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I got a little confused so I'll ask exactly what I'm interested in:I believe minimum required short collateral is 2x with margin call at 1.5x
Will there be minimum required short collateral?
I can understand where you might be going with it, but I still don't like it. I like prioritizing shorts based on collateral not fees. I think high collateral incentivizes shorts to cover quickly when profit from spread is presented. It also naturally protects the market from short squeezes and flash crashes of BTSX.
Bytemaster, I would really appreciate your feedback on my proposal here. The idea is to let the market decide the effective interest rates (based on fees collected for the rewards program, not a separate prediction market) in a way that balances the long and short demand, while at the same time attempting to address Agent86's liquidity concerns due to short prices being created well below the peg in the current design. Also, Agent86, I would like feedback from you too.
Agent86... like always you are a very passionate debater who frequently convinces me of things. I would like to explain why I don't like your proposal at this point in time.Thanks BM. I don't honestly think the idea is a high immediate priority either. I just think it is the right direction for the eventual evolution of things. What are your thoughts that matching shorts below feed with orders above the feed stops shorts from quickly covering when bitUSD is undervalued to maintain the peg. (matching based on collateral provides better incentives)?
I have had white board designs for how to reenforce the peg via 2 markets. 1 market sets the "premium" shorts must pay.. ie: the amount they must bid over the ask. With this 2-market system the short interest would be curtailed by those speculating on the premium market. The result would be a peg and automatic "interest" rate setting for BitUSD.
BitUSD would always be valued at $1 because the interest rate/risk premium would adjust to compensate for supply/demand/risk assessments of the market.
That said we have a MAJOR bootstrapping problem with all markets. They require a network effect and high liquidity to function. It is hard enough to find speculators on the BitUSD vs BTSX market let alone a "meta-market". A system that requires 2 markets to function is way too difficult to bootstrap at the same time.
A bitbond market would have similar problems. A bond market is even more difficult to bootstrap than a pure prediction market, especially if there are different maturity dates, interest rates, that make them non-fungible.
So while I do not want to dismiss your idea, I just do not think it is viable at this stage in the development of BitMarkets.
I have a concern with the collateral being enough to cover the debt by the future date... there is a responsibility on the bond holders to keep an eye on the price changes of BTSX/BitUSD to make sure their bond has enough collateral value to pay the debt at the future date. In fact, in theory if the collateral isn't large enough to cover a drop in the price of BTSX from when the bond was purchased until when it pays the debt, then the effective interest rate can decrease and even become negative.
The part where I see the biggest challenge is such collateralization working on a blockchain. I can not figure out a way (neither have I read somebody suggesting working solution) where both conditions are met -repayment of the bond (debt is) guaranteed and at the same time incentive for the issuer of such bond is still present. In other words if the whole amount received through the bond sell is kept as collateral + additional collateral for the interest is needed, where is the incentive for the issuer? Anything less than that collateral leaves the bond buyer exposed to the risk of not receiving his money back.
[edit] It will take a truly independent bond market, where special market participants, will act as bond issuer and will collateralize a series of bonds (with deferent expiration dates), for this to truly work.
If the odds that BTSX has a serious issue/failure in the next year are 2% then a BitAsset is only worth 0.98 to a long term BitAsset holder.
A genuine BitAsset holder also has to consider the utility of a BitAsset or the cost of conversion to acquire the real world counterpart his BitAsset mirrors.
So even if your proposal resulted in a tighter range than the current few % now it wouldn't attract genuine buyers because a BiAsset isn't worth 1-1 in the medium term because of risk, conversion & utility costs which is why you have a dead buy side of the order book.
Interest will offset these factors and does make BitAssets 1-1 or better which attracts buyers at 1-1 Therefore making a bigger market than the current one and it creates the peg at 1-1 (because the interest applied in this way is self-regulating.)
