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Messages - JohnR

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16
General Discussion / Re: Economic Abstraction and Network Fees
« on: September 25, 2018, 04:30:14 pm »
One of the best things about BitShares is the economic freedom it provides.  A user can freely transact in CNY/USD/EUR assets independent of their nationality.  Maybe we will agree to disagree on this point but I don't think most users feel an explicit allegiance to the fiat monetary system under which they were born.

17
General Discussion / Re: Economic Abstraction and Network Fees
« on: September 25, 2018, 01:42:38 pm »
Thanks @abit.  I would not go so far as to say it would devalue BTS.  bitCNY is at the end of the day a future claim on BTS, nothing more.

I don't think setting in USD vs CNY would ruffle too many feathers.  Speaking for myself, whether the fee was set at 0.01 USD of 0.06 CNY would not make much difference to me whether I paid fees in USD or EUR. 

Very concerned about unexecuted transactions though.  When you say fee schedule changes do you mean the regular fluctuation of bts:fiat?  If you mean fee schedule changes I suppose the solution is that we set fees once in fiat and could be satisfied enough not to change unless something major happens.  Many stakeholders are working and hoping for greater adoption and supply of bitassets.  If fees are fixed in fiat terms then it may incentivize the community to focus more on bitassets?  People holding bts is good, people holding bitassets is better.

I think fees should still be paid in BTS, however the fees should peg against USD|CNY to be a fixed FIAT value instead of being detached from their intended value when BTS price is volatile (until the committee manually adjusts them). If the committee could set the fee values once then forget about them (until economic policy changes are proposed) that'd be great.
Apparently, if we set a fixed fee schedule, it can only be in BTS, or one of the smart coins. Using BTS is the least bias solution. If we peg fee schedule to one currency, E.G. USD, why not use CNY or EUR? IMHO this will cause division of the community. Because, even if some people can pay fee in USD at a fixed value, other people who don't use USD will still need to pay fee at a float value. The worst thing is people who prefer to pay fee in BTS (read: most of existing users) need to calculate the rate when building transactions, which is not funny at all. The chance of failing to execute transactions would be much higher due to fee schedule changes. IMHO using any asset other than BTS as default fee will effectively devalue BTS the core token.

18
Stakeholder Proposals / Re: Proxy: xeroc
« on: September 24, 2018, 11:09:18 pm »
Xeroc, I hope you enjoy your vacation.

Thul3, in a DM to me as well you quoted an anonymous 'witness'.  For the benefit of everyone in the community I suggest you be more specific with your assertions.  Most on the committee are hard working people who want the best for BTS.  I give everyone the benefit of the doubt, and it's hard to get far without knowing more details.

19
General Discussion / Re: Economic Abstraction and Network Fees
« on: September 24, 2018, 11:00:18 pm »
Thank you for the thoughtful reply CM.  I think it's not the pegging that's the trouble.  This can be handled through the core exchange rate function of bitUSD/CNY 's respective fee pool.  I think the larger issue is do we want to tie fee revenue in fiat terms or stick with the bts denomination (it has pros/cons).  The more I think about it, one of the most important reasons for fees in the first place is to support the reserve pool from which workers draw upon.  Workers want bitUSD/CNY so there is a nice symmetry to charging network fees in these assets.  It minimizes volatility risk that workers won't get paid.

The pegging thing can be solved with a program all committee members run that adjusts the fees daily to peg to USD/CNY. Obviously there's hassle in running that program and key safety is a concern as well
After BSIP 40 (https://github.com/bitshares/bsips/blob/master/bsip-0040.md) is implemented, the committee members could potentially create a key for this purpose so as to not risk the rest of their committee account's permissions/functionality.

Such a program wouldn't require a powerful VPS, and perhaps it could be run by one committee member to propose the variable change operation & be manually approved by the committee at their discretion? It'd at least take half the effort out of proposing new fees.

