Author Topic: Short Order Refactoring  (Read 13215 times)

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Offline cylonmaker2053

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but it's a loan from yourself, right? you're lending yourself your own BTS by going simultaneously long and short; however, you're actually locking up more BTS as collateral than you're borrowing, so wouldn't you be holding less BTS for the duration of the loan to yourself than had you done nothing?
No, its not a loan from yourself - its a loan from the person who buys your bitUSD. Let me explain...

Let's say the collateral requirement for shorts is 100% - i.e. every $1 bitUSD has minimum $2 BTS in collateral.
And let's say you have $2 of BTS you want to keep, but you're not currently using. You can retain your exposure to the BTS, and use it as equity to raise funds for you to use elsewhere.

So you use the $2 of BTS to simultaneously open a long and a short. The $2 of BTS now sits in the collateral pool.

Now you can sell the bitUSD on whatever exchange you like, and for whatever asset it trades against, to raise funds. If bitUSD trades against USD on an external exchange, you can sell it directly for USD. If it trades against BTC, you can sell it for BTC.

[/quote]

so your short position is using 2 BTS to borrow 1 BTS ...you have 3 BTS today from the trade, 2 locked in collateral and 1 for use.

then you go long 1 BTS worth of bitUSD, so you have net 1 BTS worth of bitUSD that you can use for something and you still have your original 2 BTS locked up in collateral. ok, i get it now...you'd be playing with the borrowed BTS, converting it to whatever bitasset (or anything else you can trade it for) for the duration of the short.

I FINALLY GET IT :)

i was viewing the borrowed BTS as being locked up in the blockchain collateral process, which was incorrect. thx!

Offline starspirit

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@starspirit, i think if you buy your own short you've just covered your position, but you still have collateral posted to the blockchain, so you actually have less BTS available than before you opened the positions. When you close your short you give back the BTS you borrowed from yourself (net interest exchange to yourself and fees to the network), and your collateral is released. Overall, you've lost 2 BTS in fees without any gain.

When i short to myself i'm doing that to roll an open short forward another 30 days, that's all.
When you self-create and self-cancel the short there are small transaction fees involved. Its what you do in the middle that earns your reward, whether that's the returns on another asset you funded, market-making income, yield income, or other utility.

sorry i'm a little on the slow side tonight...

so i short bitUSD and buy my own short ...i have an open short and some bitUSD i can go run amok with, but i've traded my collateral BTS for the short and i've traded BTS for the long...i'm sitting on 2x less BTS and have half that BTS-equiv amount of bitUSD to do something with. would i have been better just using my BTS to buy bitUSD? or actually, wouldn't i just have been better off doing nothing and keeping my original BTS to fund whatever else i wanted?
If you sold BTS to buy bitUSD, you have given up some of your BTS exposure, and might miss potential gains. If instead you use the BTS as collateral to create a bitUSD (to use for whatever purpose you want), you have not reduced your BTS exposure at all. You've just used your equity to get a loan. So you keep any gains on BTS, as well as have a loan to do with as you please (like investing in more BTS, or in some other investment).

If you did nothing and kept the original BTS in your wallet, you couldn't use this to fund anything.

but it's a loan from yourself, right? you're lending yourself your own BTS by going simultaneously long and short; however, you're actually locking up more BTS as collateral than you're borrowing, so wouldn't you be holding less BTS for the duration of the loan to yourself than had you done nothing?
No, its not a loan from yourself - its a loan from the person who buys your bitUSD. Let me explain...

Let's say the collateral requirement for shorts is 100% - i.e. every $1 bitUSD has minimum $2 BTS in collateral.
And let's say you have $2 of BTS you want to keep, but you're not currently using. You can retain your exposure to the BTS, and use it as equity to raise funds for you to use elsewhere.

So you use the $2 of BTS to simultaneously open a long and a short. The $2 of BTS now sits in the collateral pool.

Now you can sell the bitUSD on whatever exchange you like, and for whatever asset it trades against, to raise funds. If bitUSD trades against USD on an external exchange, you can sell it directly for USD. If it trades against BTC, you can sell it for BTC.

If the bitUSD only trade against BTS (and I think this is the source of your confusion), then you can sell it for BTS. But even in this case, you are not borrowing your own BTS - that BTS still sits in the collateral pool backing the bitUSD. You have in fact at this point received additional BTS provided by the bitUSD buyer, giving you a leveraged position (you have $3 of exposure now) unless you convert it to something else. You don't need to keep the BTS proceeds, you can exchange them for whatever you want, and still have $2 of BTS in the collateral pool.

The proceeds you receive from the sale of your bitUSD, in whatever form, can always be exchanged into whatever form you prefer, to use in whatever way you see fit. No matter what you use it for, you still have $2 of BTS in the collateral pool (assuming no price change at this point), waiting for you to reclaim it as soon as you buy back the bitUSD to cancel your short.

