has no intrinsic value other than acting as a mechanism to facilitate trade. It doesn't earn the holder a return and in fact has negative return because of inflation. And yet the value of the total supply of currencies is incredibly large simply because we believe it has value. I think the same holds true with BTS (and BTC and all other cryptoassets for that matter). Once one of these assets gets big enough to have a serious network effect, the value gets some inertia and it isn't easy for that value to just disappear because we all suddenly wake up and decide it is worthless (although that is theoretically possible). So as long as the price of BTS has gradually increased because of the mechanism I described above (buy pressure on the growing BitAsset supply), I think the price of BTS should remain high even if it doesn't earn a return for its holders. It would maintain its value simply because it is the necessary backing store of value for the BitAssets that society would use to facilitate trade (as well as other things like price speculation of commodities), just like fiat maintains its value (ignoring the relatively small effects of inflation) simply because it facilitates trade.
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Now I am honor-bound to come back to you all! I trust you are patient... :D
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A related question:
For normal stocks, does buying options create demand for the underlying stock?
If so, does it matter whether they are close to the current price, well in the money, or well out of the money?
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A related question:
For normal stocks, does buying options create demand for the underlying stock?
If so, does it matter whether they are close to the current price, well in the money, or well out of the money?
I think the underwriter has to ensure the underlying stock is available if you choose to exercise the option to buy the stock... if you are well in the money this makes sense. Thus I think the underwriter will hedge their risk by buying the stock at the time the option is purchased.. and then it is in their best interest to ensure the options are out of money so if they are a big enough whale.. well incentive to manipulate is there....the sheep are always slaughtered
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A related question:
For normal stocks, does buying options create demand for the underlying stock?
If so, does it matter whether they are close to the current price, well in the money, or well out of the money?
I think the underwriter has to ensure the underlying stock is available if you choose to exercise the option to buy the stock... if you are well in the money this makes sense. Thus I think the underwriter will hedge their risk by buying the stock at the time the option is purchased.. and then it is in their best interest to ensure the options are out of money so if they are a big enough whale.. well incentive to manipulate is there....the sheep are always slaughtered
That's close, but usually the underwriter only needs to buy a fractional amount of the stock, depending on how far in- or out-of-the-money the option is (or the probability they need to deliver). As this probability changes, they adjust their position - selling whenever the price (and probability) falls, and buying whenever the price (and probability) rises. This is known as "delta-hedging" because they only hedge the delta, or equivalent fractional exposure, of the option at any time. Buying high and selling low costs them money over time, the expectation of which they build into the initial option premium with a profit margin. As long as they forecast the volatility reasonably, they collect the profit margin, there is no need for them to manipulate prices for a better outcome.
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A related question:
For normal stocks, does buying options create demand for the underlying stock?
If so, does it matter whether they are close to the current price, well in the money, or well out of the money?
Ander, yes if its coming from fiat, it does create an immediate demand, for a fractional amount - see my response to jsidhu.
Its a complex calculation to determine how significant this is for a bitAsset. You previously mentioned my description of bitAsset buyers effectively selling a deep out-of-the-money put option on BTS as part of the package, which gives them a fractional long exposure to BTS. The nature of this option is quite exotic, because the strike is not fixed. BitAsset owners are only exposed if the BTS price loses 2/3rd in price in so fast a time that margin calls on shorts cannot be covered quickly enough to prevent under-collateralisation. Market liquidity and volatility will both be factors in this. Possibly the only way to determine these probabilities, and the fractional delta in the options, is through computer simulation, as they cannot be expressed through standard option-pricing formulae.
If the demand is coming from BTS (in the internal market), then the bitAsset buyer is relinquishing a full BTS exposure for a fractional one, so their bitAsset demand is actually creating an immediate supply of BTS that needs to be absorbed by other participants.
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A question: How do money market funds that are pegged to a price of $1.00 work?
I remember back in the 2008 crash, there was a big deal made out of the possibility of 'breaking the buck', and having these funds be worth less than a dollar. I think a few of them briefly traded under $1.00.
Is bitUSD similar to these at all?
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A question: How do money market funds that are pegged to a price of $1.00 work?
I remember back in the 2008 crash, there was a big deal made out of the possibility of 'breaking the buck', and having these funds be worth less than a dollar. I think a few of them briefly traded under $1.00.
Is bitUSD similar to these at all?
I don't know any of these... not sure any link?
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A related question:
For normal stocks, does buying options create demand for the underlying stock?
If so, does it matter whether they are close to the current price, well in the money, or well out of the money?
I think the underwriter has to ensure the underlying stock is available if you choose to exercise the option to buy the stock... if you are well in the money this makes sense. Thus I think the underwriter will hedge their risk by buying the stock at the time the option is purchased.. and then it is in their best interest to ensure the options are out of money so if they are a big enough whale.. well incentive to manipulate is there....the sheep are always slaughtered
That's close, but usually the underwriter only needs to buy a fractional amount of the stock, depending on how far in- or out-of-the-money the option is (or the probability they need to deliver). As this probability changes, they adjust their position - selling whenever the price (and probability) falls, and buying whenever the price (and probability) rises. This is known as "delta-hedging" because they only hedge the delta, or equivalent fractional exposure, of the option at any time. Buying high and selling low costs them money over time, the expectation of which they build into the initial option premium with a profit margin. As long as they forecast the volatility reasonably, they collect the profit margin, there is no need for them to manipulate prices for a better outcome.
Oh ok.. I was just using common sense.. but I think it does make sense to hedge based on the delta because there is a higher chance they won't have to cover the closer it is to expiration and its out of money... etc etc.. ideally the safest is to hedge all of it but then they are less leverages and we all know banks love leverage.
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A question: How do money market funds that are pegged to a price of $1.00 work?
I remember back in the 2008 crash, there was a big deal made out of the possibility of 'breaking the buck', and having these funds be worth less than a dollar. I think a few of them briefly traded under $1.00.
Is bitUSD similar to these at all?
I don't know any of these... not sure any link?
This is what I am talking about:
http://www.investopedia.com/university/moneymarket/
http://www.investopedia.com/articles/mutualfund/08/money-market-break-buck.asp
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A related question:
For normal stocks, does buying options create demand for the underlying stock?
If so, does it matter whether they are close to the current price, well in the money, or well out of the money?
Buying a call is a straight demand for the underlying stock in my view. The demand is for the options delta-as in 50 delta (0.5 to be exact) will be a demand for 50% of 100 shares, or 50 shares. The Delta in this case thought as the % chance for the option to finish in the money i.e. close to 100% for deep in the money call; 50% (disregarding the interest) for at the money one; and going down to almost 0% for way out of the money calls.
Now, what is the connection between bitAssets and options?
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Now, what is the connection between bitAssets and options?
BitAsset holder is exposed to sudden and deep decline in BTS (black-swan). See my response to Ander further back in thread.
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A related question:
For normal stocks, does buying options create demand for the underlying stock?
If so, does it matter whether they are close to the current price, well in the money, or well out of the money?
Ander, yes if its coming from fiat, it does create an immediate demand, for a fractional amount - see my response to jsidhu.
Its a complex calculation to determine how significant this is for a bitAsset. You previously mentioned my description of bitAsset buyers effectively selling a deep out-of-the-money put option on BTS as part of the package, which gives them a fractional long exposure to BTS. The nature of this option is quite exotic, because the strike is not fixed. BitAsset owners are only exposed if the BTS price loses 2/3rd in price in so fast a time that margin calls on shorts cannot be covered quickly enough to prevent under-collateralisation. Market liquidity and volatility will both be factors in this. Possibly the only way to determine these probabilities, and the fractional delta in the options, is through computer simulation, as they cannot be expressed through standard option-pricing formulae.
If the demand is coming from BTS (in the internal market), then the bitAsset buyer is relinquishing a full BTS exposure for a fractional one, so their bitAsset demand is actually creating an immediate supply of BTS that needs to be absorbed by other participants.
Can you explain the bold part, please. My first thought response is - the whole of this supply is immediately locked in collateral and effectively removed. But I suspect you mean something else.
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A related question:
For normal stocks, does buying options create demand for the underlying stock?
If so, does it matter whether they are close to the current price, well in the money, or well out of the money?
Ander, yes if its coming from fiat, it does create an immediate demand, for a fractional amount - see my response to jsidhu.