I know you're on another level compared to me here, but looking at the order book wouldn't you agree we need to attract BitAsset buying demand?I think to create buying demand you want to motivate shorts to cover whenever bitUSD is offered below parity. I think the current method works against that goal.
Translating shorting demand into transaction fees which gets transferred to incentivising genuine BitAsset buying (via interest) helps correct the demand imbalance imo.
Please read my proposed bond/CD idea in this thread and through your opinion.
Thanks.
Here is an idea. The proposal stays as revenue sharing plan/dividends.
-At the same time everybody can offer true interest bearing CDs. (fix rate/fix time/known penalty for early withdrawal).
-The amount received in bitUSD is kept as collateral, plus additional amount for the interest promised;
=> the person saving the bitUSD is absolutely secured the amount + interest;
and The person offering this deposit benefits is this profit sharing produces more than the promised interest?
CD seems as US term only - here is the link: http://www.investopedia.com/terms/c/certificateofdeposit.asp
Thoughts?
I'm in favor of interest, I just think the right way to do it is make a bond market… I proposed the idea here:As far as paying out the collected bitUSD as "interest"... I hadn't considered this but it seems overly complicated and does not appeal to me.
To tell you the truth, I am in total shock by this statement.
Do you have time to explain further?
Me too. Agent86, does bytemaster's implementation not appeal to you or the idea of paying interest to BitAssets? I thought the appeal of interest on BitUSD would be obvious; it becomes a super easy way to market BitShares X to the average Joe: you get higher interest rates keeping your BitUSD in BitShares X than keeping your USD in your regular bank.
Maybe I'm the only one who disagrees with all this, but I really don't like it.
I don't like making money off the spread by matching shorts that are below the feed with bids that are above it. I think this reduces liquidity in the market and hurts the peg.
I would much rather see shorts prioritized by amount of collateral.
How I would fine tune the market:
I would create a small delay from the time that new feeds are posted and the time they are active, maybe a few minutes. That way traders can know the exact median feed price a little before it takes effect so all traders are on even ground. Aggressive shorts can then enter their orders at the exact feed price and compete on who posts the most collateral to be first in line to be matched. This allows traders to profit by shorting at $1 and quickly buying back at $.99 when they can.
If you do it the way proposed in this thread then you artificially increase transaction costs which hurts liquidity and only attract long term shorts who will be reluctant to cover (they can't turn around and cover at $.99 to make a profit because they may have only got $.95 or less worth of BTSX from their short).
Aside from fact that this is not the right thread that you disagree with. I also I have my doubts that the actual market will play as described.- i.e. demand for shorting resulting in offering up to 10% discount. I would expect shorts entering very near the 'peg price' and waiting the order to be filled (even if it means days).
If you talk about the interest proposal here, the (rather raw) calculations are not taking into an account this 'shorting pressure discount' so we must be safe in that regard.
I think the way to go is a bond market, as described here: https://bitsharestalk.org/index.php?topic=7816.0I know this rule was put in place to make the peg more accurate, but I still feel that it should be my right to take the risk of putting in more competitive shorts, even if it causes cheap BitUSD to be created.
I think there needs to be an outlet for people in your position and that outlet should be options contracts.
I know this rule was put in place to make the peg more accurate, but I still feel that it should be my right to take the risk of putting in more competitive shorts, even if it causes cheap BitUSD to be created.I'm sorry but the peg is more important than your self-proclaimed "right to create cheap BitUSD."
On the whole the network is stronger with fewer shorts and more guarantees for BitUSD holders.It doesn't work in a thin market without feed, or any market for that matter IMO... I think we will be happy with the feed.
On the whole the network is stronger with fewer rules and more free market action.
Allowing someone to Short BTSX backed by BitUSD would be an interesting experiment for a future chain. It would certainly create buying pressure on cheap BitUSD.
Price feeds are something I would prefer to avoid all together. Average prices are something I would prefer to remove all together.
So this discussion is mostly focused on "how do we make a peg work in a thin market".
