Idea: Flexible Collateral

[starspirit]

By the way, the first and most useful step toward this would be to allow bitUSD shorts to switch their collateral between bitUSD and BTS. A switch from BTS to bitUSD would allow shorts to then cancel their position from internal collateral rather than having to use other funds held to buy the bitUSD.

[starspirit]

*** SHORT VERSION ***

- allow bit-Currencies to be backed by an assortment of on-chain tokens
- each token counts a certain percentage toward their total collateral requirement based on risk factors
- allows shorts to obtain funding for a diversified portfolio of holdings
- allows shorts to manage the composition of their collateral portfolio
- allows shorts to use their tokens to collateralise a general purpose loan
- allows shorts to still get BTS leverage if they like
- allows shorts to close positions from collateral instead of buying externally
- just an idea, don't know all what the practicalities are

*** LONGER VERSION ***

This may not fit at all with the direction BM wants to go, but I thought I would raise this concept as a hypothetical to explore.

There is no reason why bitAssets need to be collateralised by BTS. In principle they could be collateralised by an assortment of on-chain tokens.

Imagine a short maintains a locked collateral account that could hold BTS, bitUSD, bitUER, bitCNY, bitBTC, bit-bonds at various terms, maybe even UIAs, as long as they exist on the BitShares block chain. And imagine they are free to trade these against each other.

Each token counts toward their total collateral requirement based on a risk-based approach. So for example, if the bitAsset obligation were bitUSD, holding bitUSD in collateral would count toward 100% coverage. Holding BTS would count toward 33% coverage (making it equivalent to the current system) or 50% coverage (equivalent to BitAsset 2.0). The coverage ratio on each token would depend on specific risk factors such as liquidity/depth in the underlying market, volatility or other risk factors. Total coverage must add to at least 100%, and if it falls below 100% the short has their position called.

So for example, holding all BTS in collateral would require 2x collateral (assuming 50% as per BitAsset 2.0). While holding all bitUSD would only require 1x collateral.

At any time a short, having converted their collateral fully to bitUSD, could self-cancel their short with collateral held, rather than having to buy a bitUSD with external funds.

Shorts would be able to use leverage on a diversified portfolio of tokens, and have control of that portfolio within the bounds of their total collateral constraints.

The coverage ratios for each token could be periodically updated with notice to give shorts time to adjust collateral.

If a short is called, or if a cover is requested, their tokens are each automatically used to purchase bitUSD in market (if a bitUSD market does not exist in the token, there may be more than one step), thus cancelling their position. There are different ways of prioritising these conversions and returning residual collateral to the short.

A user would also be able self-create a short by posting any form of collateral that meets the Total Coverage requirement, and then selling the bitUSD in the market for USD. This effectively gives them a general purpose loan against their BitShares token holdings.

The borrower could also use the bitUSD to buy BTS if they wish, giving them the same risk profile as they have currently (leverage to BTS). But this would not be necessary, and open up shorting to a more general set of motivations.

I haven't yet thought about a number of more practical issues, just thought it might be interesting enough to raise.