Its a complex calculation to determine how significant this is for a bitAsset. You previously mentioned my description of bitAsset buyers effectively selling a deep out-of-the-money put option on BTS as part of the package, which gives them a fractional long exposure to BTS. The nature of this option is quite exotic, because the strike is not fixed. BitAsset owners are only exposed if the BTS price loses 2/3rd in price in so fast a time that margin calls on shorts cannot be covered quickly enough to prevent under-collateralisation. Market liquidity and volatility will both be factors in this. Possibly the only way to determine these probabilities, and the fractional delta in the options, is through computer simulation, as they cannot be expressed through standard option-pricing formulae.
If the demand is coming from BTS (in the internal market), then the bitAsset buyer is relinquishing a full BTS exposure for a fractional one, so their bitAsset demand is actually creating an immediate supply of BTS that needs to be absorbed by other participants.
Can you explain the bold part, please. My first thought response is - the whole of this supply is immediately locked in collateral and effectively removed. But I suspect you mean something else.
I mean that somebody else needs to be willing to take up the BTS supply, or the BTS price needs to decline until somebody is willing to accept it. In the situation where we have a group of unsatisfied bitAsset sellers or unfilled shorts waiting in the queue, they will absorb the supply, because they want greater exposure to BTS. However, where this is thin, the bitAsset price will keep rising until it gets interest from other shorts or outright bitAsset sellers (they get a better entry price for their BTS as a result). If the bitAsset price on the internal market is then higher than on the external market as a result of this pressure, arbitragers will sell BTS to buy bitAsset (via fiat) on the external market and sell bitAsset on the internal market to lock in a profit. This also transfers sell pressure on BTS to the external market.
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A related question:
For normal stocks, does buying options create demand for the underlying stock?
If so, does it matter whether they are close to the current price, well in the money, or well out of the money?
Ander, yes if its coming from fiat, it does create an immediate demand, for a fractional amount - see my response to jsidhu.
Its a complex calculation to determine how significant this is for a bitAsset. You previously mentioned my description of bitAsset buyers effectively selling a deep out-of-the-money put option on BTS as part of the package, which gives them a fractional long exposure to BTS. The nature of this option is quite exotic, because the strike is not fixed. BitAsset owners are only exposed if the BTS price loses 2/3rd in price in so fast a time that margin calls on shorts cannot be covered quickly enough to prevent under-collateralisation. Market liquidity and volatility will both be factors in this. Possibly the only way to determine these probabilities, and the fractional delta in the options, is through computer simulation, as they cannot be expressed through standard option-pricing formulae.
If the demand is coming from BTS (in the internal market), then the bitAsset buyer is relinquishing a full BTS exposure for a fractional one, so their bitAsset demand is actually creating an immediate supply of BTS that needs to be absorbed by other participants.
Can you explain the bold part, please. My first thought response is - the whole of this supply is immediately locked in collateral and effectively removed. But I suspect you mean something else.
I mean that somebody else needs to be willing to take up the BTS supply, or the BTS price needs to decline until somebody is willing to accept it. In the situation where we have a group of unsatisfied bitAsset sellers or unfilled shorts waiting in the queue, they will absorb the supply, because they want greater exposure to BTS. However, where this is thin, the bitAsset price will keep rising until it gets interest from other shorts or outright bitAsset sellers (they get a better entry price for their BTS as a result). If the bitAsset price on the internal market is then higher than on the external market as a result of this pressure, arbitragers will sell BTS to buy bitAsset (via fiat) on the external market and sell bitAsset on the internal market to lock in a profit. This also transfers sell pressure on BTS to the external market.
Other than not quite getting what do you mean by "...will sell BTS to buy bitAsset (via fiat)" and assuming you mean "sell BTS to buy bitAsset on the external market "
Yes, but said sell pressure is offset by 3x the buy pressure that the newly opened shorts provide...
It is actually quite simple:
Someone wants bitUSD. The usual way is:
-Buy BTS on external exchange (up pressure on BTS); + 1
-Sell BTS for bitUSD on the internal exchange for bitUSD (down pressure on BTS) - 1 ,but
- Simultaneously from the shorter (up pressure on BTS, 2x the force btw). + 2
The same happens if this new customer buys bitUSD directly, just somebody else is performing the first 2 steps for him/her.
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A related question:
For normal stocks, does buying options create demand for the underlying stock?
If so, does it matter whether they are close to the current price, well in the money, or well out of the money?
Ander, yes if its coming from fiat, it does create an immediate demand, for a fractional amount - see my response to jsidhu.
Its a complex calculation to determine how significant this is for a bitAsset. You previously mentioned my description of bitAsset buyers effectively selling a deep out-of-the-money put option on BTS as part of the package, which gives them a fractional long exposure to BTS. The nature of this option is quite exotic, because the strike is not fixed. BitAsset owners are only exposed if the BTS price loses 2/3rd in price in so fast a time that margin calls on shorts cannot be covered quickly enough to prevent under-collateralisation. Market liquidity and volatility will both be factors in this. Possibly the only way to determine these probabilities, and the fractional delta in the options, is through computer simulation, as they cannot be expressed through standard option-pricing formulae.
If the demand is coming from BTS (in the internal market), then the bitAsset buyer is relinquishing a full BTS exposure for a fractional one, so their bitAsset demand is actually creating an immediate supply of BTS that needs to be absorbed by other participants.
Can you explain the bold part, please. My first thought response is - the whole of this supply is immediately locked in collateral and effectively removed. But I suspect you mean something else.
I mean that somebody else needs to be willing to take up the BTS supply, or the BTS price needs to decline until somebody is willing to accept it. In the situation where we have a group of unsatisfied bitAsset sellers or unfilled shorts waiting in the queue, they will absorb the supply, because they want greater exposure to BTS. However, where this is thin, the bitAsset price will keep rising until it gets interest from other shorts or outright bitAsset sellers (they get a better entry price for their BTS as a result). If the bitAsset price on the internal market is then higher than on the external market as a result of this pressure, arbitragers will sell BTS to buy bitAsset (via fiat) on the external market and sell bitAsset on the internal market to lock in a profit. This also transfers sell pressure on BTS to the external market.
Other than not quite getting what do you mean by "...will sell BTS to buy bitAsset (via fiat)" and assuming you mean "sell BTS to buy bitAsset on the external market "
Yes, but said sell pressure is offset by 3x the buy pressure that the newly opened shorts provide...
It is actually quite simple:
Someone wants bitUSD. The usual way is:
-Buy BTS on external exchange (up pressure on BTS); + 1
-Sell BTS for bitUSD on the internal exchange for bitUSD (down pressure on BTS) - 1 ,but
- Simultaneously from the shorter (up pressure on BTS, 2x the force btw). + 2
The same happens if this new customer buys bitUSD directly, just somebody else is performing the first 2 steps for him/her.
I was dealing with a situation where the person owns BTS, then buys bitUSD on the internal exchange.
So the first step in your sequence is not relevant.
Second step is fine.
Third step - the short already has the 2 BTS at hand to place his order. If he really liked BTS so much to leverage it, it would be completely irrational to just be waiting on the sidelines to buy his 2 BTS once the long comes to the market.
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Third step - the short already has the 2 BTS at hand to place his order. If he really liked BTS so much to leverage it, it would be completely irrational to just be waiting on the sidelines to buy his 2 BTS once the long comes to the market.
Bingo. Said more verbosely here (https://bitsharestalk.org/index.php?topic=11899.msg157202#msg157202).
But what isn't irrational is that he wants to short BitUSD (thus increasing his exposure to BTS without putting any additional fiat into the blockchain) but doesn't until the long comes to market. The reason that is rational is because the market rules prevent him from shorting below the price feed (priced in BTS/BitUSD) on the decentralized exchange and so he has to wait until a BitUSD long comes along to bid at or above the price feed. The reality is that these superbulls would like to short BitUSD down to a small price (priced in BTS/BitUSD) but they cannot because of the price feed; so there is a lot of latent demand there that is not being realized. This is for good reason, because otherwise the peg might break and BitUSD would become worthless. The price feed puts the brakes on the shorting process to keep it in line with reality (keeps it pegged to the BTS/USD price in outside exchanges).
