Vitalik on stable currencies and POS

[vbuterin]

So, step 0: there exists a CFD with A at +$100 USD and B at -$100 USD

> B needs to find a BitUSD seller (on the internal exchange) so B can buy BitUSD from that BitUSD seller

Okay, now we have two contracts:

A at +$100 USD, B at -$100 USD
B at +$100 USD, C at -$100 USD

I can see here that B is neutral USD again. However, B is not fully neutral: the margins for the two CFDs are different, and so it's entirely possible for the first contract to margin-call, leaving B long.

> and then exchange the BitUSD again for the collateral (BTS) at the exchange rate of BTS/BitUSD at which B entered the CFD

Wait, what? Doesn't that mean that B is back to being short bitusd again?

[santaclause102]

So the price stabilization system that I described in the presentation, Robert Sams' seignorage shares, is a good system, but it's not the system that I personally prefer. The big problem that I see with it is the lack of a stable wind-down option, so if it becomes obvious that the system's influence is only going to decrease over time then the volcoin could easily hyperinflate leading to the stable coins losing all their value. I think that the SchellingDollar approach, which I've described and specified in several places now, ultimately has nicer wind-down properties, although at the cost of its volcoin having much lower crowdsale potential.

Could you give us a run down on how it works in particular in contrast to Bitshares' market pegged assets and where you see the advantages (and disadvantages) of your proposal? - Assuming that the objectives of both systems are (roughly) the same.

Actually, before I can compare schellingdollar to bitshares market pegged assets first I would like to know exactly how bitshares market pegged assets work

Nikolai was kind enough to forward me http://bytemaster.github.io/article/2014/12/18/What-are-BitShares-Market-Pegged-Assets/ but I need a while to digest it; can anyone perhaps make a 5-point summary similar to what I had at https://blog.ethereum.org/2014/11/11/search-stable-cryptocurrency/ ?

1) We assume a trusted price feed exists
2) We assume an asset with no counter party and sufficient market liquidity at a market established price (Bitcoin, BTS)
3) Two parties enter a "contract for difference" on the price feed, the short-side puts up 2x and the long side puts up 1x for a total of 3x held as collateral for issuance of BitUSD
4) The short may cover (burn BitUSD) at any time to gain access to the 3x collateral.
5) The short is forced to cover after 30 days by accepting any and all orders at or above the price feed.
6) The short is forced to cover if the price feed results in the value of collateral being equal to 2x or less the value of the BitUSD.
7) Shorts can only execute at the price feed (no selling BitUSD to 0)
Margin calls only happen at the price feed (no manipulating the internal market to cause a short squeeze)
9) Shorts are matched prioritized by interest rate they are willing to pay.

> Two parties enter a "contract for difference" on the price feed, the short-side puts up 2x and the long side puts up 1x for a total of 3x held as collateral for issuance of BitUSD

Question: suppose that A and B enter a CFD. Then, B decides that he does not want to be ultralong BTSX anymore and leaves the CFD. Is A stuck with volatility until her client can manually find a new partner?

B needs to find a BitUSD seller (on the internal exchange) so B can buy BitUSD from that BitUSD seller and then exchange the BitUSD again for the collateral (BTS) at the exchange rate of BTS/BitUSD at which B entered the CFD. A can keep his BitUSD as long as he wants.

[vbuterin]

So the price stabilization system that I described in the presentation, Robert Sams' seignorage shares, is a good system, but it's not the system that I personally prefer. The big problem that I see with it is the lack of a stable wind-down option, so if it becomes obvious that the system's influence is only going to decrease over time then the volcoin could easily hyperinflate leading to the stable coins losing all their value. I think that the SchellingDollar approach, which I've described and specified in several places now, ultimately has nicer wind-down properties, although at the cost of its volcoin having much lower crowdsale potential.

Could you give us a run down on how it works in particular in contrast to Bitshares' market pegged assets and where you see the advantages (and disadvantages) of your proposal? - Assuming that the objectives of both systems are (roughly) the same.

