Smart Coins & Forced Settlement

[TravelsAsia]

BM thanks for your input and clarification.

1.  I agree the documentation was always there, but when things are moving at a fast pace any heads up or communication about significant updates would help core businesses like Transwiser be proactive.  Cosmetic changes are not a priority, but we should give ample warning for a GUI change that exposes a significant feature to the general public for the first time and changes the nature of trading.

Another case in point is that there seems to be a fork update on making margin calls only triggered when call prices are above the price feed.  (Btw that seems to be a fantastic change and thank you for doing that.)  However very few know the details and that could significantly change how things work so communicating the specifics of the change would help for the same reasons above.

Would this information be updated through the client? An update section on information like this would be nice.

[merivercap]

BM thanks for your input and clarification.

1.  I agree the documentation was always there, but when things are moving at a fast pace any heads up or communication about significant updates would help core businesses like Transwiser be proactive.  Cosmetic changes are not a priority, but we should give ample warning for a GUI change that exposes a significant feature to the general public for the first time and changes the nature of trading.

Another case in point is that there seems to be a fork update on making margin calls only triggered when call prices are above the price feed.  (Btw that seems to be a fantastic change and thank you for doing that.)  However very few know the details and that could significantly change how things work so communicating the specifics of the change would help for the same reasons above.

2.  I think 'flaw' is subjective, just like when people joke that 'something is a feature not a bug.'  There are those that always believed the design was a flaw and when something is actually implemented, more people may discover it to be the case and speak up. 

3.  I think parameterizing everything was fantastic and gives people confidence that we can make adjustments.  Thanks for doing that.  However privatized bitAssets are significantly more difficult to implement and exposes people who pursue that option to regulatory risk.  It would seem more appropriate for larger institutions to implement privatized bitAssets.  Hence the only other way is to adjust the parameters with committee members.  Another alternative is to allow two or perhaps three bitAssets (bitUSD1, bitUSD2, bitUSD3) run by committee members?

4., 5.  The main argument to any guarantee or floor is that it comes at the expense of shorters, the very group you need to generate bitAssets in the first place.  Guaranteeing liquidity to one side guarantees more illiquidity in the system.   To some of us a daily limit on force settlement just determines how much of a 'bad' thing we want.  To some us it sounds like: 'Do we want a little bit of a bad thing or more of it?'

I agree almost all derivative contracts usually have settlement dates, but a design without one is not necessarily bad.  Many usually roll over derivative contracts to continue the same terms of a contract indefinitely.  In the end the trading market should determine the ultimate cost of entry and exit, not the participants.  The idea that bitUSD holders have to pay for liquidity is also true for the shorts and guaranteeing something to one necessarily disincentives the other to participate. The result is that there will be less liquidity for the bitUSD holders to sell out in when there is forced settlement compare to when there is none.  The results of forced settlement will be the very opposite for which it was intended.   Lastly forced settlement is a tool for manipulation to the extent of the daily limit.  To some of us it sounds like: 'Do we want to allow a little bit of manipulation or a lot of it?'

Overall I think the trading design is great and workable with a few tweaks.  Forced settlement is one feature that I would remove.  If not, I think the second best solution is to allow another bitUSD2 asset to be created and run by separate committee members.  Businesses can choose to use one or the other.  What do you think is the feasibility of working towards that?

[clayop]

So it was a problem with the price feed and not forced stllement?

There are two separate problems. One is obvious- price feed is lower than the exchanged price so bad actors can exploit gateway effectively. To prevent this, the committee suspended force settlement with emergency.
Another is quite debatable. The question maybe that "is force settlement a unfair disadvantage for shorters?", "Can transwise sustain with force settlement?". To resolve these questions, we need more cooperation and discussion I think.

[Helikopterben]

So it was a problem with the price feed and not forced stllement?

[donkeypong]

Cleared the bases with that post.

[clayop]

See I told you so.  Some of the best bits.