But let's say you did sell the bitUSD for BTS and kept this position. If BTS doubled in value, then you will only need half the BTS proceeds of your initial bitUSD sale to buy back the same bitUSD. With this bitUSD in hand you can now cancel your original short and free the quantity of BTS you originally placed into the collateral pool. In addition, you have the other half of the BTS proceeds from the initial bitUSD sale to keep as profit. This shows you did not simply borrow your own bitUSD.

Sorry that's a bit long-winded, but hope it helps.

Offline cylonmaker2053

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@starspirit, i think if you buy your own short you've just covered your position, but you still have collateral posted to the blockchain, so you actually have less BTS available than before you opened the positions. When you close your short you give back the BTS you borrowed from yourself (net interest exchange to yourself and fees to the network), and your collateral is released. Overall, you've lost 2 BTS in fees without any gain.

When i short to myself i'm doing that to roll an open short forward another 30 days, that's all.
When you self-create and self-cancel the short there are small transaction fees involved. Its what you do in the middle that earns your reward, whether that's the returns on another asset you funded, market-making income, yield income, or other utility.

sorry i'm a little on the slow side tonight...

so i short bitUSD and buy my own short ...i have an open short and some bitUSD i can go run amok with, but i've traded my collateral BTS for the short and i've traded BTS for the long...i'm sitting on 2x less BTS and have half that BTS-equiv amount of bitUSD to do something with. would i have been better just using my BTS to buy bitUSD? or actually, wouldn't i just have been better off doing nothing and keeping my original BTS to fund whatever else i wanted?
If you sold BTS to buy bitUSD, you have given up some of your BTS exposure, and might miss potential gains. If instead you use the BTS as collateral to create a bitUSD (to use for whatever purpose you want), you have not reduced your BTS exposure at all. You've just used your equity to get a loan. So you keep any gains on BTS, as well as have a loan to do with as you please (like investing in more BTS, or in some other investment).

If you did nothing and kept the original BTS in your wallet, you couldn't use this to fund anything.

but it's a loan from yourself, right? you're lending yourself your own BTS by going simultaneously long and short; however, you're actually locking up more BTS as collateral than you're borrowing, so wouldn't you be holding less BTS for the duration of the loan to yourself than had you done nothing?

Offline starspirit

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@starspirit, i think if you buy your own short you've just covered your position, but you still have collateral posted to the blockchain, so you actually have less BTS available than before you opened the positions. When you close your short you give back the BTS you borrowed from yourself (net interest exchange to yourself and fees to the network), and your collateral is released. Overall, you've lost 2 BTS in fees without any gain.

When i short to myself i'm doing that to roll an open short forward another 30 days, that's all.
When you self-create and self-cancel the short there are small transaction fees involved. Its what you do in the middle that earns your reward, whether that's the returns on another asset you funded, market-making income, yield income, or other utility.

sorry i'm a little on the slow side tonight...

so i short bitUSD and buy my own short ...i have an open short and some bitUSD i can go run amok with, but i've traded my collateral BTS for the short and i've traded BTS for the long...i'm sitting on 2x less BTS and have half that BTS-equiv amount of bitUSD to do something with. would i have been better just using my BTS to buy bitUSD? or actually, wouldn't i just have been better off doing nothing and keeping my original BTS to fund whatever else i wanted?
If you sold BTS to buy bitUSD, you have given up some of your BTS exposure, and might miss potential gains. If instead you use the BTS as collateral to create a bitUSD (to use for whatever purpose you want), you have not reduced your BTS exposure at all. You've just used your equity to get a loan. So you keep any gains on BTS, as well as have a loan to do with as you please (like investing in more BTS, or in some other investment).

If you did nothing and kept the original BTS in your wallet, you couldn't use this to fund anything.

Offline cylonmaker2053

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@starspirit, i think if you buy your own short you've just covered your position, but you still have collateral posted to the blockchain, so you actually have less BTS available than before you opened the positions. When you close your short you give back the BTS you borrowed from yourself (net interest exchange to yourself and fees to the network), and your collateral is released. Overall, you've lost 2 BTS in fees without any gain.

When i short to myself i'm doing that to roll an open short forward another 30 days, that's all.
When you self-create and self-cancel the short there are small transaction fees involved. Its what you do in the middle that earns your reward, whether that's the returns on another asset you funded, market-making income, yield income, or other utility.

sorry i'm a little on the slow side tonight...

so i short bitUSD and buy my own short ...i have an open short and some bitUSD i can go run amok with, but i've traded my collateral BTS for the short and i've traded BTS for the long...i'm sitting on 2x less BTS and have half that BTS-equiv amount of bitUSD to do something with. would i have been better just using my BTS to buy bitUSD? or actually, wouldn't i just have been better off doing nothing and keeping my original BTS to fund whatever else i wanted?

