BitShares Forum
Main => General Discussion => Topic started by: clout on November 17, 2015, 07:21:55 pm
-
As of right now we have 6 markets where the conversion rate should be about 1:1. These are the markets where bitassets are traded for an IOU of the underlying asset to which the bitasset is pegged. The following markets would present the least amount of risks for market makers, who could predictably generate a profit from the spread:
YUNBI.BTC / BitBTC (on external exchange)
YUNBI.CNY / BitCNY (on external exchange)
OPENBTC / BitBTC
TRADE.BTC / BitBTC
METAEX.BTC / BitBTC
BOTSCNY / BitCNY
In order to generate more volume on the internal exchange, these bridge markets need to first have a large depth at a low spread. I refer to these as bridge markets, because inevitably if there is liquidity in these markets than we can create direct bridges that convert BTC to BitBTC.
If we can create more efficient bridge markets for BitBTC then we can expect that BitBTC can trade against other liquid bitassets at the correct market price and within a tight spread. Being that BitCNY is the most liquid and efficient bitassets market, we should, upon improving the liquidity of the BitBTC bridge markets, encourage trading in the BitBTC/BitCNY market. We already have a bridge for BitCNY in the form of Transwiser, which has already created the code for direct integration into the Bitshares GUI wallet. At the top of the deposit page BitCNY and BitBTC would be displayed, and the user could deposit BitBTC with BTC and BitCNY with CNY. The BitCNY / BitBTC market would then be the definitive market for for BTC and CNY on the Bitshares exchange.
Breakdown of Agenda:
- Provide liquidity for BitBTC bridge markets
- Create a direct bridge between BitBTC
- Encourage trading of BitBTC and BitCNY, if both assets have large volume bridge support (i.e. Transwiser and the BitBTC bridge to be determined)
How to provide liquidity in bridge markets
- Borrow BitBTC with BTS
- Sell BitBTC at 1.005
- Buy BitBTC back at 0.995
- Repay loan
- Net 1% profit
Executing this simple algorithm allows individuals that are long BTS to generate a profit of 1% while still remaining long BTS. I would like to encourage anyone, who would like to help Bitshares liquidity problem, to Borrow BTC and begin selling it at less than a 1% spread on one of these bridge markets.
Please let me know if you can contribute to this effort. Being that the trading history is public, market makers can retroactively be compensated. I would insist that BM provide brownie points to those that contribute to market making. Going forward if we can demonstrate that the community can generate more liquidity on these bridge markets, I think that it would be appropriate to get a work proposal for a market maker budget.
-
I will happily do it if anybody will buy BitBTC at 1.005 and sell me BitBTC at 0.995 :).
-
I will happily do it if anybody will buy BitBTC at 1.005 and sell me BitBTC at 0.995 :).
I am only waiting for a better API to get a quick bot implemented that everybody can use ..
We may even be able to integrate something easy into the wallet directly .. eventually
-
I will happily do it if anybody will buy BitBTC at 1.005 and sell me BitBTC at 0.995 :).
I am only waiting for a better API to get a quick bot implemented that everybody can use ..
We may even be able to integrate something easy into the wallet directly .. eventually
Excellent, there is no need for a UI for this. A bot like the old one will do... (not that I use it for long..)
-
I will happily do it if anybody will buy BitBTC at 1.005 and sell me BitBTC at 0.995 :).
I am only waiting for a better API to get a quick bot implemented that everybody can use ..
We may even be able to integrate something easy into the wallet directly .. eventually
I dont think the wallet devs are inclined to integrate the bot in the the wallet. This also doesnt need to to be done by a bot since there are no realtime price changes that need to be considered. These orders could be handled manually although i would of course want them to be automated in the future.
-
I will happily do it if anybody will buy BitBTC at 1.005 and sell me BitBTC at 0.995 :).
I'm glad to have you on board. That is a tight enough spread that I am sure there will be traders willing to execute those orders
-
I dont think the wallet devs are inclined to integrate the bot in the the wallet. This also doesnt need to to be done by a bot since there are no realtime price changes that need to be considered. These orders could be handled manually although i would of course want them to be automated in the future.
Very good point ..
-
How to provide liquidity in bridge markets
- Borrow BitBTC with BTS
- Sell BitBTC at 1.005
- Buy BitBTC back at 0.995
- Repay loan
- Net 1% profit
Executing this simple algorithm allows individuals that are long BTS to generate a profit of 1% while still remaining long BTS. I would like to encourage anyone, who would like to help Bitshares liquidity problem, to Borrow BTC and begin selling it at less than a 1% spread on one of these bridge markets.
I don't think this is a good idea, people who do this will get ripped off by creating an arbitrage opportunity for other traders. The good thing is that it should help peg the internal markets; the bad thing is that these market makers will be the ones paying the expense. Here's the arbitrage:
I start with 1 real BTC. I use openledger and trade for 1 openbtc (minus small fee). I trade my 1 openbtc for .99 bitBTC (because of the proposed openbtc:BTC market makers). 1 bitBTC is sold for 1.10 times the value of 1 BTC in the BTS:bitBTC market. I sell my .99 bitBTC for 1.089 bitBTC worth of BTS on the DEX. I then take my 1.089 bitBTC worth of BTS to openledger and trade it to BTC.