However, when the price of BTS (in USD) goes up because of the increasing demand for BitUSD in outside exchanges (discussed here (https://bitsharestalk.org/index.php?topic=11674.msg156722#msg156722) under the assumption that there is a large short sell wall at the price feed), the price feed adjusts to a lower price (in BTS/BitUSD). That means the same amount of BTS (the exposure of the superbulls need not increase) can now support the larger (growing) BitAsset supply. This means the large short sell wall can be maintained at the price feed even as the feed price gets smaller and smaller and smaller (again in BTS/BitUSD). Therefore the same process of $X buy pressure of BitUSD with USD in outside exchanges leading to $X upward price pressure of BTS (in USD) can repeat over and over and over again without bound.
At least, that is my hypothesis. I would love to get your opinion on it starspirit.
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Third step - the short already has the 2 BTS at hand to place his order. If he really liked BTS so much to leverage it, it would be completely irrational to just be waiting on the sidelines to buy his 2 BTS once the long comes to the market.
Bingo. Said more verbosely here (https://bitsharestalk.org/index.php?topic=11899.msg157202#msg157202).
But what isn't irrational is that he wants to short BitUSD (thus increasing his exposure to BTS without putting any additional fiat into the blockchain) but doesn't until the long comes to market. The reason that is rational is because the market rules prevent him from shorting below the price feed (priced in BTS/BitUSD) on the decentralized exchange and so he has to wait until a BitUSD long comes along to bid at or above the price feed. The reality is that these superbulls would like to short BitUSD down to a small price (priced in BTS/BitUSD) but they cannot because of the price feed; so there is a lot of latent demand there that is not being realized. This is for good reason, because otherwise the peg might break and BitUSD would become worthless. The price feed puts the brakes on the shorting process to keep it in line with reality (keeps it pegged to the BTS/USD price in outside exchanges).
However, when the price of BTS (in USD) goes up because of the increasing demand for BitUSD in outside exchanges (discussed here (https://bitsharestalk.org/index.php?topic=11674.msg156722#msg156722) under the assumption that there is a large short sell wall at the price feed), the price feed adjusts to a lower price (in BTS/BitUSD). That means the same amount of BTS (the exposure of the superbulls need not increase) can now support the larger (growing) BitAsset supply. This means the large short sell wall can be maintained at the price feed even as the feed price gets smaller and smaller and smaller (again in BTS/BitUSD). Therefore the same process of $X buy pressure of BitUSD with USD in outside exchanges leading to $X upward price pressure of BTS (in USD) can repeat over and over and over again without bound.
At least, that is my hypothesis. I would love to get your opinion on it starspirit.
arhag, I've read your arguments in this and the other linked thread. I don't have time right now to give them the attention they deserve, but I will follow up further with you.
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When are margin calls triggered? The first version posted by BM says 33%, the second version by Agent says nothing about percentages and the wiki says 25% (http://wiki.bitshares.org/index.php/BitShares/Short#Market_Rules_for_Shorts).
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When are margin calls triggered? The first version posted by BM says 33%, the second version by Agent says nothing about percentages and the wiki says 25% (http://wiki.bitshares.org/index.php/BitShares/Short#Market_Rules_for_Shorts).
My paper says a margin call is triggered when the collateral drops below 2x the value of the bitAssets it is backing. Implicit in this statement is that a fall of 33% from an initial collateral amount of 3x will trigger a margin call.
25% was the old system and corresponds to a drop from initial collateral of 2x to a margin call trigger of 1.5x.
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When are margin calls triggered? The first version posted by BM says 33%, the second version by Agent says nothing about percentages and the wiki says 25% (http://wiki.bitshares.org/index.php/BitShares/Short#Market_Rules_for_Shorts).
My paper says a margin call is triggered when the collateral drops below 2x the value of the bitAssets it is backing. Implicit in this statement is that a fall of 33% from an initial collateral amount of 3x will trigger a margin call.
25% was the old system and corresponds to a drop from initial collateral of 2x to a margin call trigger of 1.5x.
Great thanks.
I have written an article about BitAssets (lees extensive and more simplified than this whitepaper) https://docs.google.com/document/d/1u7Pxdcub9YUxCs6Q7pi106svXjmD9anlAN_i5e1cZNE/edit
Here is the part about who it works:
There is no central party that issues BitUSD so there is no counterparty risk where a centralized issuer could default on his promise to exchange the BitAsset for the real world asset. Instead a decentralized prediction market ensures that 1 BitUSD is always worth 1 USD.
I will illustrate the mechanics of BitAssets with BitUSD as an example: Users can take two sides of a bet, comparable to a well known finanical instrument called "contracts for difference". If one predicts that the price of the USD compared to BTS will go up they buy BitUSD which can always be exchanged for 1 USD. If someone predicts that BTS will go up in price compared to the USD she can short sell BitUSD, meaning she lends BitUSD into existence by giving up collateral in BTS worth 2 times the value of the BitUSD that are lent into existence. The BitUSD short seller can make a profit (measured in USD) by buying back the BitUSD for less BTS for less BTS in case BTS has risen in price, close her position and get her collateral back. The BitUSD buyer on the other side gets the price stability of the dollar. We can also look at it differently and measure the relative gains and losses of the BitUSD holder in BTS, then the BitUSD holder is making a loss (measured in BTS) if the price of BTS rises compared to the USD.
The 300% collateralization (2x from the short seller plus 1x from the buyer of the BitUSD created by the short sell) guarentees that there is enough collateral even if the value of the collateral falls quickly. Margin calls are triggered if BTS (the collateral) falls by 33% meaning that the BitShares software automatically buys back BitUSD from the client's internal market and closes the short position taking the bought back BitUSD out of circulation.
BitUSD can only be shorted into existence at or above the exchange rate of USD to BTS which is fed into the system via a price feed1. The price feed is compiled from at least 51 different feeds provided by BitShares delegates (for more info on delegates see http://wiki.bitshares.org/index.php/DPOS_or_Delegated_Proof_of_Stake#Role_of_Delegates). This guarentees that the value of BitUSD does not decrease in case there is a big demand for shorting BitUSD.
Short sellers have to cover their position at or above the price feed at least every 30 days after opening a short position. This is effectively a guarantee to any BitUSD holder that they can sell bitUSD for the dollar equivalent of BTS within a 30 day period.
For a more detailed explanation of how BitAssets work see [Link to Whitepaper on bitshares.org]
The plan is to publish it on the blog. Your feedback is much appreciated.
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When are margin calls triggered? The first version posted by BM says 33%, the second version by Agent says nothing about percentages and the wiki says 25% (http://wiki.bitshares.org/index.php/BitShares/Short#Market_Rules_for_Shorts).
My paper says a margin call is triggered when the collateral drops below 2x the value of the bitAssets it is backing. Implicit in this statement is that a fall of 33% from an initial collateral amount of 3x will trigger a margin call.
25% was the old system and corresponds to a drop from initial collateral of 2x to a margin call trigger of 1.5x.
Hmm .. "good" to know .. let's update the wiki
would this be o.k.?
Short orders are forced to cover when 66% of their collateral is required to cover, leaving the short with 33% of the collateral minus a 5% fee.
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When are margin calls triggered? The first version posted by BM says 33%, the second version by Agent says nothing about percentages and the wiki says 25% (http://wiki.bitshares.org/index.php/BitShares/Short#Market_Rules_for_Shorts).
My paper says a margin call is triggered when the collateral drops below 2x the value of the bitAssets it is backing. Implicit in this statement is that a fall of 33% from an initial collateral amount of 3x will trigger a margin call.
25% was the old system and corresponds to a drop from initial collateral of 2x to a margin call trigger of 1.5x.
Hmm .. "good" to know .. let's update the wiki
would this be o.k.?
Short orders are forced to cover when 66% of their collateral is required to cover, leaving the short with 33% of the collateral minus a 5% fee.
No, the way you are wording it is not correct. Short orders are forced to cover when 50% of their collateral is required to cover but this happens when their BTS is worth 66% of what it was was worth when they took out the position (in relation to the bitasset). In any case I think the way these things have been worded makes it confusing. That's why I prefer to not use percentages that reference the initial value of the collateral when the position was opened. I would just focus on what triggers the margin call, i.e. A margin call is triggered when the value of the collateral falls below 2x what is needed to cover.
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How about
* Short orders are '''forced to cover when a margin call''' is triggered as the value of the collateral falls below 2x of what is needed to cover. A 5% fee is applied.
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How about
* Short orders are '''forced to cover when a margin call''' is triggered as the value of the collateral falls below 2x of what is needed to cover. A 5% fee is applied.
