Author Topic: Discussing the problems with bitUSD (smart coins)  (Read 20772 times)

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Offline xeroc

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I expect there will always be a premium with a volatility proportional to BTS volatility.

That is the idea and expected

Quote
This is fundamentally worse than the same volatility centered around parity.
I am not an economist, but why is this FUNDAMENTALLY worse? Does it not depend
on the perspective? For a merchant it is better since he can be sure that he
will be able to redeem AT LEAST at parity.
For bitUSD long, it is a wash since if they pay with bitUSD.

Only people outside BTS wanting to move into BTS need to pay a premium to enter

Offline giant middle finger

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I expect there will always be a premium with a volatility proportional to BTS volatility. This is fundamentally worse than the same volatility centered around parity.

it absolutely puts us at a huge financial disadvantage when the masses favor stability over security by 2 orders of magnitude (which is the factor i'd wager)

until we approach "stability (liquidity) parity" with Nubits, we are but a novelty for the paranoid (or insecure) (which is obviously the number 1 common thread that our community has)







« Last Edit: November 23, 2015, 03:08:06 pm by giant middle finger »

Offline monsterer

How do you expect to sell bitUSD to someone if the average price is $1.25?
Do you think the premium will be as big if we had market makers providing liquidity as in nubits?

I expect there will always be a premium with a volatility proportional to BTS volatility. This is fundamentally worse than the same volatility centered around parity.
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Offline xeroc

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How do you expect to sell bitUSD to someone if the average price is $1.25?
Do you think the premium will be as big if we had market makers providing liquidity as in nubits?

Offline monsterer

Please define "stable"!
Please define "peg"!

If the peg means that the price of a token highly correlates with the underlay .. then nubits is as good as bitUSD .. nubits trades AROUND parity and bitusd trades ABOVE parity .. both correlated with USD

How do you expect to sell bitUSD to someone if the average price is $1.25?
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Offline xeroc

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How can a pegged currency be designed to trade above parity? This seems like a logical fallacy.
Please define "stable"!
Please define "peg"!

If the peg means that the price of a token highly correlates with the underlay .. then nubits is as good as bitUSD .. nubits trades AROUND parity and bitusd trades ABOVE parity .. both correlated with USD

Offline monsterer

It's not really a "flaw" in the system .. it is how it designed and supposed to be working ..

How can a pegged currency be designed to trade above parity? This seems like a logical fallacy.
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Offline Empirical1.2

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dollar stable product

that's what it is

but does stability = security?

maybe, until MtGox

Yup. But the MtGox moment can take a while...
Also there's no guarantee they won't just move to the next Mt. Gox. Right now the nearly finished DEX is waiting for that kind of catalyst. Cryptsy is clearly having problems atm, it will be interesting to see if that can be leveraged to the benefit of open ledger or if business just moves to another equally risky Centralized exchange but with the good liquidity.

Edit: We could consider adding both types of products, with a warning attached to the much less secure but more liquid one. I believe it was BM who originally suggested that but many including myself were against it at the the time, (because when the risky one invariably fails it will reflect badly on BTS as a whole. But perhaps if there are clear warnings.)
« Last Edit: November 23, 2015, 02:25:06 pm by Empirical1.2 »
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Offline giant middle finger

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dollar stable product

that's what it is

but is stability more important than security here?

maybe, until MtGox...maybe not, and Nubits is proving this.

Nubits seems to be monetizing stability, while we have mad security

I guess we are truly different, and the only way to be "better" is to provide equal "stability" while advertizing our "unique counterparty-risk free security"
« Last Edit: November 23, 2015, 02:15:37 pm by giant middle finger »

Offline Empirical1.2

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"BitUSD would have as much liquidity as Nubits if it was as easy to use for the past year."

Wrong. NuBits liquidity has almost nothing to do with its ease of use.

of course, but I did not imply such causation

I'm not saying that Nubits is easy to use, I'm saying that BitShares is not

and of course, something difficult and complex is capable of having much liquidity as well as something easy to use

correlation does not cause hangovers:

Fact is, that if our wallet was easier to use (back up, documented, etc), then I'd be providing $15k liquidity in the bitUSD and CNY markets myself right now.

Fair enough. Without the added explanation that independent market makers would most likely provide comparable liquidity if BTS was easier to use, I thought you were implying ease of use was responsible for NuBits liquidity.

I still disagree though. Most people are looking to hedge into dollar stable product when BTC is clearly declining. I think Monsterer explained it recently, but that makes it very hard to maintain a tight peg in a profitable way, hence why those dollar products that are subsidized to provide that liquidity but as a result aren't fully backed are likely to have more success.

The problem with market making is its only profitable in mean reverting markets (sometimes referred to as ranging), as soon as you get a strong trend the market maker will lose money because it will end up with an unbalanced inventory of assets. That risk makes designing a good one very very complicated.
« Last Edit: November 23, 2015, 02:10:58 pm by Empirical1.2 »
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Offline cube

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In fact, I don't even know how to create a paper wallet, and until I do, I'm cash (BTS) on the sidelines, waiting for the next wiz kid who is smarter than me delete his cash cache


You can copy out the three private keys ('owner', 'active' and 'memo') and print them on paper.  The private keys are displayed in the 'Account->Permission' page.
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Offline cube

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Q) Why is there a problem implementing pegged assets?

A) The primary answer is that there can be no redeemability to the real asset on chain, for obvious reasons (since fiat/gold/silver/oil are not digital in the first place).


Although the 'redeemability' is not in the form of real physical asset, the peg could work if the underlying backing asset - a digital asset called 'bts', is strong enough.  Unfortuantely bts price has been going down and at times fast decline. This lead to sudden margin calls for the under collaterised.  There is a general lack of confidence in bts.

I think a weak bts is part of the reason for the peg not working.
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Offline Empirical1.2

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"BitUSD would have as much liquidity as Nubits if it was as easy to use for the past year."

Wrong. NuBits liquidity has almost nothing to do with its ease of use.

It is artificially provided by liquidity pools set up for that purpose which I believe were/are subsidized/receive additional compensation from NuShares holders to provide that service.

http://nulagoon.com
« Last Edit: November 23, 2015, 01:41:16 pm by Empirical1.2 »
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Offline JonnyB

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Q) Why is there a problem implementing pegged assets?

A) The primary answer is that there can be no redeemability to the real asset on chain, for obvious reasons (since fiat/gold/silver/oil are not digital in the first place).

But bitcoin is on a chain and BItBTC is still illiquid , there is no reason anyone would hold bitbtc as its more expensive, less secure, not widely used, iliquid, subject to margin calls/ forced settlement





Q) Is there another design which doesn't have the same biased risk profile, or is this just a natural consequence of not having redeemability?

A) Discuss


Yes as someone else in this thread has already said other assets should be able to be held as collateral.
The Ultimate design in my opinion would be real bitcoin being locked into the bitshares blockchain as a sidechain and then this could be used for collateral instead of BTS.
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Offline abit

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Your statements are absolutely correct and have been communicated that way for quite some time .. it's called 'floor or parity' ...
It's not really a "flaw" in the system .. it is how it designed and supposed to be working ..

In order to be safe against falling prices you will always need to have more then 1x collateral ..
The only thing that you can do differently is .. also allow other kinds of assets to be used as collateral ... much like what MAKER is doing with the DAI on ethereum ..
In regards to "other kinds of assets", if you mean UIA/IOU, it's difficult to determine the value of collateral as well as to lock/force-sell the collateral, if you mean MPA, it will need even more liquidity -- a chicken-and-egg issue.
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