Actually, before I can compare schellingdollar to bitshares market pegged assets first I would like to know exactly how bitshares market pegged assets work

Nikolai was kind enough to forward me http://bytemaster.github.io/article/2014/12/18/What-are-BitShares-Market-Pegged-Assets/ but I need a while to digest it; can anyone perhaps make a 5-point summary similar to what I had at https://blog.ethereum.org/2014/11/11/search-stable-cryptocurrency/ ?

1) We assume a trusted price feed exists
2) We assume an asset with no counter party and sufficient market liquidity at a market established price (Bitcoin, BTS)
3) Two parties enter a "contract for difference" on the price feed, the short-side puts up 2x and the long side puts up 1x for a total of 3x held as collateral for issuance of BitUSD
4) The short may cover (burn BitUSD) at any time to gain access to the 3x collateral.
5) The short is forced to cover after 30 days by accepting any and all orders at or above the price feed.
6) The short is forced to cover if the price feed results in the value of collateral being equal to 2x or less the value of the BitUSD.
7) Shorts can only execute at the price feed (no selling BitUSD to 0)
Margin calls only happen at the price feed (no manipulating the internal market to cause a short squeeze)
9) Shorts are matched prioritized by interest rate they are willing to pay.

> Two parties enter a "contract for difference" on the price feed, the short-side puts up 2x and the long side puts up 1x for a total of 3x held as collateral for issuance of BitUSD

Question: suppose that A and B enter a CFD. Then, B decides that he does not want to be ultralong BTSX anymore and leaves the CFD. Is A stuck with volatility until her client can manually find a new partner?

If so, that's probably the main difference between your scheme and schellingdollar: in schellingdollar, CFDs do not have an explicit counterparty, and so A's stablecoin/volcoin balance is represented purely as a number pair without reference to anything else. Anyone can enter and leave a CFD against the system at any time. Of course, in this case it's entirely possible for the entire system to have a positive or negative balance of stablecoin, but an adjustable interest rate on stablecoin is used in these cases to encourage marginal holders to switch over so that the balance remains roughly zero.

[sumantso]

Why are you reposting?

To others - don't let him derail this thread.

[bytemaster]

So the price stabilization system that I described in the presentation, Robert Sams' seignorage shares, is a good system, but it's not the system that I personally prefer. The big problem that I see with it is the lack of a stable wind-down option, so if it becomes obvious that the system's influence is only going to decrease over time then the volcoin could easily hyperinflate leading to the stable coins losing all their value. I think that the SchellingDollar approach, which I've described and specified in several places now, ultimately has nicer wind-down properties, although at the cost of its volcoin having much lower crowdsale potential.

Could you give us a run down on how it works in particular in contrast to Bitshares' market pegged assets and where you see the advantages (and disadvantages) of your proposal? - Assuming that the objectives of both systems are (roughly) the same.

Actually, before I can compare schellingdollar to bitshares market pegged assets first I would like to know exactly how bitshares market pegged assets work

Nikolai was kind enough to forward me http://bytemaster.github.io/article/2014/12/18/What-are-BitShares-Market-Pegged-Assets/ but I need a while to digest it; can anyone perhaps make a 5-point summary similar to what I had at https://blog.ethereum.org/2014/11/11/search-stable-cryptocurrency/ ?

1) We assume a trusted price feed exists
2) We assume an asset with no counter party and sufficient market liquidity at a market established price (Bitcoin, BTS)
3) Two parties enter a "contract for difference" on the price feed, the short-side puts up 2x and the long side puts up 1x for a total of 3x held as collateral for issuance of BitUSD
4) The short may cover (burn BitUSD) at any time to gain access to the 3x collateral.
5) The short is forced to cover after 30 days by accepting any and all orders at or above the price feed.
6) The short is forced to cover if the price feed results in the value of collateral being equal to 2x or less the value of the BitUSD.
7) Shorts can only execute at the price feed (no selling BitUSD to 0)
Margin calls only happen at the price feed (no manipulating the internal market to cause a short squeeze)
9) Shorts are matched prioritized by interest rate they are willing to pay. 