This seems fine to me.
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I hope the rest of the world understands your 'easy' explanation... Cause I for sure do not...
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updated the wiki .. thanks!
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I hope the rest of the world understands your 'easy' explanation... Cause I for sure do not...
You can help out?
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I hope the rest of the world understands your 'easy' explanation... Cause I for sure do not...
You can help out?
Margin call ( or forced cover) is triggered when the price of the bitAsset doubles(increases 2 times). In other words, when 66% of the collateral is needed to repurchase the bitAssets owed.
*Price of bitAsset in BTS/bitAsset
NB Those are by the rules I am aware of. If the rules have changed adjust accordingly!
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When are margin calls triggered? The first version posted by BM says 33%, the second version by Agent says nothing about percentages and the wiki says 25% (http://wiki.bitshares.org/index.php/BitShares/Short#Market_Rules_for_Shorts).
The rules there state the following:
Let us discuss the rules that need to be fulfilled in order to successfully go short. Short orders can only get executed (i.e. filled) under these conditions:
There is someone willing to buy BitUSD at the price feed
AND Your short order offers the highest interest rate
AND Your price limit is lower than the feed (BTS per USD) or you didn't specify a price limit.
AND You have enough collateral to provide 2x backing at the feed price (amount of USD for short sale will vary with feed price)
OR Your price limit is higher than the feed (BTS per USD) and someone is willing to buy at your price limit.
I find this confusing. There are some AND conditions and then an OR condition, but it is not clear where the parentheses should be on evaluating those conditions. Where does the OR condition apply?
Based on how it is written, one might read it and think that if the "OR Your price limit is higher than the feed (BTS per USD) and someone is willing to buy at your price limit" were true, then you wouldnt need any of the others to be true (you wouldnt need collateral, etc). That is a clearly wrong interpretation.
Which statement does the OR actually match up with?
I believe the actual rules are like this:
In order to short you must fulfill one of these conditions:
* (Your price limit is higher than the feed) AND (someone is willing to buy at your price limit).
OR
* (There is someone willing to buy BitUSD at the price feed) AND (Your short order offers the highest interest rate) AND (Your price limit is lower than the feed OR you didn't specify a price limit).
Additionally, for either case, you must have enough collateral to provide 2x backing at the feed price (amount of USD for short sale will vary with feed price).
We need to clear this up. I'm not even sure if my version is correct.
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When are margin calls triggered? The first version posted by BM says 33%, the second version by Agent says nothing about percentages and the wiki says 25% (http://wiki.bitshares.org/index.php/BitShares/Short#Market_Rules_for_Shorts).
The rules there state the following:
Let us discuss the rules that need to be fulfilled in order to successfully go short. Short orders can only get executed (i.e. filled) under these conditions:
There is someone willing to buy BitUSD at the price feed
AND Your short order offers the highest interest rate
AND Your price limit is lower than the feed (BTS per USD) or you didn't specify a price limit.
AND You have enough collateral to provide 2x backing at the feed price (amount of USD for short sale will vary with feed price)
OR Your price limit is higher than the feed (BTS per USD) and someone is willing to buy at your price limit.
I find this confusing. There are some AND conditions and then an OR condition, but it is not clear where the parentheses should be on evaluating those conditions. Where does the OR condition apply?
Based on how it is written, one might read it and think that if the "OR Your price limit is higher than the feed (BTS per USD) and someone is willing to buy at your price limit" were true, then you wouldnt need any of the others to be true (you wouldnt need collateral, etc). That is a clearly wrong interpretation.
Which statement does the OR actually match up with?
I believe the actual rules are like this:
In order to short you must fulfill one of these conditions:
* (Your price limit is higher than the feed) AND (someone is willing to buy at your price limit).
OR
* (There is someone willing to buy BitUSD at the price feed) AND (Your short order offers the highest interest rate) AND (Your price limit is lower than the feed OR you didn't specify a price limit).
Additionally, for either case, you must have enough collateral to provide 2x backing at the feed price (amount of USD for short sale will vary with feed price).
We need to clear this up. I'm not even sure if my version is correct.
{
There is someone willing to buy BitUSD at the price feed
AND Your short order offers the highest interest rate
AND (Your price limit is lower than the feed (BTS per USD) or you didn't specify a price limit.)
AND You have enough collateral to provide 2x backing at the feed price (amount of USD for short sale will vary with feed price)
}
OR
{
Your price limit is higher than the feed (BTS per USD)
AND someone is willing to buy at your price limit.
AND You have enough collateral to provide 2x backing at your price limit
AND Your short sell order is the lowest price bitUSD for sale
}
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I hope the rest of the world understands your 'easy' explanation... Cause I for sure do not...
You can help out?
Margin call ( or forced cover) is triggered when the price of the bitAsset doubles(increases 2 times). In other words, when 66% of the collateral is needed to repurchase the bitAssets owed.
*Price of bitAsset in BTS/bitAsset
NB Those are by the rules I am aware of. If the rules have changed adjust accordingly!
Tony the rules were changed as I have mentioned so the margin call happens at 2x collateral now instead of 1.5x.
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Thanks, thats much more clear. :)
It appears that if you are shorting above the feed price, you can give a 0% interest rate and it will not hurt your chances of getting your short filled. Is that right?
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Thanks, thats much more clear. :)
It appears that if you are shorting above the feed price, you can give a 0% interest rate and it will not hurt your chances of getting your short filled. Is that right?
Yes
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I hope the rest of the world understands your 'easy' explanation... Cause I for sure do not...
You can help out?
Margin call ( or forced cover) is triggered when the price of the bitAsset doubles(increases 2 times). In other words, when 66% of the collateral is needed to repurchase the bitAssets owed.
*Price of bitAsset in BTS/bitAsset
NB Those are by the rules I am aware of. If the rules have changed adjust accordingly!
Tony the rules were changed as I have mentioned so the margin call happens at 2x collateral now instead of 1.5x.
My explanation reflects exactly that state of the rules. It just avoids the incomprehensible, in my view, term 2x collateral.
Leave it as you like, but I personally understood it only because I know what you were talking about.
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I hope the rest of the world understands your 'easy' explanation... Cause I for sure do not...
You can help out?
Margin call ( or forced cover) is triggered when the price of the bitAsset doubles(increases 2 times). In other words, when 66% of the collateral is needed to repurchase the bitAssets owed.
*Price of bitAsset in BTS/bitAsset
NB Those are by the rules I am aware of. If the rules have changed adjust accordingly!
Tony the rules were changed as I have mentioned so the margin call happens at 2x collateral now instead of 1.5x.
My explanation reflects exactly that state of the rules. It just avoids the incomprehensible, in my view, term 2x collateral.
Leave it as you like, but I personally understood it only because I know what you were talking about.
Yea tony, you are right... I just opened the client and did the math, I should have done this in the first place!!
Bytemaster's explanation for the margin call level totally threw me off and I think it is wrong.
Bytemaster's explanation:
"Stated another way, if the value of BTS falls by 33% from the time the short position is entered, then a margin call will occur."
bytemaster's explanation should be:
"Stated another way, if the value of BTS falls by 33% 50% from the time the short position is entered, then a margin call will occur."
Now I'm sure I've just added to confusion... :-[
Sorry Markus:
I agree that my original statement of 1.5x in the first version and the explanation bytemaster added were inconsistent, but I think bytemaster had it right because I think we changed the margin call level to 2x as in the updated version.
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Yes I know Agent.
I tied to correct the mistake the same day the post was made 11/24... but as BM was pretty unhappy with me arguing with you, I had to do it in unrelated thread...
I will give all of you sparkly lovers and enthusiasts this much:
260% inflation in a Sparkling NEW POW coin is exiting, up to 6.5% in DPOS sent a mass sell waves to the exchanges...go figure.
PS
Speaking of percentages - 2 times increase in the price of a bitAsset is 50% drop in the price of BTS not 33%...
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Yes I know Agent.
I tied to correct the mistake the same day the post was made 11/24... but as BM was pretty unhappy with me arguing with you, I had to do it in unrelated thread...
I will give all of you sparkly lovers and enthusiasts this much:
260% inflation in a Sparkling NEW POW coin is exiting, up to 6.5% in DPOS sent a mass sell waves to the exchanges...go figure.
PS
Speaking of percentages - 2 times increase in the price of a bitAsset is 50% drop in the price of BTS not 33%...
