Author Topic: Discussing the problems with bitUSD (smart coins)  (Read 9561 times)

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Offline monsterer

Re: Discussing the problems with bitUSD (smart coins)
« Reply #15 on: November 23, 2015, 02:36:46 pm »
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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Re: Discussing the problems with bitUSD (smart coins)
« Reply #16 on: November 23, 2015, 02:41:56 pm »
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?
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Offline monsterer

Re: Discussing the problems with bitUSD (smart coins)
« Reply #17 on: November 23, 2015, 02:53:52 pm »
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 giant middle finger

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Re: Discussing the problems with bitUSD (smart coins)
« Reply #18 on: November 23, 2015, 02:59:00 pm »
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 xeroc

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Re: Discussing the problems with bitUSD (smart coins)
« Reply #19 on: November 23, 2015, 03:00:01 pm »
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
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Offline monsterer

Re: Discussing the problems with bitUSD (smart coins)
« Reply #20 on: November 23, 2015, 03:09:46 pm »
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

It's worse because:

*) Calling a thing a 'dollar' implies its value is designed to be one 'dollar' - this is a marketing nightmare otherwise
*) A merchant has to price everything in bitUSD *less* than he would have in regular dollars to achieve the same value - this is crazy
*) People coming into bitUSD have to pay a premium to own the 'same' product than at nuBits
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Offline JonnyB

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Re: Discussing the problems with bitUSD (smart coins)
« Reply #21 on: November 23, 2015, 03:41:03 pm »
I had an idea how to create depth and liquidity for MPAs

There should be an option on the trade page that says buy or sell at live price feed which will place an order on the books at the settlement price but crucially your order will move with the price feed so you don't have to keep updating it.
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Offline Samupaha

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Re: Discussing the problems with bitUSD (smart coins)
« Reply #22 on: November 23, 2015, 03:59:14 pm »
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).

I have to disagree here a little bit. I'd call BTS a "real" asset because it is the share of Bitshares DAC. As long as Bitshares is up and running, the share has some real value.

Q) Why is bitshare's current solution inadequate?

A) Those who borrow bitUSD from the system are at much higher risk than those who buy it from the market because the borrower must actively maintain his collateral and can get margin called by the system if the feed price moves enough

Correct if I'm wrong: the borrower can get margin called by the system if the feed price moves enough downwards. But if we are in a bull market, this is not a problem and borrowing is profitable? So the real problem is: too much risk / not enough incentives in the bear market.

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?

If I remember right, Bytemaster talked in some hangout about privatized smartcoins. His reasoning was something like that maybe the smartcoins that DAC offers turn out to be inadequate, so it is good to have other choices. With privatized smartcoins anybody can try to beat the default smartcoins and make good profits for himself. So far nobody has tried. Maybe someone should?

Offline Empirical1.2

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Re: Discussing the problems with bitUSD (smart coins)
« Reply #23 on: November 23, 2015, 04:54:17 pm »
I had an idea how to create depth and liquidity for MPAs

There should be an option on the trade page that says buy or sell at live price feed which will place an order on the books at the settlement price but crucially your order will move with the price feed so you don't have to keep updating it.

Yeah, that may help and could make things a lot simpler as well imo.

I might be the only one that thinks like this, but on

https://bitshares.openledger.info/#/market/BTS_USD

On the sell side in brackets I'd like to see the deviation from the peg based on the feed price.

So on the buy side I would see trades starting at for example ($0.98) and on the sell side ($1.02)

The main thing I want to know (Without working it out) is how much a premium over the peg I am paying when buying BitUSD and vice versa.

Then you just place an order at $0.98 and you will be filled when BitUSD is selling 2% below the feed.

Sure that kind of relative tracking is hard to implement though.

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Offline well.attenuated

Re: Discussing the problems with bitUSD (smart coins)
« Reply #24 on: November 23, 2015, 05:24:15 pm »
 +5%
I had an idea how to create depth and liquidity for MPAs

There should be an option on the trade page that says buy or sell at live price feed which will place an order on the books at the settlement price but crucially your order will move with the price feed so you don't have to keep updating it.
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Offline roadscape

Re: Discussing the problems with bitUSD (smart coins)
« Reply #25 on: November 23, 2015, 05:38:56 pm »
I had an idea how to create depth and liquidity for MPAs

There should be an option on the trade page that says buy or sell at live price feed which will place an order on the books at the settlement price but crucially your order will move with the price feed so you don't have to keep updating it.

Is this what you're thinking? https://github.com/cryptonomex/graphene/issues/450
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Offline JonnyB

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Re: Discussing the problems with bitUSD (smart coins)
« Reply #26 on: November 23, 2015, 05:51:29 pm »
I had an idea how to create depth and liquidity for MPAs

There should be an option on the trade page that says buy or sell at live price feed which will place an order on the books at the settlement price but crucially your order will move with the price feed so you don't have to keep updating it.

