Author Topic: Discussing the problems with bitUSD (smart coins)  (Read 20776 times)

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clout

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Hence systemic risk factors should be separated from individual trading risk factors when evaluating the protocol.  Then you'd be closer to identifying why premiums occur.

That's exactly what is already happening and this causes the premium. Traders *know* about the vastly increased risk of getting their position margin called compared to the small systemic risk of black swan, which is why they sell their borrowed bitUSD at a premium.

I think there's some mixing up of ideas and also mixing up of cause and effect,  but I think what you are trying to get at is that the Feed Price confuses short sellers because they can get called based on the SQP rather than the Feed Price.  Hence rather than using the Feed Price as a reference for trades, they will use the SQP and the SQP becomes the defacto reference price.   We discussed that on another thread a while back and I agree.

Easy fix:  Make SQP equal the Price Feed and the premium will probably mostly disappear.

this

Offline BunkerChainLabs-DataSecurityNode

Lots of discussion and ideas.

Any consensus on a possible Committee or Worker proposal to make changes?
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clout

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If I borrow BitUSD and sell for USD then I maintain a neutral position (long BTS, no leverage).

And what is incentive for doing this?

Market making for a given bitasset and its real world counterpart. You profit from the spread of that market and don't have to worry about the price movement of any assets. At the end of the day you are still just long BTS.

How can you do market making for bitGold:Gold or bitOil:Oil? Something like bitGold -> bitUSD -> USD -> Gold ?

At present the only market you can do this for are BitBTC and BitCNY because there are gateways that can provide direct conversions. Essentially you would borrow BitBTC and trade in a GATEWAY.BTC/BitBTC market.

Offline merivercap

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Hence systemic risk factors should be separated from individual trading risk factors when evaluating the protocol.  Then you'd be closer to identifying why premiums occur.

That's exactly what is already happening and this causes the premium. Traders *know* about the vastly increased risk of getting their position margin called compared to the small systemic risk of black swan, which is why they sell their borrowed bitUSD at a premium.

I think there's some mixing up of ideas and also mixing up of cause and effect,  but I think what you are trying to get at is that the Feed Price confuses short sellers because they can get called based on the SQP rather than the Feed Price.  Hence rather than using the Feed Price as a reference for trades, they will use the SQP and the SQP becomes the defacto reference price.   We discussed that on another thread a while back and I agree.

Easy fix:  Make SQP equal the Price Feed and the premium will probably mostly disappear. 

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Offline yvv

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If I borrow BitUSD and sell for USD then I maintain a neutral position (long BTS, no leverage).

And what is incentive for doing this?

Market making for a given bitasset and its real world counterpart. You profit from the spread of that market and don't have to worry about the price movement of any assets. At the end of the day you are still just long BTS.

How can you do market making for bitGold:Gold or bitOil:Oil? Something like bitGold -> bitUSD -> USD -> Gold ?

clout

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If I borrow BitUSD and sell for USD then I maintain a neutral position (long BTS, no leverage).

And what is incentive for doing this?

Market making for a given bitasset and its real world counterpart. You profit from the spread of that market and don't have to worry about the price movement of any assets. At the end of the day you are still just long BTS.

clout

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Thanks for bringing up this discussion. Was wondering similar questions. Bitshares advertises bitAssets as a cool way to store value. You like gold, here we have bitGold for you, its value is pegged to gold. But, in order for bitGold to be a cool store of value, somebody have to issue enough and make the market. How do you issue a bitAsset risk free way? If you borrow bitAsset and BTS falls, you are screwed.

If I borrow BitUSD and sell for USD then I maintain a neutral position (long BTS, no leverage).

Only selling BitUSD in the BTS market is creating leverage risk.

This is not true if you are subject to an SQP above 100%

Offline monsterer

Hence systemic risk factors should be separated from individual trading risk factors when evaluating the protocol.  Then you'd be closer to identifying why premiums occur.

That's exactly what is already happening and this causes the premium. Traders *know* about the vastly increased risk of getting their position margin called compared to the small systemic risk of black swan, which is why they sell their borrowed bitUSD at a premium.
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Offline yvv

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If I borrow BitUSD and sell for USD then I maintain a neutral position (long BTS, no leverage).

And what is incentive for doing this?

Offline merivercap

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Ok technically you're correct, but pooling shouldn't be significant.   The money you put into the pool is the collateral so having to maintain it  individually or not should not be a major issue.   Maintaining collateral for the shorts is just an expected part of the trade.   I will concede that being long is more hassle-free, but I believe it's a minor difference.