I even confirmed the rules with BM verbally because I wasn't sure; so I'm not taking full responsibility for this :P ... I know he thinks of the market reversed from most people (buy BTS with bitUSD) so maybe that has something to do with it.
So yeah Xeroc, your original wording is right:
"Short orders are forced to cover when 66% of their collateral is required to cover, leaving the short with 33% of the collateral minus a 5% fee."
(and margin call level is best described as 1.5x NOT 2X!)
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"Short orders are forced to cover when 66% of their collateral is required to cover, leaving the short with 33% of the collateral minus a 5% fee."
(and margin call level is best described as 1.5x NOT 2X!)
So here is a different but related question. Is it even desirable for the margin call level to be at 1.5x and not 2x? Technically we do not need a flash crash of more than 66% (from 3x to 1x) to have undercollateralized shorts. The price could slowly drop from the initial 3x level down to slightly above the 1.5x level over a long period of time without the short being covered (they might not want to realize the loss and hope it hits the bottom above the 1.5x level and goes back up). Then a sudden flash crash of more than 33% (from 1.5x to 1x) would be enough to leave that short undercollateralized.
I would prefer if the margin call level was at 2x so that we can guarantee that the system wouldn't have undercollateralized shorts as long as the flash crashes were smaller than 50%. This does mean however that shorts would need to be covered (or more collateral added) if the price drop gets close to 33% less than the price it was entered at (rather than close to 50% less than the price it was entered at as it is today). Too bad for the shorts (although it is better than the margin call limit of 25% decrease from initial price in the original system), but good for the safety of the BitAsset system.
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Hi all,
i'm currently testing gitbook for all future docs and whitepapers etc..
I invited: agent86 etc.
Just for a example i created BitAsset Whitepaper with current GD content!
http://bitshares.gitbooks.io/bitassets-whitepaper/
I'm really convicend by the easy how to and same possibilites like github .. to work on branches etc...
If you have time to pls check this .. maybe if you think we should go with .. we should create a BitShares account from Bitshares git!
Currently it's on located to my gihub account...
All files, docs etc. are editable with online content editor or
https://github.com/GitbookIO/editor
https://github.com/GitbookIO/editor/releases
What do you think about this idea!?
Pls let me know …
AND PLEASE DON'T SHARE/PUBLISH THIS UNTIL CONTENT IS FINAL
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Also PDF creation is easy…
https://www.gitbook.com/download/pdf/book/bitshares/bitassets
LOVING IT!!!!
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loving it .. markdown is perfect for that!!
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I have two questions:
Is it possible to make a profit without risk when the price feed is of a few percent?
And what does that "there's no limit to the supply" mean in https://bitsharestalk.org/index.php?topic=11674.msg156078#msg156078 ?
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Updated: (I think this may spell things out a bit more for the uninitiated.)
BitShares Market Pegged Assets
BitShares market pegged assets are a new type of freely traded digital asset whose value is meant to track the value of a conventional asset such as the U.S. dollar or gold. BitShares uses an advanced decentralized consensus ledger that takes some cues from Bitcoin. While Bitcoin has demonstrated many useful properties as a currency, its price volatility makes it risky to hold and difficult to use for everyday pricing and payments. A currency with the properties and advantages of Bitcoin that maintains price parity with a globally adopted currency such as the US dollar has high utility for convenient and censorship resistant commerce. The purpose of this paper is to explain how this price parity is achieved.
Price Stability
Bitcoin and similar crypto-currencies track transferrable digital tokens secured by private cryptographic keys over a decentralized computer network. A consensus mechanism ensures tokens are not duplicated and all participants agree on the state of the system without need for a central validating authority. This consensus is recorded on a decentralized shared ledger called a "blockchain." These systems have been found to enable value storage and exchange over the internet beyond the control or censorship of a centralized party. Demand for this utility has driven up the price of crypto-currencies. BitShares uses an analogous core token simply called BitShares that is traded with the abbreviation "BTS" on well-known crypto-currency exchanges. Like Bitcoin, the exchange rate between BTS and major currencies remains volatile.
A BitShares market pegged asset can be viewed as a contract between an asset buyer seeking price stability and a "short seller" seeking greater exposure to BTS price movement. The open source BitShares software program implements a decentralized marketplace for market pegged assets where all transactions are recorded on the shared blockchain ledger and the software enforces the market rules. This blockchain based marketplace is referred to as the "internal market" to distinguish from "external markets" such as websites that facilitate the exchange of government issued currencies with crypto-currency. A BTS holder may use her BTS to place a buy order on this internal market for her asset of choice. Market pegged assets are created on the BitShares blockchain when a buyer and short seller of an asset are matched at an agreed price. In exchange for the BTS received from the asset buyer the short seller takes on the obligation of buying back the same quantity of assets in the future from the market. BTS paid by the asset buyer and additional BTS contributed by the short seller are sequestered as "collateral". This collateral is only returned to the short seller when assets are purchased back from the market and effectively destroyed to fulfill the contract. This is referred to as "covering a short." If the value of the collateral relative to the current price of the market pegged asset falls below a certain margin of safety the assets can be automatically repurchased from the market before collateral becomes insufficient. These rules create systemic demand for market pegged assets while allowing them to remain fungible.
The previously described implementation for market pegged assets was conceived and outlined by Daniel Larimer in June, 2013. It was hypothesized at the time that with sufficient market depth, market pegged assets may track the value of their counterparts by virtue of self-reinforcing trading behavior. For example, if market participants expect the most likely value of a market pegged asset called "bitUSD" is to track the US dollar then buying bitUSD when it is less than $1 and selling it when it is above $1 would be profitable so long as other market participants do the same. Conversely, traders selling "underpriced" bitUSD or buying "overpriced" bitUSD would incur added cost as the broader market trades toward dollar parity. However, It has more recently become clear that this market prediction mechanism is not sufficient. In the absence of persistent demand for bitUSD, short sellers might push the bitUSD price lower and lower. It would eventually be possible for a short seller to sell millions of bitUSD for the price of only $1 worth of BTS. This newly abundant bitUSD would allow previous short positions to cover and no one would pay face value for bitUSD backed by insufficient collateral. The idea there would always be buyers to buy "underpriced" bitUSD is replaced by the reality that another restriction is needed.
It is reasonable to question what additional mechanism, if any, will ensure that the internal market between bitUSD and BTS reliably tracks the external market between USD and BTS. To achieve this reliable long term parity the BitShares' market algorithm will need access to reliable information about the real exchange rate between BTS and US dollars on external markets. It is not immediately obvious how to get this external exchange rate information into the BitShares internal market in a way that is resistant to control and manipulation by a central party. Thankfully, the consensus mechanism used for BitShares utilizes a carefully considered real-time stake weighted approval voting system to elect "delegates" who are motivated to act in the best interest of the system and its stakeholders. These delegates are tasked with running the BitShares network and checking and committing broadcasted transactions to the blockchain ledger. The trusted delegates can also be used to input external exchange rates into the blockchain so that the software algorithm can incorporate this information into the market rules. This external exchange rate information is called a "price feed." Delegates typically combine price information from multiple sources, such as external exchanges, to generate a price feed and update it regularly. The system takes a median of all price feeds so that manipulation of the price information would be very difficult by any single delegate or party without considerable collusion. The price feed and other delegate behavior is publically auditable and delegates may be voted out by BTS holders at any time.
It is important to consider how the price feed can be used to regulate the internal market. Both BTS and market pegged assets are freely transferrable tokens. If the internal market restricted trading to occur only at the specific exchange rate determined by the median price feed, it would simply encourage anyone willing to trade at a different price to do so outside the system, such as on an external exchange. However, if we consider that short selling is the mechanism by which new market pegged assets are created, then selectively restricting short selling controls the conditions under which supply is created. Rather than allow short sellers to sell at any price, short sellers will only execute at a price above the median price feed. This prevents short sellers from devaluing market pegged assets as new assets are only created when the market demand pushes the price equal to or above parity.
The price feed functions to regulate creation and destruction of market pegged assets in a way that pushes the market price toward parity. When a short seller buys back bitUSD and covers their position they are taking bitUSD out of circulation and reducing the total supply. In fact, the current BitShares market rules force short sellers to cover their position within 30 days of opening the position. This means that the full amount of outstanding bitUSD must be purchased off the market every 30 days. Market pegged asset holders have no requirement to sell and therefore short sellers covering their positions are eventually forced to purchase from newly opened short positions at or above the exchange rate. This is effectively a guarantee to any bitUSD holder that they can sell bitUSD for the dollar equivalent of BTS (determined by price feed) within any 30 day period.
