I would summarize it like this: does cash pay interest? do checking accounts ever pay meaningful interest?
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To get high interest bonds usually requires locking up your funds for a period of time in some kind of bond. It normally entails some kind of risk.
BM, you may be right that a yield is not required - I'm just trying to think through the bigger context.
US and European citizens might be deceived by today's low rates. Where inflation is high deposit accounts normally do require interest, as banks compete to offer competitive rates. If inflation expectations rose considerably in the pegged currencies, and there were no compensation, external at-call deposits would offer interest, and put bitUSD at quite a disadvantage, severely contracting its demand. I could be satisfied if BitAsset 2.0 were like cash, and an interest-bearing at-call deposit account made available in addition.
On the other hand, while global interest rates are so low, and crypto in a bear market, we need to also be able to deal with the possibility of an occasionally negative yield (income to shorts) to balance supply and demand. A cash option gives longs a way to avoid negative yield, and would basically lead to shorts wanting to close the market to escape their shorts. I don't like the idea of negative rates, but we do need to reflect the competitive environment externally.
In this case, it may not be sufficient to rely on shorts being incentivised by selling at a premium, if there is no way they can be sure of unwinding at a lower premium to reap the benefit.
I'm still open to the arguments either way, as long as all the ramifications are clear.
I know many solutions have been proposed including the use of interest rates. Also, interest rates that float between positive and negative have been proposed and this could potentially be the solution. However, I am a bit skeptical because many legacy markets, especially futures markets which bitshares seems to be more like, don't use interest rates for most assets.
These external markets do reflect interest rates as follows. In CFD markets, users' accounts are credited or debited according to the funding rates available to the CFD provider and dividends on the underlying assets of their positions (less a spread). In futures and options markets, where there is a fixed expiry for settlement of both longs and shorts, the difference between the futures price and the spot (or "cash") price reflects the market's funding rates and dividend expectations till expiry. (I think a bitUSD is more like a CFD than a future.)
...The market should be as free as possible with the only requirement being that orders have to be executed within X% of the price feed. Orders can be placed outside of that X%, but they won't be activated until the price feed comes within that X%. If buyers want to buy, they buy. If sellers want to sell, they sell. If short sellers want to short, they short. If not, then no trades take place. To 'nearly' guarantee liquidity for asset holders, a floating market order at the feed price can be used. In this scenario, I believe the risk of systemic failure would be greater than the risk of no liquidity. Eventually liquidity will enter the system as users become more comfortable and believe it will work, but this will take time.
There is nothing to stop somebody else setting up a free bitUSD:BTS market without these constraints. When the free market price is outside the constraints of the constrained market, all the liquidity will migrate to the unconstrained market and trade at the free market price. Any other bitUSD markets would follow suit.
The bitAsset 2.0 system would work much better if we remove the proposed unlimited forced-settlement and just settle any positions below 100% collateral. It's simple, more predictable, balanced and free-flowing.
If demand contracted relative to supply (a market overhang), and the market cannot force settlement, then price must fall below the peg. What is the limit to how far below the peg the market might go? We could argue that other longs may be incentivised to buy at a discount, but the problem is that they don't know whether they will be able to sell at a lower discount, or if the discount just stays indefinitely or expands further. This is analogous to the situation experienced on the short side today. You have said you don't mind deviation around the peg, but we don't know how far this could go.
However, as forced settlement can be subject to BTS market manipulation without appropriate rules in place, I think it is worthwhile toying with alternatives as well. For example, we could let the bitUSD:USD market trade freely, and when the price of bitUSD:USD falls below parity, force closure of a block of shorts (with enough notice of timing put to the market to alert shorts, arbitragers, bargain hunter etc). The block of shorts selected and closed would then be forced to buy bitUSD on market. The block size could be determined with reference to the level of discount, volume, or depth in the bitUSD:USD market, and it may take several such blocks to get back to parity, but its guaranteed to happen eventually through the forced supply reduction. The selection criteria for short closures could be based on yield or collateral. This concept may have holes in it too, just an early half-formed thought.
Topic: BitAsset 2.0 Requirements & Implied Design (Read 49503 times)