20
General Discussion / Re: Economic Abstraction and Network Fees
« on: September 24, 2018, 09:34:33 pm »
Thanks Armin.  Do you know of any such program running now are you saying hypothetically CMs could run a program like this?

21
General Discussion / Re: Economic Abstraction and Network Fees
« on: September 24, 2018, 03:01:42 pm »
I think fees should still be paid in BTS, however the fees should peg against USD|CNY to be a fixed FIAT value instead of being detached from their intended value when BTS price is volatile (until the committee manually adjusts them). If the committee could set the fee values once then forget about them (until economic policy changes are proposed) that'd be great.

This is what I'm saying in the last.  Although you may have articulated it more clearly!


Also it does seem like network fees should be determined in USD/CNY terms and then have a floating BTS rate.  I see more upside than downside to that.


22
General Discussion / Re: Economic Abstraction and Network Fees
« on: September 24, 2018, 12:57:56 pm »
The discussion is what happens to Ether if dapps can leverage tokens to pay for transactions.  The fear is that Ether will lose it's main value proposition if that trend progresses.  On BitShares we do have some degree of economic abstraction because users can pay for fees in assets other than the core token (bitUSD/open.btc/bridge.ltc).  I'm still thinking about how much this will have an impact down the line because the abstracted assets retain a nexus to the core asset: smartcoins via collateral and UIAs via fee pool.  Maybe this undermines the threat of BTS devaluation if down the line BTS is still required.

Question is what about smartcoins that have UIAs as collateral?  Will the fees be paid in BTS through the collateral asset's fee pool?

Also it does seem like network fees should be determined in USD/CNY terms and then have a floating BTS rate.  I see more upside than downside to that.

23
General Discussion / Re: Economic Abstraction and Network Fees
« on: September 23, 2018, 09:18:31 pm »
Great link and thank you.  I know this conversation gets brought up from time to time.  I'm looking to open up the conversation on whether economic abstraction is a good or bad thing for BitShares.  The ethereum community takes this issue seriously enough for Vitalik to respond to the idea^1.  He says the dev community is considering going so far as to mandate ether payments over tokens at the protocol level.  This would be tantamount to BitShares saying you can no longer pay for network fees in open.btc. 

Personally I like affording users the ability to pay in whatever asset they choose.  Although I do see a lot of advantages to setting the fee schedule in USD/CNY denomination.  Even if the default fee pay is set in USD, users can still retain the option to manually toggle over to BTS (which would now be variable against the USD rather the the other way around).  Does this make sense?

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1- https://www.reddit.com/r/ethtrader/comments/9ch5ls/the_collapse_of_eth_is_inevitable_techcrunch_can/e5av470/?utm_source=reddit-android

24
General Discussion / Economic Abstraction and Network Fees
« on: September 23, 2018, 02:32:31 pm »
What is economic abstraction?
“Economic abstraction”, in the context of blockchain architecture, refers to the idea that a blockchain architecture can be modified to remove the existence of a single native blockchain token (or “coin”). Rather than the protocol requiring use of a particular token, the protocol would allow the use of any one of a potentially unbounded number of tokens. ^1

In order to use the BTS DEX, users pay network fees.  This is one of the value propositions for holding BTS long term - you will be able to use the BTS DEX so long as you retain them.  It is also a loose analogy to Gas (gwei) on the Ethereum Virtual Machine.  This article "The Collapse of ETH is inevitable" ^2 has caused a lot of controversy in that community.

I would like to open up a discussion for how we should handle this on BitShares.  At the moment, the network allows for economic abstraction with collateralized assets (bitUSD/bitCNY) and UIAs via the fee pool.  I think it's good to give users the flexibility to pay network fees with alternatives to BTS.  I also recognize the great effects that result from default settings. 