Offline starspirit

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@starspirit, i think if you buy your own short you've just covered your position, but you still have collateral posted to the blockchain, so you actually have less BTS available than before you opened the positions. When you close your short you give back the BTS you borrowed from yourself (net interest exchange to yourself and fees to the network), and your collateral is released. Overall, you've lost 2 BTS in fees without any gain.

When i short to myself i'm doing that to roll an open short forward another 30 days, that's all.
When you self-create and self-cancel the short there are small transaction fees involved. Its what you do in the middle that earns your reward, whether that's the returns on another asset you funded, market-making income, yield income, or other utility.

Offline cylonmaker2053

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@starspirit, i think if you buy your own short you've just covered your position, but you still have collateral posted to the blockchain, so you actually have less BTS available than before you opened the positions. When you close your short you give back the BTS you borrowed from yourself (net interest exchange to yourself and fees to the network), and your collateral is released. Overall, you've lost 2 BTS in fees without any gain.

When i short to myself i'm doing that to roll an open short forward another 30 days, that's all.

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And I'm hoping certain other mechanics will also be made more convenient too, like self-cancelling and closing the loan from the collateral.

How can the close from collateral part work together with the need for the bitAsset to persist? If you self create a bitAsset, then sell it, then close by collateral, the system leaks bitAssets, doesn't it?

No, you'd just be using the collateral to purchase the necessary bitAsset to cover the order from the market.  Same as you do now, but also allowing you to use the tied up collateral to make the purchase.

Offline pc

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How can the close from collateral part work together with the need for the bitAsset to persist? If you self create a bitAsset, then sell it, then close by collateral, the system leaks bitAssets, doesn't it?

I think he means that the collateral can be used to buy the bitAssets with which the position is closed.
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Offline monsterer

And I'm hoping certain other mechanics will also be made more convenient too, like self-cancelling and closing the loan from the collateral.

How can the close from collateral part work together with the need for the bitAsset to persist? If you self create a bitAsset, then sell it, then close by collateral, the system leaks bitAssets, doesn't it?
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Offline starspirit

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What is the purpose of shorting to oneself?

This was a question raised in the Hangout. Bytemaster gave an answer on this which I would like to expand upon.

When you self-create the short, you can sell the long for whatever asset in whatever market you like. You can think of this like a general purpose (collateralised) loan. What you do with this loan, and where you invest your proceeds, is up to you. All the while, the BTS (or other crypto collateral) that you wish to keep owning is stored as collateral for your loan, and your primary obligation is to ensure it is always adequate. You also need to be prepared to be force settled if it is too low.

What can you use these borrowed proceeds for? Here are some potential uses:

1. Shorting the Smartcoin asset: Sell the Smartcoin for some form of stable currency. Then you have something like a traditional short, but with less leverage.

2. Market making: This is effectively a way to earn income for supporting the market for the Smartcoin. Sell the Smartcoin for the real underlying asset. If you do this when the Smartcoin is at a premium, then switch back to the Smartcoin when it is at a discount, and repeat, then you effectively earn market-making income on your borrowed funds. [In practice this can be a little more complex than it sounds, though not insurmountable. If the Smartcoin does not trade directly against the real asset, there may be an extra trading step, or possibly the need to offset positions on two different exchanges.]

3. Yield arbitrage:  If the Smartcoin does not offer a yield and the real asset does, sell the Smartcoin for the real asset and hold to pick up the interest rate differential.

4. Leveraging crypto or BTS:  Sell the Smartcoin for BTS or any other crypto, and you have effectively leveraged your crypto portfolio. You can even enhance your leverage to BTS further by using newly purchased BTS for new self-created shorts [credit for this idea goes to arhag]

5. Personal loan: Want money for a car or new dishwasher, but want to keep your BTS? Use your BTS to self-create a loan, sell the Smartcoin, take it out of the system for real currency, and spend. [Make sure you are able to keep up the collateral though, or you risk losing some of it on a margin call!].

This is not advice to do any of these things of course, you have to understand the risks and your own financial situation and capacity. But you can see that utility is very flexible. As bytemaster said, these possibilities are not really new because in theory you could do all of this before. But the new process will make self-creation easier and more convenient. And I'm hoping certain other mechanics will also be made more convenient too, like self-cancelling and closing the loan from the collateral.
« Last Edit: June 21, 2015, 12:38:01 am by starspirit »

Offline xeroc

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In some other thread BM showed the set of fees that are possible in bts2 .. not sure if your case is among them .. maybe someone else can post the link .. i am currently mobile

Offline topcandle

Borrow bitAsset from network fee
sell asset in dex fee

Yeah Similar to my post.  Couldn't this be extended for leveraged longs as well, and not just a leveraged short?
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Offline xeroc

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Borrow bitAsset from network fee
sell asset in dex fee

Offline topcandle

The only real change I see in the OP is that a short-sell now has to potentially pay two (different) fees in contrast to one fee atm .. though this only makes the DAC more proditable (depending on the ACTUAL fees)

 Debt interest fee and a short sell fee?
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