[vbuterin]

So the price stabilization system that I described in the presentation, Robert Sams' seignorage shares, is a good system, but it's not the system that I personally prefer. The big problem that I see with it is the lack of a stable wind-down option, so if it becomes obvious that the system's influence is only going to decrease over time then the volcoin could easily hyperinflate leading to the stable coins losing all their value. I think that the SchellingDollar approach, which I've described and specified in several places now, ultimately has nicer wind-down properties, although at the cost of its volcoin having much lower crowdsale potential.

Could you give us a run down on how it works in particular in contrast to Bitshares' market pegged assets and where you see the advantages (and disadvantages) of your proposal? - Assuming that the objectives of both systems are (roughly) the same.

Actually, before I can compare schellingdollar to bitshares market pegged assets first I would like to know exactly how bitshares market pegged assets work

Nikolai was kind enough to forward me http://bytemaster.github.io/article/2014/12/18/What-are-BitShares-Market-Pegged-Assets/ but I need a while to digest it; can anyone perhaps make a 5-point summary similar to what I had at https://blog.ethereum.org/2014/11/11/search-stable-cryptocurrency/ ?

[Ander]

sounds like Nubits.

in this case, i like our approach more.

with the difference that Nubits are not bought back/destroyed when in oversupply. They are just hidden

Actually Nubits has changed this (or will change this), and Nubits can be burned now.  Thus making them 100% less ponzi-ish.
Makes them a stronger competitor, which just makes it all the more important for us to have decent marketing.

[santaclause102]

So the price stabilization system that I described in the presentation, Robert Sams' seignorage shares, is a good system, but it's not the system that I personally prefer. The big problem that I see with it is the lack of a stable wind-down option, so if it becomes obvious that the system's influence is only going to decrease over time then the volcoin could easily hyperinflate leading to the stable coins losing all their value. I think that the SchellingDollar approach, which I've described and specified in several places now, ultimately has nicer wind-down properties, although at the cost of its volcoin having much lower crowdsale potential.

Could you give us a run down on how it works in particular in contrast to Bitshares' market pegged assets and where you see the advantages (and disadvantages) of your proposal? - Assuming that the objectives of both systems are (roughly) the same.

[vbuterin]

So the price stabilization system that I described in the presentation, Robert Sams' seignorage shares, is a good system, but it's not the system that I personally prefer. The big problem that I see with it is the lack of a stable wind-down option, so if it becomes obvious that the system's influence is only going to decrease over time then the volcoin could easily hyperinflate leading to the stable coins losing all their value. I think that the SchellingDollar approach, which I've described and specified in several places now, ultimately has nicer wind-down properties, although at the cost of its volcoin having much lower crowdsale potential.

[bytemaster]

The design of their peg is very similar to various discussions we have had around here.

The trouble is  how to determine when to buy/sell the stable coin.  How quickly can the price adapt?   

Here is the ultimate crux of the issue:  it socializes the risk of the volatile asset falling in value on the volatile asset. 

Their system is effectively like BitShares without any margin.  The entire network provides the margin with unlimited printing press.   The network has no way of 'pricing the risk of issuing stable coin' and thus could potentially amplify the volatility of stable coin with huge bouts of inflation in volatile coin supply.   Market manipulators could use this to great effect.

[bitsapphire]

This sounds like a more efficient fiat pegging to me. Similar to how other countries try to peg their currency to the USD.

Still not fictional enough. I like though that he seems to be driven by purpose rather than ego. Good company to be in.

[Markus]

sounds like Nubits.

in this case, i like our approach more.

with the difference that Nubits are not bought back/destroyed when in oversupply. They are just hidden

[Shentist]

sounds like Nubits.

in this case, i like our approach more.

[santaclause102]

I hope BM keeps up sessions with him, Vitalik is awesome

he appears to me as honest and purpose driven.

[CLains]

I hope BM keeps up sessions with him, Vitalik is awesome