Yeah, that may help and could make things a lot simpler as well imo.

I might be the only one that thinks like this, but on

https://bitshares.openledger.info/#/market/BTS_USD

On the sell side in brackets I'd like to see the deviation from the peg based on the feed price.

So on the buy side I would see trades starting at for example ($0.98) and on the sell side ($1.02)

The main thing I want to know (Without working it out) is how much a premium over the peg I am paying when buying BitUSD and vice versa.

Then you just place an order at $0.98 and you will be filled when BitUSD is selling 2% below the feed.

Sure that kind of relative tracking is hard to implement though.

yes this is exactly what we need.
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Offline maqifrnswa

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Re: Discussing the problems with bitUSD (smart coins)
« Reply #27 on: November 23, 2015, 06:10:51 pm »
I disagree with some answers

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).

Yes, that is the challenge

Q) Why is bitshare's current solution inadequate?

A) Those who borrow bitUSD from the system are at much higher risk than those who buy it from the market because the borrower must actively maintain his collateral and can get margin called by the system if the feed price moves enough

What you are describing is actually fine and not an inadequacy. The problem, as I see it, is the lack of symmetry in the arbitrage opportunities. The blockchain provides an arbitrage opportunity in the case of an oversupply of bitUSD (forced settlement), and rewards the trader that pushes the market closer to peg while reducing oversupply. There is no opposite action. The equivalent would be the blockchain offering all collected fees for sale at settlement +10% or something like that so more bitUSD are automatically put in to circulation when there is an under-supply. A long knows they can always sell at the feed, but shorts have no such assurance as to at what price they can buy.

Q) What effect does this have on the price?

A) The borrower is forced to price his risk into the sale price of the bitUSD he borrows from the system - this leads to a situation where the price of bitUSD will always trade at a premium compared to the feed price, this damages the viability of the product as a whole.

This is fine, it is designed to be at a premium. The problem is that it is impossible to price this premium since there is no way of predicting what the premium will be in the future since there is no explicit reason (no arbitrage opportunity) for shorting.

It's helpful to think about what the "price" of a smartcoin should be. The price occurs at the balance point where longs are no longer willing to pay for over-valued smartcoins and when shorts are no longer willing to accept more risk. Since the shorter assumes both "normal" risk (variance in BTS:fiat markets) and a new network risk (will the premium for smartcoins improve or worsen in the future?), the short's risk is very difficult to quantify. Having an network backstop will  help shorters to quantify risk, and thus keep the price of a smartcoin closer to peg.

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

Bias risk profile is fine to have. The problem is when there is no equilibrium in risk. Since there are no arbitrage opportunities for shorters, equilibrium is difficult to quantify or obtain. If fiat:bitFIAT on/off ramps exist, that would enable arbitrage, or if the blockchain provided a backstop (automatically shorting at settlement +10%), that would help too.
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Offline maqifrnswa

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Re: Discussing the problems with bitUSD (smart coins)
« Reply #28 on: November 23, 2015, 06:22:09 pm »
*) A merchant has to price everything in bitUSD *less* than he would have in regular dollars to achieve the same value - this is crazy

I've been ranting about that for months. That causes instability and a possible run-away scenario where competition for "discount using bitusd" drives the bitusd from the peg.
1) starting with a market where 1 usd=0.9 bitusd
2) I'm a merchant that says "10% off if you use bitusd"
3) that puts demand on bitusd
4) bitusd moves to 1 usd = 0.85 bitusd
5) shorts just got burned, even though bts:usd did not move. They don't see a reason for the direction to change, so they sit out and don't generate more bitusd which is needed for the peg.
6) I now say "15% off if you use bitusd"
7) there is no equilibrium
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Offline monsterer

Re: Discussing the problems with bitUSD (smart coins)
« Reply #29 on: November 23, 2015, 06:48:09 pm »
This is fine, it is designed to be at a premium.

I'd like to know your definition of 'fine' here. Mine is quite different it seems.

Quote
Bias risk profile is fine to have. The problem is when there is no equilibrium in risk. Since there are no arbitrage opportunities for shorters, equilibrium is difficult to quantify or obtain. If fiat:bitFIAT on/off ramps exist, that would enable arbitrage, or if the blockchain provided a backstop (automatically shorting at settlement +10%), that would help too.

Can you define the difference been a biased risk profile and no equilibrium in risk? To me they sound identical.

How would a fiat on/off ramp to bitUSD would do anything to change the risk profile for borrowing bitUSD by locking up BTS?
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