The motivation to participate in the system is different for short sellers and market pegged asset buyers. Market pegged asset holders are typically looking for predictable value coupled with the properties of a crypto-currency. Short sellers are typically bullish on the price of BTS and wish to capitalize on increased exposure to market movement relative to the market pegged asset. If the market value of BTS rises with respect to the asset, the short seller can buy back the asset for significantly less BTS and profit accordingly. If BTS value falls in relation to the market pegged asset, the short seller faces a greater loss than if they were to have simply held BTS. Ultimately a short seller may face a "margin call" where his collateral is automatically used repay the obligation. A margin call is triggered in the current BitShares system whenever collateral contains less than 1.5 times the amount of BTS required to cover the obligation. The system also charges an additional 5% fee to any short seller subject to a margin call and this fee is intended to motivate short sellers to maintain sufficient collateral.
Order Matching
Market orders and other signed transactions on the BitShares blockchain are grouped into 10 second blocks by delegates. When buy and sell orders on the internal BitShares' market are matched, the highest buy orders are matched with the lowest sell orders and any BTS contained in the overlap are destroyed so that each party gets exactly what they paid for. The reason for this is twofold. Firstly, it prevents high frequency trading that attempts to insert an order between two placed orders to profit from the overlap, this is sometimes called "front running". It also makes it very costly for a large buyer or seller to quickly move the market by placing a large order far from the current market rate. Doing so would require the buyer or seller to pay the more expensive rate and lose any overlap with all orders their order is matched with. The destruction of BTS from the overlap of orders creates value for BTS holders as a whole by making the token more scarce. When there is significant demand to short sell assets at the price feed rate, the current BitShares system allows short sellers to offer interest to asset holders in exchange for priority in order matching. In this way, holders of market pegged assets can also collect an additional yield on their savings.
Risk
The current implementation of market pegged assets in the BitShares system is designed to minimize risk of loss to market pegged asset holders. Short positions are opened with collateral worth three times the market value of the asset. The initial collateral is comprised of the BTS paid by the buyer for the asset and twice this amount of BTS contributed by the short seller. The collateral requirements and margin triggers were chosen conservatively to protect the holders of market pegged assets from volatility of the underlying collateral. Forcing short positions to cover every 30 days provides additional assurance of short term liquidity. Control over the price feed is distributed among over 50 separately elected delegates who compile information from multiple exchange sources. Despite such precautions, it is important to carefully explore risks of using the system. Risks can be broadly categorized as value risk, counterparty risk, or systemic risk.
Value Risk:
Market pegged assets maintain their price parity due to being backed by collateral that has an established real world value. When the value of the collateral falls, the system is designed to react by driving the internal asset exchange to match the new real world exchange rate and trigger margin calls as necessary. However, there exists a possibility that the underlying collateral (BTS) drops in value so quickly the market pegged assets become under-collateralized. Often termed a "black swan event," a sudden crash of BTS value could prevent the system from adjusting in time. In this event, the full amount of collateral is no longer sufficient to purchase the market pegged asset back at the new real exchange rate. In such an event, assets may trade below their face value. It is possible the market could recover if BTS regained value. It is also possible the market would need to be "reset" and asset holders forced to settle for BTS collateral worth less than the intended face value of their assets. Short term market movements, spreads, and fees charged by exchanges may also affect the potential cost of conversion into and out of market pegged assets.
Counterparty risk:
Unlike many attempts to create a digital asset that tracks the dollar, market pegged asset are not an "I owe you" issued by any entity. For this reason, it does not rely on a specific counterparty to honor its value. Although manipulation risk occurs in any market, it is minimized by the open source and auditable nature of the BitShares system and carefully considered market rules. Some counterparty risk exists when buying market pegged assets on an external exchange. The exchange must be trusted with customer funds for the time period they are deposited. It is not recommended that digital assets are stored on an exchange long term.
Systemic risk:
Systemic risk is a catch-all for other risks required to utilize the system. The primary risk is individuals are responsible for protecting the cryptographic private keys that sign transactions proving ownership of assets. These keys must be protected from theft or loss. This risk can be greatly reduced and virtually eliminated by following best practices. Systemic risk also includes the possibility of an overlooked fatal flaw in the open source software or the possibility of large scale failure of global network infrastructure.
Outlook
BitShares market pegged assets are a viable open source alternative to the incumbent banking system. Achieving price parity with a commonly used currency facilitates pricing and acceptance by merchants. Additionally it reduces the need to calculate capital gains and losses on volatile assets to determine tax liability. While certain risks of the system have been outlined, no system is without risk. The current banking system allows private funds to be frozen or confiscated without consent, such as by court order or administrative actions. Banks and financial institutions are susceptible to insolvency. The availability and quality of banking service varies greatly throughout the world. BitShares brings publically auditable open source banking to anyone with access to the internet. Market pegged assets allow savers and spenders to choose preferred asset types. This brings flexibility and ease of use to the open source banking experience.
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@dan: any comments on the updated version ?
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i recreated Bitasset Whitepaper with repos on github!
https://github.com/cassiopaia/bitasset-whitepaper/
if this git repo ist updated, automaticlly book is updated also
http://bitshares.gitbooks.io/bitassets-whitepaper/
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i recreated Bitasset Whitepaper with repos on github!
https://github.com/cassiopaia/bitasset-whitepaper/
if this git repo ist updated, automaticlly book is updated also
http://bitshares.gitbooks.io/bitassets-whitepaper/
cool
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There is no point to describing problems with original design it will only confuse readers.
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There is no point to describing problems with original design it will only confuse readers.
It is updated below.
I agree with you that it could add confusion to new users.
I just added it because there are still knowledgeable people in the community who argue it never should have changed. I also am not always sure how the paper will be used/ target audience. Let me know if you are ok with this updated version (the rest of the paper is unchanged.)
BitShares Market Pegged Assets
BitShares market pegged assets are a new type of freely traded digital asset whose value is meant to track the value of a conventional asset such as the U.S. dollar or gold. BitShares uses an advanced decentralized consensus ledger that takes some cues from Bitcoin. While Bitcoin has demonstrated many useful properties as a currency, its price volatility makes it risky to hold and difficult to use for everyday pricing and payments. A currency with the properties and advantages of Bitcoin that maintains price parity with a globally adopted currency such as the US dollar has high utility for convenient and censorship resistant commerce. The purpose of this paper is to explain how this price parity is achieved.
Price Stability
Bitcoin and similar crypto-currencies track transferrable digital tokens secured by private cryptographic keys over a decentralized computer network. A consensus mechanism ensures tokens are not duplicated and all participants agree on the state of the system without need for a central validating authority. This consensus is recorded on a decentralized shared ledger called a "blockchain." These systems have been found to enable value storage and exchange over the internet beyond the control or censorship of a centralized party. Demand for this utility has driven up the price of crypto-currencies. BitShares uses an analogous core token simply called BitShares that is traded with the abbreviation "BTS" on well-known crypto-currency exchanges. Like Bitcoin, the exchange rate between BTS and major currencies remains volatile.
A BitShares market pegged asset can be viewed as a contract between an asset buyer seeking price stability and a "short seller" seeking greater exposure to BTS price movement. The open source BitShares software program implements a decentralized marketplace for market pegged assets where all transactions are recorded on the shared blockchain ledger and the software enforces the market rules. This blockchain based marketplace is referred to as the "internal market" to distinguish from "external markets" such as websites that facilitate the exchange of government issued currencies with crypto-currency. A BTS holder may use her BTS to place a buy order on this internal market for her asset of choice. Market pegged assets are created on the BitShares blockchain when a buyer and short seller of an asset are matched at an agreed price. In exchange for the BTS received from the asset buyer the short seller takes on the obligation of buying back the same quantity of assets in the future from the market. BTS paid by the asset buyer and additional BTS contributed by the short seller are sequestered as "collateral". This collateral is only returned to the short seller when assets are purchased back from the market and effectively destroyed to fulfill the contract. This is referred to as "covering a short." If the value of the collateral relative to the current price of the market pegged asset falls below a certain margin of safety the assets can be automatically repurchased from the market before collateral becomes insufficient. These rules create systemic demand for market pegged assets while allowing them to remain fungible.