I start with 1 BTC, I end with 1.089 BTC.
The BTC:BTS market moved closer to peg.
The market maker is now short .99 BTC (and the value of BTC dropped).
No one will sell me openbtc when they can go to openledger and get a better deal, so the market maker will go short forever until the market makers run out of funds or until the spread between settlement and bitBTC < 1%.
I posted recently, maybe bitshares UIAs should be the main mechanism for trading... In that case, market making the trade.btc:openbtc markets is more important.
An alternative idea would be to mirror the bts:btc market in the openbtc:btc market with some profit. That requires bots (and to properly map bts to openbtc), but why would someone trade that way when they could directly go openbtc:bts:btc on their own without paying a premium?
-
How to provide liquidity in bridge markets
- Borrow BitBTC with BTS
- Sell BitBTC at 1.005
- Buy BitBTC back at 0.995
- Repay loan
- Net 1% profit
Executing this simple algorithm allows individuals that are long BTS to generate a profit of 1% while still remaining long BTS. I would like to encourage anyone, who would like to help Bitshares liquidity problem, to Borrow BTC and begin selling it at less than a 1% spread on one of these bridge markets.
I don't think this is a good idea, people who do this will get ripped off by creating an arbitrage opportunity for other traders. The good thing is that it should help peg the internal markets; the bad thing is that these market makers will be the ones paying the expense. Here's the arbitrage:
I start with 1 real BTC. I use openledger and trade for 1 openbtc (minus small fee). I trade my 1 openbtc for .99 bitBTC (because of the proposed openbtc:BTC market makers). 1 bitBTC is sold for 1.10 times the value of 1 BTC in the BTS:bitBTC market. I sell my .99 bitBTC for 1.089 bitBTC worth of BTS on the DEX. I then take my 1.089 bitBTC worth of BTS to openledger and trade it to BTC.
I start with 1 BTC, I end with 1.089 BTC.
The BTC:BTS market moved closer to peg.
The market maker is now short .99 BTC (and the value of BTC dropped).
No one will sell me openbtc when they can go to openledger and get a better deal, so the market maker will go short forever until the market makers run out of funds or until the spread between settlement and bitBTC < 1%.
I posted recently, maybe bitshares UIAs should be the main mechanism for trading... In that case, market making the trade.btc:openbtc markets is more important.
An alternative idea would be to mirror the bts:btc market in the openbtc:btc market with some profit. That requires bots (and to properly map bts to openbtc), but why would someone trade that way when they could directly go openbtc:bts:btc on their own without paying a premium?
Nice Analysis. Glad we have people here that can noodle this stuff through...
-
bitBTC should not trade at parity with any other flavor of BTC because of the downside risk of shorting/creating bitBTC. bitBTC should theoretically always command a premium over these gateway assets. The correct model is Price=(1+R)+/-spread where R=risk premium and is >0
-
Hmmh, this got me thinking...
What is the value of bitBTC? Why would anybody want to acquire it?
For a common user bitBTC doesn't offer any benefit. It can be used only in the Bitshares exchange, compared to real BTC that can be used for many different things like buying stuff online.
So basically bitBTC is useful for only (1) traders, (2) who use Bitshares DEX and (3) want to avoid counterparty risk that UIA-BTC has. That's a quite small market segment. Do we really want to serve them well in this point or rather focus on other things that might bring greater benefits for more users?
-
Hmmh, this got me thinking...
What is the value of bitBTC? Why would anybody want to acquire it?
For a common user bitBTC doesn't offer any benefit. It can be used only in the Bitshares exchange, compared to real BTC that can be used for many different things like buying stuff online.
So basically bitBTC is useful for only (1) traders, (2) who use Bitshares DEX and (3) want to avoid counterparty risk that UIA-BTC has. That's a quite small market segment. Do we really want to serve them well in this point or rather focus on other things that might bring greater benefits for more users?
agree, I also feel that BitBTC make little sense, BTC is not a stable currency, why should I lock one unstable asset (BTS) as collateral to get another?
surely we need to introduce BTC to Bitshares, is it possible to make another kind of "BTC" as NXT did using multisig? it is closer to real BTC and we can lock it as collateral to generate BitCNY or BitUSD.
-
Hmmh, this got me thinking...
What is the value of bitBTC? Why would anybody want to acquire it?
For a common user bitBTC doesn't offer any benefit. It can be used only in the Bitshares exchange, compared to real BTC that can be used for many different things like buying stuff online.