There is nothing "new", "unexpected" or "flawed" in how the market is behaving

Without forced settlement BitUSD holders must pay for liquidity by selling for less than a dollar

BitCNY is greater than 1 CNY and anyone selling BitCNY for 1 CNY is assuming 100% of the cost of liquidity

The conclusion from this is that if you are going to borrower BitCNY and sell it into the market, then you should be prepared to be force settled

So what date will forced settlement be re enabled?

Next Wednesday probably.

Committee suspended the settlement function not because settlement is flawed or unexpectedly works.
The reason is that there is discrepancy between settlement price (price feed) and exchanged price, and hence opportunity for exploiting the gateway (transwiser) exists.

[JonnyB]

See I told you so.  Some of the best bits.

There is nothing "new", "unexpected" or "flawed" in how the market is behaving

Without forced settlement BitUSD holders must pay for liquidity by selling for less than a dollar

BitCNY is greater than 1 CNY and anyone selling BitCNY for 1 CNY is assuming 100% of the cost of liquidity

The conclusion from this is that if you are going to borrower BitCNY and sell it into the market, then you should be prepared to be force settled

So what date will forced settlement be re enabled?

[bytemaster]

I wanted to start a new thread to clear the air and establish some basic facts:

1. "Proper" documentation has existed since June 8th in a prominate location linked directly from the home page of bitshares.org
(https://bitshares.org/technology/price-stable-cryptocurrencies/)

2. For the past 6 months we have discussed in great length the various challenges and tradeoffs that must be made. There is nothing "new", "unexpected" or "flawed" in how the market is behaving.

3. I have stated that I don't know the best tradeoffs for the market, but we did parameterize everything so that we could experiment with it all and the spoils go to whoever figures out the magic equation.

4. The presence of "forced settlement" is meant to maintain correlation to outside prices, not to set the price.  The actual price should be higher than the forced settlement price, hence the feed becomes a price FLOOR.  In general there should always be money to be made by offering to buy BitCNY with more BTS than you could get with forced settlement and then turning around and selling that BitCNY for even more BTS.  New BitCNY only enters the market when the price of BitCNY gets high enough to cover all of the liquidity risks.  In principle, someone who is short BitCNY and gets force settled is getting a HUGE deal.  They are effectively covering at the lowest possible premium (0), but unfortunately in exchange for getting the lowest possible premium, they do not get to choose the best possible time to exit their position. 

5. There is a daily limit on the percent of BitCNY supply that can be force settled.  Thus only the bottom X% of collateral holders are subject to risk.

There are many reasons why we added "forced settlement" because it a feature of all derivative contracts. Without forced settlement BitUSD holders must pay for liquidity by selling for less than a dollar, with forced settlement the BitUSD holders must pay for liquidity in advance by buying for more than a dollar.  The difference for BitUSD holder and the Shorter is that the forced settlement feature gives them  certainty on what that cost/price of liquidity is in advance, whereas under the old rules, there is no way to predict future liquidity or whether there will be any when you need it.       

All of that said, the conclusion is that the value of BitCNY is greater than 1 CNY and anyone selling BitCNY for 1 CNY is assuming 100% of the cost of liquidity in the BitCNY / CNY market.
If someone is buying / selling BitCNY in the BitCNY / BTS market using a bot based on a data feed from other markets then they are assuming 100% of the price feed risk. Any deviations between the actual price feed and the the trader's internal models can result in risks.  They also assume responsibility for 100% of the risk due to price-feed-latency and short-term market movements.

The conclusion from this is that if you are going to borrower BitCNY and sell it into the market, then you should be prepared to be force settled at an "average price" rather than the instantaneous price.  Being short for "short-term" trading is the most dangerous unless you provide sufficient collateral to avoid getting settled.

Bottom line, the market can price all of the risks which are highest during low liquidity, and get lower as liquidity improves. Someone who steps up to provide liquidity can "trust" in that liquidity and offer a competitive price over those who must trust someone else to provide liquidity.  Bottom line, someone should buy up a lot of BitCNY at a price above 1.0 and then turn around and provide liquidity in the range of 1.05 to 1.06.  The liquidity provider will make all of the money from back and forth trades and the shorts wouldn't really have to worry about getting force settled once there was ample liquidity.