I submit that by default network fees should be denominated in bitassets (bitUSD/bitCNY) vs the core token: BTS.  This will provide a de facto demand for bitassets (and indirectly BTS) as well as make future fee changes more effective (and hopefully less necessary).  Of course, if a user does not have bitassets in their account then paying the fee in BTS should still be allowed.  In the past (and likely continuing in the future) network fee changes were demanded by holders as the price of BTS itself rapidly fluctuated, transaction fees could range from 0.004 USD to 0.02 USD within a short period of time.

Since the idea of the network fee is to offer a flat rate for transactions (vs. the marginal (%) rate of gateway and OMO assets) we can flatten the network fee even more by denominating the fee in fiat terms (bitUSD/bitCNY).  This may also make things simpler to understand for new users. 

Ultimately I believe economic abstraction via bitassets is clearly a good thing for BitShares.  We should be more cautious about UIAs but so long as the fee pool is maintained I don't see great cause for alarm on that front.

--
1 - https://medium.com/@Vlad_Zamfir/against-economic-abstraction-e27f4cbba5a7
2 - https://techcrunch.com/2018/09/02/the-collapse-of-eth-is-inevitable/

25

No, we haven't saw that the premium stimulate people to do more shorting, as high premium is always with BTS price down trend and high risk that play a much important role for a shorter to make decision.

Jerry,

Thank you for your thoughtful comments above.  You've provided clarity into your rationale for the negative feedback price feed idea.  I support your effort for it and am eager to see what the future brings.

Clearly you are right that the premium remains, so the incentive mechanisms are not functioning as we intend.  I think what pc is missing is the interplay between the cost of capital, short squeeze ratio, and the equivalency between the premium and the risk of stakeholding. 

1) Yes it may be the case that a bitUSD trading for 1.02 should incentivize short sellers.  In reality it takes a large amount of capital in BTS to synthesize enough bitUSD to sell down to par (this is expensive and hard to justify from the traders perspective). 
2) Combine this with the additional risk placed by the short squeeze ratio which in effect creates a 'net-negative' force on the supply of bitUSD.  As margin calls accumulate with a squeeze ratio above 1 what you see is more and more bts collateralizing less bitUSD (same for any asset).  This downward spiral in outstanding bitUSD exacerbates the supply side problem.
3) The biggest problem with assuming the premium will incentivize sellers to help market reach equilibrium is that with the structural issues still in place that risk (premium) simply transfers to the new short.  True arbitrage is hard to find - and it's definitely not likely in the most liquid markets on BitShares.

26
Does the above analysis make sense to you?  We can concentrate our collective efforts on supply side solutions if so.

I would mostly agree with the analysis. To go further regarding the supply side, IMO people are not motivated enough to create (borrow) MPAs because the risk being margin called is quite high in volatile/bear market as of now.
How about adding one more incentive to those who takes the risk? As mentioned above, MPA is a good service/product, it has big demand. And therefore it can generate revenue stream (e.g. market fees). IMO it would be nice if those who take the risk and support (borrow) MPA shall have a cut from the revenue. To avoid passive yield harvesting, the borrower shall release borrowed MPA to the open market:
1. An MPA owner specifies market fee portion he would like to share with borrowers.
2. A user borrows the MPA providing the collateral (this may be BTS or any other MPA or UIA, as specified in the MPA collateral settings).
3. To receive the cut of the MPA market fees, the user has to place market sell order on MPA:Collateral asset (e.g. bitUSD:BTS) market.
4. As the MPA is being bought and sold by other users, market fee goes to the MPA's owner vesting balance, particular part of it (as specified in 1st step) is proportionally sharedropped to all borrowers who has executed step 3.

Yury thank you for the message and thoughtful comment.  There is a an aspect to this that is very appealing as it more appropriately aligns the risk/reward proposition between stakeholders and fee beneficiaries.  Maybe it would be prudent to explore this option first with private smart coins and see the results.  What do you think? The issue of course would be that in the bitasset/smart coin universe, committee bitassets far and away dominate in overall transaction volume.