To explore the market mechanism in greater depth we will consider the market pegged asset "bitUSD" intended to track the value of the US dollar. The rules considered thus far do not specifically restrict the internal exchange rate between bitUSD and BTS in a way that ensures it will track the external exchange rate between USD and BTS. A first step toward this goal is to get reliable information about the external exchange rate into the internal market algorithm. It is not immediately obvious how this is accomplished in a way that is resistant to control and manipulation by a central party. Thankfully, the consensus mechanism used for BitShares utilizes a carefully considered real-time stake-weighted approval voting system to elect "delegates" who are motivated to act in the best interest of the system and its stakeholders. These delegates run computers on the BitShares network that check and commit broadcasted transactions to the blockchain ledger. The trusted delegates can also be used to input external exchange rates into the blockchain so that the software algorithm can incorporate this information into the market rules. This external exchange rate information is called a "price feed." Delegates typically combine price information from multiple sources, such as external exchanges, to generate a price feed and update it regularly. The system takes a median of all price feeds so that manipulation of the price information would be very difficult by any single delegate or party without considerable collusion. The price feed and other delegate behavior is publically auditable and delegates may be voted out by BTS holders at any time.
The previously described implementation for market pegged assets was conceived and outlined by Daniel Larimer in June, 2013. It was hypothesized at the time that with sufficient market depth, market pegged assets may track the value of their counterparts by virtue of self-reinforcing trading behavior. For example, if market participants expect the most likely value of a market pegged asset called "bitUSD" is to track the US dollar then buying bitUSD when it is less than $1 and selling it when it is above $1 would be profitable so long as other market participants do the same. Conversely, traders selling "underpriced" bitUSD or buying "overpriced" bitUSD would incur added cost as the broader market trades toward dollar parity. However, It has more recently become clear that this market prediction mechanism is not sufficient. In the absence of persistent demand for bitUSD, short sellers might push the bitUSD price lower and lower. It would eventually be possible for a short seller to sell millions of bitUSD for the price of only $1 worth of BTS. This newly abundant bitUSD would allow previous short positions to cover and no one would pay face value for bitUSD backed by insufficient collateral. The idea there would always be buyers to buy "underpriced" bitUSD is replaced by the reality that another restriction is needed.
It is reasonable to question what additional mechanism, if any, will ensure that the internal market between bitUSD and BTS reliably tracks the external market between USD and BTS. To achieve this reliable long term parity the BitShares' market algorithm will need access to reliable information about the real exchange rate between BTS and US dollars on external markets. It is not immediately obvious how to get this external exchange rate information into the BitShares internal market in a way that is resistant to control and manipulation by a central party. Thankfully, the consensus mechanism used for BitShares utilizes a carefully considered real-time stake weighted approval voting system to elect "delegates" who are motivated to act in the best interest of the system and its stakeholders. These delegates are tasked with running the BitShares network and checking and committing broadcasted transactions to the blockchain ledger. The trusted delegates can also be used to input external exchange rates into the blockchain so that the software algorithm can incorporate this information into the market rules. This external exchange rate information is called a "price feed." Delegates typically combine price information from multiple sources, such as external exchanges, to generate a price feed and update it regularly. The system takes a median of all price feeds so that manipulation of the price information would be very difficult by any single delegate or party without considerable collusion. The price feed and other delegate behavior is publically auditable and delegates may be voted out by BTS holders at any time.
It is important to consider how the price feed can be used to regulate the internal market. Both BTS and market pegged assets are freely transferrable tokens. If the internal market restricted trading to occur only at the specific exchange rate determined by the median price feed, it would simply encourage anyone willing to trade at a different price to do so outside the system, such as on an external exchange. However, if we consider that short selling is the mechanism by which new market pegged assets are created, then selectively restricting short selling controls the conditions under which supply is created. Rather than allow short sellers to sell at any price, short sellers will only execute at a price above the median price feed. This prevents short sellers from devaluing market pegged assets as new assets are only created when the market demand pushes the price equal to or above parity.
The price feed functions to regulate creation and destruction of market pegged assets in a way that pushes the market price toward parity. When a short seller buys back bitUSD and covers their position they are taking bitUSD out of circulation and reducing the total supply. In fact, the current BitShares market rules force short sellers to cover their position within 30 days of opening the position. This means that the full amount of outstanding bitUSD must be purchased off the market every 30 days. Market pegged asset holders have no requirement to sell and therefore short sellers covering their positions are eventually forced to purchase from newly opened short positions at or above the exchange rate. This is effectively a guarantee to any bitUSD holder that they can sell bitUSD for the dollar equivalent of BTS (determined by price feed) within any 30 day period.
The motivation to participate in the system is different for short sellers and market pegged asset buyers. Market pegged asset holders are typically looking for predictable value coupled with the properties of a crypto-currency. Short sellers are typically bullish on the price of BTS and wish to capitalize on increased exposure to market movement relative to the market pegged asset. If the market value of BTS rises with respect to the asset, the short seller can buy back the asset for significantly less BTS and profit accordingly. If BTS value falls in relation to the market pegged asset, the short seller faces a greater loss than if they were to have simply held BTS. Ultimately a short seller may face a "margin call" where his collateral is automatically used repay the obligation. A margin call is triggered in the current BitShares system whenever collateral contains less than 1.5 times the amount of BTS required to cover the obligation. The system also charges an additional 5% fee to any short seller subject to a margin call and this fee is intended to motivate short sellers to maintain sufficient collateral.
Order Matching ...
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Hi all,
i'm currently testing gitbook for all future docs and whitepapers etc..
I invited: agent86 etc.
Just for a example i created BitAsset Whitepaper with current GD content!
http://bitshares.gitbooks.io/bitassets-whitepaper/ (http://bitshares.gitbooks.io/bitassets-whitepaper/)
I'm really convicend by the easy how to and same possibilites like github .. to work on branches etc...
If you have time to pls check this .. maybe if you think we should go with .. we should create a BitShares account from Bitshares git!
Currently it's on located to my gihub account...
All files, docs etc. are editable with online content editor or
https://github.com/GitbookIO/editor (https://github.com/GitbookIO/editor)
https://github.com/GitbookIO/editor/releases (https://github.com/GitbookIO/editor/releases)
What do you think about this idea!?
Pls let me know …
AND PLEASE DON'T SHARE/PUBLISH THIS UNTIL CONTENT IS FINAL
looks good and I look forward to its release as this will be perfect to drive people to for answers.
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Hey Cass, I updated the paper on github. current version:
BitShares Market Pegged Assets
BitShares market pegged assets are a new type of freely traded digital asset whose value is meant to track the value of a conventional asset such as the U.S. dollar or gold. BitShares uses an advanced decentralized consensus ledger that takes some cues from Bitcoin. While Bitcoin has demonstrated many useful properties as a currency, its price volatility makes it risky to hold and difficult to use for everyday pricing and payments. A currency with the properties and advantages of Bitcoin that maintains price parity with a globally adopted currency such as the US dollar has high utility for convenient and censorship resistant commerce. This paper will explain how market pegged assets including "bitUSD" (intended to track the value of the US dollar) achieve price parity while minimizing risk to holders.
Price Stability
Bitcoin and similar crypto-currencies track transferrable digital tokens secured by private cryptographic keys over a decentralized computer network. A consensus mechanism ensures tokens are not duplicated and all participants agree on the state of the system without need for a central validating authority. This consensus is recorded on a decentralized shared ledger called a "block chain". These systems have been found to enable value storage and exchange over the internet beyond the control or censorship of a centralized party. Demand for this utility has driven up the price of crypto-currencies. BitShares uses an analogous core token simply called BitShares that is traded with the abbreviation "BTS" on well-known crypto-currency exchanges. Like Bitcoin, the exchange rate between BTS and major currencies remains volatile.