So basically bitBTC is useful for only (1) traders, (2) who use Bitshares DEX and (3) want to avoid counterparty risk that UIA-BTC has. That's a quite small market segment. Do we really want to serve them well in this point or rather focus on other things that might bring greater benefits for more users?
agree, I also feel that BitBTC make little sense, BTC is not a stable currency, why should I lock one unstable asset (BTS) as collateral to get another?
surely we need to introduce BTC to Bitshares, is it possible to make another kind of "BTC" as NXT did using multisig? it is closer to real BTC and we can lock it as collateral to generate BitCNY or BitUSD.
So people can't print another 21M bitBTC and dump them?
Also it's useful for the exchanges to use the same orderbook, but I guess that won't happen anymore
-
Ultimately I believe that bitshares needs a sidechain btc that locks up real btc in the bitshares blockchain.
This would be far superior to all BTC UIAs and BitBTC and render them pointless with the outcome of much fewer market pairs and more liquidity.
Also it would make for the perfect collateral for any fiat MPAs has it is a very deep liquid market.
I hope this is what Bytemaster is working on with the top secret Plasma project.
-
I don't think this is a good idea, people who do this will get ripped off by creating an arbitrage opportunity for other traders. The good thing is that it should help peg the internal markets; the bad thing is that these market makers will be the ones paying the expense. Here's the arbitrage:
Yes, I have reevaluated the market dynamics and a I realize that at present this is not a good idea. The problem is not getting ripped off by other traders that take advantages of arbitrage opportunities, the problem is getting ripped off by the blockchain which will sell under-collateralized positions at a 10 percent discount. This is a large reason why there is the premium on BitBTC
I posted recently, maybe bitshares UIAs should be the main mechanism for trading... In that case, market making the trade.btc:openbtc markets is more important.
No UIA's should not be the main mechanism for trading. The point of Bitshares is to get rid of the reliance on financial intermediaries. If UIA's are the main mechanism for trading, we haven't improved anything.
An alternative idea would be to mirror the bts:btc market in the openbtc:btc market with some profit. That requires bots (and to properly map bts to openbtc), but why would someone trade that way when they could directly go openbtc:bts:btc on their own without paying a premium?
I'm not sure I follow your logic here. If you want to go from OPENBTC to BitBTC you shouldn't have to think about the price of BTS.
-
Ultimately I believe that bitshares needs a sidechain btc that locks up real btc in the bitshares blockchain.
This would be far superior to all BTC UIAs and BitBTC and render them pointless with the outcome of much fewer market pairs and more liquidity.
Also it would make for the perfect collateral for any fiat MPAs has it is a very deep liquid market.
I hope this is what Bytemaster is working on with the top secret Plasma project.
I somewhat agree. BTC would be a better form of collateral (or any other crypto-currencies with higher market cap and higher volume than that of BTS. I don't see that being implemented any time soon. What is the secret Plasma project?
-
I don't think this will ever be possible.
The MPAs always bias against the short, which will lead to a price which floats above parity. This is a fundamental design flaw.
-
what about a bitUSD/Nubits market for example, could that help strengthen the peg? They're also interested in adding other currencies so if they add CNY or EUR we can add bitCNY/NUBITS.CNY and bitEUR/NUBITS.EUR
@monsterer
So you suggest we redesign MPAs or simply forget about them and replace them for UIA? Redesigning the MPAs might be a lot of work, but if we don't do it we will never have a true decentralized solution for pegged currencies, which we claim we have
-
So you suggest we redesign MPAs or simply forget about them and replace them for UIA? Redesigning the MPAs might be a lot of work, but if we don't do it we will never have a true decentralized solution for pegged currencies, which we claim we have
Yeah, bitshares is stuck between a rock and a hard place here.
You cannot forget about MPAs as that is bitshares core USP - without them, it is just ripple with less liquidity. Longs need to have the same risk profile as shorts for this system to work IMO. I don't have all the answers.
-
So you suggest we redesign MPAs or simply forget about them and replace them for UIA? Redesigning the MPAs might be a lot of work, but if we don't do it we will never have a true decentralized solution for pegged currencies, which we claim we have
Yeah, bitshares is stuck between a rock and a hard place here.
You cannot forget about MPAs as that is bitshares core USP - without them, it is just ripple with less liquidity. Longs need to have the same risk profile as shorts for this system to work IMO. I don't have all the answers.
No problem, thanks for the input, just asked as I see you as one of the persons who knows about this stuff the best. This seems like an important topic of discussion.
We could add bitUSD/NUBITS market like I mentioned above... it could help, but that wouldn't be a guaranteed solution.
It seems we will be stuck with UIAs like OPENBTC and METAEX.BTC while we attract more people and can only hope that those same people, as liquidity increases, start using bitAssets bit by bit
-
I don't think this will ever be possible.
The MPAs always bias against the short, which will lead to a price which floats above parity. This is a fundamental design flaw.
The MPA are only biased against the short given an SQP greater than 100%. Otherwise you can borrow a bitAsset while maintaining an unleveraged position and not incurring any of the risks associated with margin calls (mainly that given the current SQP of 110% your collateral may be liquidated at a discount).