27
A Microeconomic Introduction to Market-Pegged Assets on BitShares
Active Committee Member: JohnR

For the economic analysis skip to section 2.

1. My Background with BitShares and the explanation for this post.
When I first discovered BitShares and its decentralized exchange I was only moderately interested.  When I discovered that its core asset: BTS functions as collateral for dynamic stable coins I became addicted to learning how it worked.  I am interested in understanding how the operate and their infinite applications.  As a nice bonus I started to realize the cryptoasset itself (BTS) had a strong price sensitivity to the usage of smartcoins.  In simple terms, every dollar demanded in smartcoins puts a lot of demand pressure on BTS itself (this means price will have a tendency to increase).  Not only is this good for holders looking to see appreciation, but I appreciate the mathematical elegance of such a relationship.  When I was a BitShares novice it seemed simple: clearly the demand for USD is huge.  There are billions of them floating around the world.  Also people in the crypto world seemed to be obsessed with stable coins and the front runner at the time: Tether, was facing a lot of scrutiny for being unbacked.  I felt that it was only a matter of time before the market realized this and BTS went to the moon.  The truth, as I am closer to understanding now, is more mixed and definitely more interesting.

1.0.  A special thanks to bitcrab for showing me the scalability risks associated with a loose peg to the USD (exchanges will think critically of bitUSD if it consistently trades above one USD).  And additional thanks to xeroc and clockwork for refining my understanding of smart-coin technical operations.

1.1 Background: bitUSD
One of the most practical use cases for BitShares are market-pegged assets.  Two of the most practical MPAs are bitCNY (Chinese Yuan) and bitUSD (United States Dollar).  These are cryptoassets which attempt to track the real-world value of their nominal counterparts.  The first challenge is quite obvious: the real-world currencies are backed by nothing but the ‘full faith and credit of each sovereign nation (or at least the respective central banks thereof).  The crypto-corollaries are backed by our native asset: BTS.  Currently one bitUSD mandates 1.75 x (n BTS = 1 USD).

Reference image 1: bitUSD https://i.imgur.com/HcyqBKf.png

BitUSD has value because it is collateralized by BTS.  Users can exchange bitUSD for any cryptoasset on the BitShares exchange.  They can post limit orders for whatever exchange rate they choose.  But where bitUSD technically gets its value, the backstop in an illiquid market, is from the settlement feature which allows a holder to exchange bitUSD for 100% of the feed price (after a 24 hour waiting grace period). 

2: Stimulus: bitUSD market price is “inefficient”.

Reference image 2: https://i.imgur.com/CrXsoTR.png . -  Notice something? 

Why does bitUSD trade at a premium for fiat USD?  Anything above or below that one USD mark is technically ‘inefficient’.

2.1 Explanation 1: Risk Premium
So now we know what the holder of bitUSD gets for holding, but what does the other side of the equation get out of this?  The user who created that bitUSD and puts it into the market (the bitUSD ‘short’) has a future liability.  He sacrifices the free use of some BTS for the present right to exchange the bitUSD.  Now the short would of course prefer that bitUSD never gets settled – an unanticipated forced swap may come at an inconvenient time.  Yet this risk is ever-present.  In financial theory, market participants are compensated for taking on risk.  Investors in highly distressed companies negotiate for higher premiums or returns.  In BitShares this demand for premium may take the form of an unwillingness to sell the bitUSD at par value – a reservation price of 1.02 or 1.03 may satisfy the short’s incurred risk for keeping the position.

2.2 Explanation 2: Cost of Capital
There is only one way for bitUSD shorts to minimize the risk of being called on a settlement: maintaining a high collateral ratio.  As the network currently functions, a call for settlement exchanges with the least collateralized position.  It is entirely possible that the least collateralized position may in fact be 2x collateralized.  This leads to the second potential explanation for a higher bitUSD price.  Notice in the first chart that perfect collateralization of BitUSD with BTS is 1:1.  Anything above this amount is categorized as ‘overcollateralization’.  Many critics of conventional private banking focus on the fractional reserve lending system: wherein a single bank will take in one dollar of deposits then proceed to issue ten dollars worth of loans on the same dollar.  BitUSD is the opposite of this: for one dollar worth of ‘deposits’ with the network, the network will issue ~ .5 USD worth of bitUSD (the true number depends on the average collateral ratio for all bitUSD but this simplification is sufficient to prove the point).  While the conventional monetary system is awash with digital dollars, the BitShares network suffers a lack of supply. 