That's like saying the risk of the entire system getting black swanned == the risk of one user getting margin called.

No that's not what I'm saying.  I understand the thinking behind the design to pool collateral and use the least collateralized position as the trigger.  It's an efficient design and the 200% collateral requirement will hold. 

The risk of a short or long are understood before any trade:  A black swan event happens when the least collateralized position loses more than 50% before it's forced out.  Hence everyone should already account for an extremely improbable 50% drawdown event from a single trader in the system.

If traders understand that a 50% drawdown on any trader is systemic and both sides accept systemic risk each will go forward with trades.   Short traders should not be concerned nor do I think they are concerned.  A systemic factor like a black swan event you bring up effects both sides so it  should have very little effect on the premium.  Hence systemic risk factors should be separated from individual trading risk factors when evaluating the protocol.  Then you'd be closer to identifying why premiums occur.
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Offline monsterer

Ok technically you're correct, but pooling shouldn't be significant.   The money you put into the pool is the collateral so having to maintain it  individually or not should not be a major issue.   Maintaining collateral for the shorts is just an expected part of the trade.   I will concede that being long is more hassle-free, but I believe it's a minor difference.

That's like saying the risk of the entire system getting black swanned == the risk of one user getting margin called.
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Offline bytemaster

Thanks for bringing up this discussion. Was wondering similar questions. Bitshares advertises bitAssets as a cool way to store value. You like gold, here we have bitGold for you, its value is pegged to gold. But, in order for bitGold to be a cool store of value, somebody have to issue enough and make the market. How do you issue a bitAsset risk free way? If you borrow bitAsset and BTS falls, you are screwed.

If I borrow BitUSD and sell for USD then I maintain a neutral position (long BTS, no leverage).

Only selling BitUSD in the BTS market is creating leverage risk.
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Offline merivercap

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The BTS you use to purchase bitUSD is the collateral.  If you buy bitUSD with dollars, you are essentially buying BTS combined with a CFD.  The idea that you can hold it forever without doing a thing shouldn't be a big deal.

Not individually it isn't. The BTS I use for purchase gets pooled together with all the BTS in the collateral pool, the failure mode here is systemic, it doesn't apply directly to my need to maintain any collateral. That is a big difference.

edit: to put this simply - 1 single user getting margin called != black swan event

Ok technically you're correct, but pooling shouldn't be significant.   The money you put into the pool is the collateral so having to maintain it  individually or not should not be a major issue.   Maintaining collateral for the shorts is just an expected part of the trade.   I will concede that being long is more hassle-free, but I believe it's a minor difference. 

However, when you have a price floor via forced settlement that's like instituting a minimum wage.    You lose liquidity by price fixing just as you would lose jobs with a minimum wage.  Also it would seem the closer you get to a peg, the more the forced settlement becomes relevant and it forces the market away from the peg.   That's more significant than having to spend a few minutes a week making sure your collateral is sufficient.   
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Offline monsterer

The BTS you use to purchase bitUSD is the collateral.  If you buy bitUSD with dollars, you are essentially buying BTS combined with a CFD.  The idea that you can hold it forever without doing a thing shouldn't be a big deal.

Not individually it isn't. The BTS I use for purchase gets pooled together with all the BTS in the collateral pool, the failure mode here is systemic, it doesn't apply directly to my need to maintain any collateral. That is a big difference.

edit: to put this simply - 1 single user getting margin called != black swan event
« Last Edit: November 24, 2015, 12:42:16 pm by monsterer »
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Offline merivercap

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In Bitshares, long and short both put up BTS as collateral and select an asset to settle any differences.  If the asset goes up the short pays the long and if the asset goes down the long pays the short.   Neither have an advantage aside from forced settlement.  Maintaining collateral is just a standard part of trading with leverage.   Most all markets require people to maintain collateral and that's not an additional risk, it's just part of the trade.   Aside from not having a settlement date (which some might say favors shorts),  the only peculiar aspect of the protocol is the forced settlement.

The longs don't put up any collateral. I can go into the spot market and buy a bitUSD and just hold it forever without doing a thing.

The BTS you use to purchase bitUSD is the collateral.  If you buy bitUSD with dollars, you are essentially buying BTS combined with a CFD.  The idea that you can hold it forever without doing a thing shouldn't be a big deal. 
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