A BitShares market pegged asset can be viewed as a contract between an asset buyer seeking price stability and a "short seller" seeking greater exposure to BTS price movement. The open source BitShares software program implements a decentralized marketplace for market pegged assets where all transactions are recorded on the shared block chain ledger and the software enforces the market rules. This block chain based marketplace is referred to as the "internal market" to distinguish from "external markets" such as websites that facilitate the exchange of government issued currencies with crypto-currency. A BTS holder may use her BTS to place a buy order on this internal market for her asset of choice. Market pegged assets are created on the BitShares block chain when a buyer and short seller of an asset are matched at an agreed price. In exchange for the BTS received from the asset buyer the short seller takes on the obligation of buying back the same quantity of assets in the future from the market. BTS paid by the asset buyer and additional BTS contributed by the short seller are sequestered as "collateral". This collateral is only returned to the short seller when assets are purchased back from the market and effectively destroyed to fulfill the contract. This is referred to as "covering a short." If the value of the collateral relative to the current price of the market pegged asset falls below a certain margin of safety the assets can be automatically repurchased from the market before collateral becomes insufficient. These rules create systemic demand for market pegged assets while allowing them to remain fungible.
The rules considered thus far do not specifically restrict the internal exchange rate between bitUSD and BTS in a way that ensures it will track the external exchange rate between USD and BTS. A first step toward this goal is to get reliable information about the external exchange rate into the internal market algorithm. It is not immediately obvious how this is accomplished in a way that is resistant to control and manipulation by a central party. Thankfully, the consensus mechanism used for BitShares utilizes a carefully considered real-time stake-weighted approval voting system to elect "delegates" who are motivated to act in the best interest of the system and its stakeholders. These delegates run computers on the BitShares network that check and commit broadcasted transactions to the block chain ledger. The trusted delegates can also be used to input external exchange rates into the block chain so that the software algorithm can incorporate this information into the market rules. This external exchange rate information is called a "price feed." Delegates typically combine price information from multiple sources, such as external exchanges, to generate a price feed and update it regularly. The system takes a median of all price feeds so that manipulation of the price information would be very difficult by any single delegate or party without considerable collusion. The price feed and other delegate behavior is publically auditable and delegates may be voted out by BTS holders at any time.
It is important to consider how the price feed can be used to regulate the internal market. Both BTS and market pegged assets are freely transferrable tokens. If the internal market restricted trading to occur only at the specific exchange rate determined by the median price feed, it would simply encourage anyone willing to trade at a different price to do so outside the system, such as on an external exchange. However, if we consider that short selling is the mechanism by which new market pegged assets are created, then selectively restricting short selling controls the conditions under which supply is created. Rather than allow short sellers to sell at any price, short sellers will only execute at a price above the median price feed. This prevents short sellers from devaluing market pegged assets as new assets are only created when the market demand pushes the price equal to or above parity.
The price feed functions to regulate creation and destruction of market pegged assets in a way that pushes the market price toward parity. When a short seller buys back bitUSD and covers their position they are taking bitUSD out of circulation and reducing the total supply. In fact, the current BitShares market rules force short sellers to cover their position within 30 days of opening the position. This means that the full amount of outstanding bitUSD must be purchased off the market every 30 days. Market pegged asset holders have no requirement to sell and therefore short sellers covering their positions are eventually forced to purchase from newly opened short positions at or above the exchange rate. This is effectively a guarantee to any bitUSD holder that they can sell bitUSD for the dollar equivalent of BTS (determined by price feed) within any 30 day period.
The motivation to participate in the system is different for short sellers and market pegged asset buyers. Market pegged asset holders are typically looking for predictable value coupled with the properties of a crypto-currency. Short sellers are typically bullish on the price of BTS and wish to capitalize on increased exposure to market movement relative to the market pegged asset. If the market value of BTS rises with respect to the asset, the short seller can buy back the asset for significantly less BTS and profit accordingly. If BTS value falls in relation to the market pegged asset, the short seller faces a greater loss than if they were to have simply held BTS. Ultimately a short seller may face a "margin call" where his collateral is automatically used repay the obligation. A margin call is triggered in the current BitShares system whenever collateral contains less than 1.5 times the amount of BTS required to cover the obligation. The system also charges an additional 5% fee to any short seller subject to a margin call and this fee is intended to motivate short sellers to maintain sufficient collateral.
Order Matching
Market orders and other signed transactions on the BitShares block chain are grouped into 10 second blocks by delegates. When buy and sell orders on the internal BitShares' market are matched, the highest buy orders are matched with the lowest sell orders and any BTS contained in the overlap are destroyed so that each party gets exactly what they paid for. The reason for this is twofold. Firstly, it prevents high frequency trading that attempts to insert an order between two placed orders to profit from the overlap, this is sometimes called "front running". It also makes it very costly for a large buyer or seller to quickly move the market by placing a large order far from the current market rate. Doing so would require the buyer or seller to pay the more expensive rate and lose any overlap with all orders their order is matched with. The destruction of BTS from the overlap of orders creates value for BTS holders as a whole by making the token more scarce. When there is significant demand to short sell assets at the price feed rate, the current BitShares system allows short sellers to offer interest to asset holders in exchange for priority in order matching. In this way, holders of market pegged assets can also collect an additional yield on their savings.
Risk
The current implementation of market pegged assets in the BitShares system is designed to minimize risk of loss to market pegged asset holders. Short positions are opened with collateral worth three times the market value of the asset. The initial collateral is comprised of the BTS paid by the buyer for the asset and twice this amount of BTS contributed by the short seller. The collateral requirements and margin triggers were chosen conservatively to protect the holders of market pegged assets from volatility of the underlying collateral. Forcing short positions to cover every 30 days provides additional assurance of short term liquidity. Control over the price feed is distributed among over 50 separately elected delegates who compile information from multiple exchange sources. Despite such precautions, it is important to carefully explore risks of using the system. Risks can be broadly categorized as value risk, counterparty risk, or systemic risk.
Value Risk:
Market pegged assets maintain their price parity due to being backed by collateral that has an established real world value. When the value of the collateral falls, the system is designed to react by driving the internal asset exchange to match the new real world exchange rate and trigger margin calls as necessary. However, there exists a possibility that the underlying collateral (BTS) drops in value so quickly the market pegged assets become under-collateralized. Often termed a "black swan event," a sudden crash of BTS value could prevent the system from adjusting in time. In this event, the full amount of collateral is no longer sufficient to purchase the market pegged asset back at the new real exchange rate. In such an event, assets may trade below their face value. It is possible the market could recover if BTS regained value. It is also possible the market would need to be "reset" and asset holders forced to settle for BTS collateral worth less than the intended face value of their assets. Under normal conditions, short term market movements, spreads, and fees charged by exchanges may also affect the potential cost of conversion into and out of market pegged assets.
Counterparty risk:
Unlike many attempts to create a digital asset that tracks the dollar, market pegged asset are not an "I owe you" issued by any entity. For this reason, it does not rely on a specific counterparty to honor its value. Although manipulation risk occurs in any market, it is minimized by the open source and auditable nature of the BitShares system and carefully considered market rules. Some counterparty risk exists when buying market pegged assets on an external exchange. The exchange must be trusted with customer funds for the time period they are deposited. It is not recommended that digital assets are stored on an exchange long term.
Systemic risk:
Systemic risk is a catch-all for other risks required to utilize the system. The primary risk is individuals are responsible for protecting the cryptographic private keys that sign transactions proving ownership of assets. These keys must be protected from theft or loss. This risk can be greatly reduced and virtually eliminated by following best practices. Systemic risk also includes the possibility of an overlooked fatal flaw in the open source software or the possibility of large scale failure of global network infrastructure.
Outlook
BitShares market pegged assets are a viable open source alternative to the incumbent banking system. Achieving price parity with a commonly used currency facilitates pricing and acceptance by merchants. Additionally it reduces the need to calculate capital gains and losses on volatile assets to determine tax liability. While certain risks of the system have been outlined, no system is without risk. The current banking system allows private funds to be frozen or confiscated without consent, such as by court order or administrative actions. Banks and financial institutions are susceptible to insolvency. The availability and quality of banking service varies greatly throughout the world. BitShares brings publically auditable open source banking to anyone with access to the internet. Market pegged assets allow savers and spenders to choose preferred asset types. This brings flexibility and ease of use to the open source banking experience.
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The only point about interest or yield in the whitepaper is buried at the end of the 8th paragraph and is not really mentioned in the "outlook" or intro paragraphs:
End of 8th paragraph: "In this way, holders of market pegged assets can also collect an additional yield on their savings."
@agent86 Should we not emphasize yield more than we are currently?
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Further, our website directs users to the whitepaper with this main point in the funnel:
"Earn Interest on BitAssets
All BitAssets earn a variable interest rate. See the BitAsset whitepaper for details."
And that is why I looked for how much information is available on MPA yield .....