Similar to the risk premium mentioned above, bitUSD shorts may seek to be compensated for the excess capital sitting idly in the position.  That individual could deploy his capital in various activities more productive than earning zero percent return.  If he has to put up so much capital it is rational to expect him to be reluctant to sell for close to par value (1 usd).  Here the motivation is slightly different than the risk premium, but the result is the same: a reluctance to sell one bitUSD for one usd. 


3 Supply/Demand/Equilibrium Models

A note.  Typically the models below are used to analyze discrete shifts in demand or supply.  I will bend the rules here.  I am not examining the impact of a shift in demand/supply for BitShares.  Rather I am seeking to prove that the reason bitUSD has shifted from its equilibrium price of 1 USD is driven by supply side forces rather than demand side forces.

Perfect Harmony a.k.a. Equilibrium.  When the quantity demanded equals the quantity supplied the price and quantity are considered “efficient”.

Reference image 3: https://i.imgur.com/jhKnkoE.png

This is a theoretical situation that serves as a starting point for modeling the outcome we seek to achieve. 

When a good or service is undersupplied on the market, prices will increase and quantities exchanged at the market price will decrease.  The distinctive characteristic of an under-supply is that quantity exchanged is depressed from equilibrium.

When a good or service is overdemanded on the market, prices will increase and quantities exchanged at the market price will increase.  The distinctive characteristic of an over-demand is that a higher quantity are exchanged at the market price than would be exchanged at equilibrium.

Reference image 4: https://i.imgur.com/1kXua58.png

Reference image 5: https://i.imgur.com/GqdrU9l.png

4 Model Conclusion. 

Without perfect information we cannot know precisely what is causing the inefficiency (increase in demand or decrease in optimal supply).  But the key is to notice the difference in quantity; this supports a supply side problem rather than a demand side problem.  If bitUSD were facing a lack of demand we would expect to see a lower price and not a higher price.  More often than not, bitUSD trades above it’s par value.  Further I believe there is a sub-optimal amount of circulating bitUSD (compare Tether to bitUSD/CNY) and the inference is that the network faces a supply-side problem rather than a demand side.

The value in this exercise is to identify the most appropriate method for addressing a problem.  Supply side problems should be solved with supply side solutions.  Demand side problems should be addressed with demand side solutions.  Observing the charts above should give some intuition why mismatching problem and solution type will further exacerbate price/quantity dislocations.

5. Exploring solutions with members

Does the above analysis make sense to you?  We can concentrate our collective efforts on supply side solutions if so.

28
Stakeholder Proposals / Re: Witness Report for for-one
« on: August 29, 2018, 03:30:40 am »
Witnesses hold great power over the health of the BitShares network.  It seems you have the resources to bring value on this front.  As mentioned above, perhaps some blocks produced in a testnet environment (and accepting feedback and peer-review) will go a long way towards improving your candidacy for witness.

Sincerely.

29
Thank you for the comment.  I had some recent conversations that enlightened me about the community demand for bitCNY and bitUSD to track their fiat counterparts more closely.  The committee is hard at work considering how to make this a reality.

     


              I hope you can work hard for 1BITCNY=1cny.    and   work hard for  1bitusd=1usd

30
Thank you all for the amazing support.  At the moment I am out of the USA and will be more available after the upcoming week.  I look forward to solidifying relationships with the global BTS community and constantly learning in order to serve all stakeholders effectively.

Kind regards,
JohnR

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